How financial literacy influences long- and short-term financial behaviors in different age cohorts

Abstract

The purpose of this study was to add to the literature in the field of financial literacy by examining the relationship between financial literacy and financial behaviors by age cohort. Financial literacy was assessed in three ways: objective financial knowledge, subjective financial knowledge, and subjective financial management ability. Age cohorts reflected increments as follows: 18-24, 25-34, 35-44, 45-54, 55-64, and 65 and older. Two hypotheses were written to explore the relationship between financial knowledge, financial management ability, and long- and short-term financial planning and managing behaviors specifically examining the age cohort effect. Both were supported; greater financial knowledge and subjective financial management ability were positively associated with the three long-term and the four short-term financial planning and managing behaviors while moderating for the age cohort effect. A key finding was the highly significant associations between each of the long- and short-term behaviors and the age cohort variable. Two hypotheses were written to examine the influence of financial knowledge and subjective financial management ability on long- and short-term financial planning and managing behaviors by restricting the sample for each age cohort. Specifically, the influence of financial knowledge and subjective financial management ability on long- and short-term financial planning and managing behaviors was hypothesized to be different in different age cohorts. Overall, both hypotheses were supported; in addition, interesting differences were found by age cohort. A key finding for the long-term behaviors was that the strongest influence shifted from subjective knowledge for the younger age cohorts to objective knowledge for the older age cohorts.