The silent diversion of knowledge: Examining inequality of financial knowledge

Abstract

Scholars and policymakers have long been concerned about the lack of financial knowledge and the socioeconomic disparities in financial knowledge in the United States. The objectives of this study are (1) to assess the extent of income-related inequality in financial knowledge and how it changed between 2012 and 2018 and (2) to determine what factors explain the income-related inequality in financial knowledge and the change over time. Using National Financial Capability Study datasets, our study revealed that from 2012 to 2018 there was income-related inequality in financial knowledge. Financial experience, education, and numeracy were major contributing factors to inequality in financial knowledge, according to decomposition analysis. Income-related inequality in financial knowledge in the United States decreased between 2012 and 2018, mainly due to an overall change in financial experience. This study provides meaningful insights to policymakers and educators interested in improving financial knowledge in the United States.