Household Financial Management. The Connection between Knowledge and Behavior

Posted on:

01/22/13

Consumer financial literacy has become a growing concern to educators, community groups, businesses, government agencies, and policymakers. Correspondingly, there has been an increase in the number and types of financial education programs available to households. Many of these programs focus on providing information to consumers and operate under the implicit assumption that increases in information and knowledge will lead to changes in financial management practices and behaviors. This article focuses on four financial management activities cash flow management, credit management, saving, and investment. Data from the Surveys of Consumers are used to analyze some of the connections between knowledge and behavior what consumers know and what they do. Overall, financial knowledge was statistically linked to financial practices. Those who knew more were more likely to engage in recommended financial practices. In addition, certain types of financial knowledge were statistically significant for particular financial practices knowing about credit, saving, and investment was correlated with higher probabilities of engaging in recommended credit, saving, and investment practices respectively. Although the causality could flow in either direction, this finding indicates that increases in knowledge may lead to improvements in financial management practices. Thus, financial education in combination with skill building and audience targeted motivational strategies may be one way to elicit the desired behavioral changes in financial-management practices.

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