The impact of financial literacy on financial capability: Evidence based on the National Financial Capability Study

This research examines the relationship between financial literacy and financial capability using cross-sectional data of the United States population from five different triennial surveys. Financial literacy is measured in terms of financial education attendance, and financial capability is measured in terms of how well people make ends meet in a typical month. Regression analysis was performed using probit models to determine the likelihood of financial difficulty in relation to financial education and other demographic characteristics. Results confirmed that individuals who had financial education were 5% less likely to suffer financially The results also demonstrated that when financial practices commonly taught in financial education are in place, such as having an emergency fund or a retirement plan, it far outpaces financial literacy effects alone. This illustrates past research problems related to measuring financial literacy impact exclusively, since financial literacy functions as an instigator for behaviors that bring greater financial capability development. Keywords: financial literacy, financial capability, financial education, financial difficult