Financial Capability Among Young Adults

This study, funded by a NEFE grant to George Washington University, analyzes financial capability among young adults, including indicators to assess important determinants of young adults’ financial behavior. The study also examines the importance of demographic characteristics, income shocks, and financial literacy to explain financial decision making.

Millennials are highly engaged in their financial lives and own a variety of assets. Their optimism is buoyant and their confidence is steady, but Millennials also are heavily indebted and often borrow against their assets. Millennials’ reported dissatisfaction with their financial situations reveals a disconnect between their expectations and their realities. And, as this study shows, alarmingly low levels of financial capability don’t match the high levels of financial responsibility taken on by young adults.

As Millennials arrive at key points in their long-term financial decision making, it is becoming increasingly apparent that their financial position is more fragile than expected. A gap exists between the financial responsibilities assigned to young adults and the knowledge and capacity needed to manage those responsibilities effectively. This gap will continue to widen until financial capability – of which financial literacy is a key determinant – becomes a priority among young adults and those who intervene on their behalf.

The study analyzes data from the 2012 National Financial Capability Study (NFCS), a state-by-state online survey commissioned by the FINRA Investor Education Foundation of more than 25,000 respondents. Various indicators of financial capability were examined including making ends meet, planning ahead, managing financial products, financial knowledge and decision making. This analysis focuses on 23- to 35-year-old individuals.

Data from the 2015 NFCS were released in 2016. A research brief based on the 2015 data builds on the original study and is included below.

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