Here are my comments and an overview of the questions on the National Financial Capability Study (NFCS) about educational attainment and financial literacy, as they have changed during the three iterations (“waves”) of the survey (2009, 2012, and 2015). The NFCS is a survey that is administered nationally (by the FINRA Investor Education Foundation) to approximately 500 participants per U.S. state (about 27,000 per iteration total, due to large states or certain ethnicities being over-sampled) every three years. It began in 2009, so there have only been three iterations so far. While the raw data is not nationally representative—obviously, sampling 500 people from Alaska and 500 people from Florida grossly over-represents Alaska by proportion of population—the datasets include weighting variables to account for this at the national, state, and census-area levels. It is disappointing to see that the NFCS only began oversampling highly populous states in the latest iteration (2015), and only did so for New York, Texas, Illinois, and California (1000 respondents instead of 500), but this may be due to decisions about the NFCS being surprisingly political.
It is disappointing to see the lack of depth in the educational attainment question in the 2009 and 2012 surveys. Only in the latest version (2015) were options for Associate’s and Bachelor’s degrees added, while the vague “college graduate” was removed. However, now we have no option for trade school or certificate graduates. Moreover, making comparisons between the surveys is difficult. We can combine the two high-school graduate options in the 2012 and 2015 iterations to compare them to the single 2009 option, but it is somewhat tenuous to compare “some college” (2009 and 2012) to “some college, no degree” (2015), to consolidate “Associate’s degree” and “Bachelor’s degree” (2015) to compare them to “college graduate” (2009 and 2012), or to compare “post graduate education” (2009 to 2012) to “post graduate degree” (2015). These changes between survey iterations are not necessarily trivial. Indeed, the “tracking dataset” provided by FINRA, which includes respondents from all three survey iterations but only questions that are included in all three iterations, omits educational attainment due to the lack of consistency.
For the other questions about actual and perceived financial literacy, which is also known as financial capability (the two terms are fairly synonymous but “financial literacy” is the more popular term, despite FINRA and the post-2011 Obama administration relabeling it “financial capability”), the response options (not shown below but can be seen at the NFCS website or the Washington Post) remained identical between survey iterations. As someone interested in investigating the relationship between educational attainment and financial literacy (perceived and actual), it is disappointing to see “do you think financial education should be taught in schools?” being only included in the 2012 iteration, and to see “how strongly do you agree or disagree with the following statements? – I REGULARLY KEEP UP WITH ECONOMIC AND FINANCIAL NEWS” only included in the 2009 iteration. However, it is understandable that the survey cannot be overly long, and perhaps these questions were judged to be unimportant.
Special note on the question: “Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?” —— The response options are “more than $102,” “exactly $102,” “less than $102,” and “don’t know.” This wording is very easy. In fact, it may have been more interesting to make the options centered around $110 rather than $102, in which case the question would be about understanding exponentiation (compound interest) rather than simple addition. Nevertheless, in every iteration, 25 to 27% of respondents got this question wrong! And, as with every question, those with higher educational attainment did better. However, for some questions, such as the one on interest rates and bond prices, even postgraduates did shockingly bad—only 46% of postgraduates in the 2015 iteration correctly answered “they will fall,” and overall, a mere 28% of respondents answered correctly, with 38% answering “don’t know.” Although some of the interpretations are spurious and I disagree with using pie charts to represent such data, this blog post by “the Weakonomist,” regarding the 2012 iteration, shows how terrible the public’s financial literacy is. Of course, on the question where respondents are asked to assess their financial knowledge on a 1–7 scale, most think they are geniuses… pretty sad.
EDUCATIONAL ATTAINMENT
What was the last year of education that you completed? [2009 codes]
- Did not complete high school
- High school graduate
- Some college
- College graduate
- Post graduate education
What was the last year of education that you completed? [2012 codes]
- Did not complete high school
- High school graduate – regular high school diploma
- High school graduate – GED or alternative credential
- Some college
- College graduate
- Post graduate education
What was the highest level of education that you completed? [2015 codes]
- Did not complete high school
- High school graduate – regular high school diploma
- High school graduate – GED or alternative credential
- Some college, no degree
- Associate’s degree
- Bachelor’s degree
- Post graduate degree
PERCEIVED FINANCIAL LITERACY
2009, 2012, 2015: How strongly do you agree or disagree with the following statements? – I AM GOOD AT DEALING WITH DAY-TO-DAY FINANCIAL MATTERS, SUCH AS CHECKING ACCOUNTS, CREDIT AND DEBIT CARDS, AND TRACKING EXPENSES.
2009, 2012, 2015: How strongly do you agree or disagree with the following statements? – I AM PRETTY GOOD AT MATH.
2009 only: How strongly do you agree or disagree with the following statements? – I REGULARLY KEEP UP WITH ECONOMIC AND FINANCIAL NEWS.
2009, 2012, 2015: On a scale from 1 to 7, where 1 means very low and 7 means very high, how would you assess your overall financial knowledge?
ACTUAL FINANCIAL LITERACY
2009, 2012, 2015: Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
2009, 2012, 2015: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
2009, 2012, 2015: If interest rates rise, what will typically happen to bond prices?
2015 only: Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
2009, 2012, 2015: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.
2009, 2012, 2015: Buying a single company’s stock usually provides a safer return than a stock mutual fund.
MISCELLANEOUS
2012 only: Do you think financial education should be taught in schools?