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Education May Not Be Enough to Ensure Financial Health, Study Finds

Though financial capability—described as access to education and real world experience in money management—is beneficial for many young people, it is often not enough to prevent low-income millennials from using risky financial services, according to a University of Kansas study released Thursday.

The study, "Financial Education is Not Enough: Millennials May Need Financial Capability to Experience Financial Health," examined data from nearly 7,000 people ages 18 to 34 who were part of the 2012 National Financial Capability Study, a survey of more than 25,000 adults. The FINRA Investor Education Foundation, an investing research and services organization based in Washington, helped fund both studies.

The objective of the University of Kansas study was to see how financial education, exposure to real-life financial situations, or a mixture of the two affected millennials' financial health. The results showed that young people who were financially excluded, meaning they indicated not having access to financial education or hands-on experience, were 176 percent less likely than their financially capable peers to have money available for emergency situations and 224 percent less likely to save up money for such situations.

Additionally, researchers found correlations between income and financial health. Just 8 percent of low-income millennials, for example, reported financial capability, compared to 19 percent of millennials as a whole. And unlike their higher paid peers, use of payday lenders and other high-risk services was similar for all low-income millennials, regardless of financial capability.

While 1 in 4 millennials reported some formal financial education, those who received instruction without real-life practice demonstrated more risky financial behavior. Such findings suggest that millennials may be better off becoming financially capable or solely learning about finance first-hand, according to the study's authors.

"A good analogy here is teenagers and driving," said Terri Friedline, an assistant professor of social welfare at the University of Kansas and one of the study's authors. "We require—to get your license—many hours of behind-the-wheel practice, as well as some book learning. Financial compatibility is, I think, comparable to this, because we want to give young people the opportunity to practice safe and healthy financial behaviors in a context that's helpful and supportive for them."


Those findings, in particular, are a departure from other reports that detail both the importance of becoming financially literate and the lack of financial education in the United States.

Research published in 2014 from the Organization for Economic Cooperation and Development analyzed 29,000 students across 18 countries and found that about 18 percent of U.S. teenagers scored at or below the lowest level of knowledge on an international financial literacy test. The United States ultimately ranked ninth out of the participating countries, though its average score was 8 points below the international average.

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