The Effects of Financial Literacyon Credit Card Behaviors

Sam AllgoodUniversity of Nebraska-Lincoln

William WalstadUniversity of Nebraska-Lincoln

Measuring Financial Literacy

We use test scores & self-ratings to form four groups

Skilled/Confident (high score & high rating)

Unskilled/Confident (low score & high rating)

Skilled/Insecure (high score & low rating)

Unskilled/Insecure (low score & low rating)

We data from a national sample of 1,488 adults collected for the National Financial Capability Study (www.USfinancialcapability.org)

Credit Card Behaviors

Not Paid Full I do not always pay my credit cards in full. [46% yes] Carry Balance I carried over a balance and was charged interest. [51% yes]

Minimum Payment I paid the minimum payment only. [29% yes] Late Fee I was charged a late fee for a late payment. [23% yes]

Exceed Credit I was charged a fee for exceeding my credit line. [8% yes]

Financial Literacy Groups

NotPaidFull

CarryBalance

MinimumPayment

LateFee

ExceedLimit

Skilled/Confident 36% 45% 16% 16% 3%

Unskilled/Confident 37 41 24 20 6

Skilled/Insecure 49 56 24 24 6

Unskilled/Insecure 55 58 41 29 13

Sample size 1,040 1,042 1,042 1,046 1,045

Financial Literacy Results

Skilled/Confident compared with Unskilled/Insecure is: less likely to not pay in full……………....(36% vs. 55%) less likely to carry a balance…………….(45% vs. 58%) less likely to make minimum payment...(16% vs. 41%) less likely to pay a late fee………………..(16% vs. 29%) less likely to exceed a credit limit……… (3% vs. 13%)

Unskilled/Confident is most similar to Skilled/Confident

Skilled/Insecure is mixed because it is similar to both:Unskilled/Confident & Unskilled/Insecure

Conclusions

Financial literacy improves credit card behaviors.

The type of financial literacy matters. Financial confidence is as or more important than just financial skills.

Financial education programs should focus on improving both financial confidence and financial skills to have the most positive effects on credit card behaviors.