By Barbara O’Neill, Ph.D., CFP®, firstname.lastname@example.org
Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling with clients. Below are findings and implications for practice from four recent studies:
Financial Technology. This study by Bi et al. (2022) explored whether different types of financial technology (fintech) affected the performance of 13 positive financial behaviors differently. They found that households using planning-purposed fintech (e.g., direct deposit, preauthorized debits, and computer software) were significantly related to positive financial behaviors while households using transactional-purposed fintech (e.g., ATM and debit cards and computer banking) were negatively related to positive financial behaviors.
- Implications: Study results suggest that financial educators and practitioners should encourage clients to use planning-based fintech such as computer software and online calculators. It is not enough to provide these tools or online links, however. Clients must be educated on their effective use and interpretation of output results. Fintech that simply completes financial transactions does not appear to improve household well-being.
Financial Literacy Index. The sixth annual TIAA Institute-GFLEC P-Fin Index survey, like its predecessors, examined Americans’ “working knowledge” in common financial situations. Once again, comprehending risk was the lowest area of functional knowledge. Financial literacy is particularly low among those in early adulthood and lower among women relative to men and Black and Hispanic Americans relative to Whites and Asian-Americans. Greater financial literacy was positively associated with indicators of financial well-being.
- Implications: Financial literacy matters. It can enable sound financial decision-making and effective financial management. Unfortunately, many people are functioning with a poor level of financial literacy. The findings of this study are a call for action to deliver programs that are targeted to meet the learning needs, circumstances, and learning preferences of different audiences to increase their personal finance knowledge.
ESG Investing. The FINRA Investor Education Foundation and NORC studied retail investors’ understanding of Environmental, Social, and Governance investing. Results revealed that familiarity with ESG is low, which is a primary barrier to ESG investing. Above-average investment performance expectations were most prevalent among investors under age 30 and those with incomes under $30,000. While respondents were generally open to ESG investing, they did not appear to consider ESG factors in other financial transactions like shopping.
- Implications: A takeaway from this study is that ESG investing should be discussed in investment presentations, especially with young adults, who appear open to ESG but do not understand it well. Presentations should include screening factors for ESG investments (e.g., companies’ environmental impact, diversity of leadership, and employee well-being) as well as the historical performance of ESG investments.
Retirement Confidence. This annual Retirement Confidence Survey (RCS) study of workers’ feelings about, and preparation for, retirement from the Employee Benefit Research Institute found that 56% of workers said debt was a major or minor problem and nearly 4 in 10 do not know where to go for financial or retirement planning advice. Workers (70%) continue to be much more likely to expect to work in retirement than retirees in the survey sample actually did (27%). Four in 10 retired respondents said they retired earlier than planned.
- Implications: Results of the RCS suggest a need to help current workers manage their outstanding debt, so it is not a barrier to retirement savings early in their careers or gets carried over into retirement. Also, programs that provide unbiased information and/or counseling need to actively market their services. Finally, workers need to be cautioned not to rely too heavily on planned employment in later life because it may not actually happen.
2022 retirement confidence survey (2022). Washington, DC: Employee Benefit Research Institute and Greenwald Research. https://www.ebri.org/docs/default-source/rcs/2022-rcs/2022-rcs-summary-report.pdf
Bi, Q., Dean, L.R., Guo, T., & Sun, X. (2021). The impact of using financial technology on positive financial behaviors. Financial Services Review, 29, 29-54. https://web.s.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=2&sid=9cd4171d-af25-4654-b843-fe120599d121%40redis
How financial literacy varies among U.S. adults: The 2022 TIAA Institute-GFLEC personal finance index. (2022). TIAA Institute-GFLEC. https://gflec.org/wp-content/uploads/2022/04/TIAA-Institute-GFLEC-2022-Personal-Finance-P-Fin-Index.pdf?x43581
Investors say they can change the world, if they only knew how: six things to know about ESG and retail investors (2022). FINRA Investor Education and NORC at the University of Chicago. https://www.finrafoundation.org/sites/finrafoundation/files/Consumer-Insights-Money-and-Investing.pdf