Financial Literacy among the Young

Published: 2009


We examined financial literacy among the young using data from the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low among the young; fewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification. Financial literacy is strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings is about 50 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy. These findings have implications for consumer policy.

Key Findings

    • Almost three-quarters of adults in their twenties lack basic financial literacy about calculating interest, inflation, and diversifying stocks.
    • Financial literacy varies by demographic group and family background.
    • Financial literacy programs should be targeted to those groups most lacking in financial knowledge.