The Effects of Financial Literacy on Credit Card Behaviors

1. The Effects of Financial Literacyon Credit Card Behaviors Sam Allgood University of Nebraska-Lincoln William Walstad University of Nebraska-Lincoln

2. 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)

3. 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]

5. Financial Literacy Results Skilled/Confident compared with Unskilled/Insecure is: less likely to not pay in full……………....(36% vs. 55%) less likely tocarry 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 mixedbecause it is similar to both: Unskilled/Confident & Unskilled/Insecure

6. Conclusions • Financial literacy improvescredit 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.