Can Financial Capability Build Millennials’ Financial Health?

Thursday, May 21, 2015

In case you missed it, 2015 was the first year that we celebrated April as National Financial Capability Month. In writing about financial capability, the President said, “During National Financial Capability Month, we renew our efforts to support the informed financial decisions that will open doors into the middle class and help ensure economic security for all.” This proclamation included the ideas that financial literacy could enable young Americans to make informed decisions about their savings and debts and that policy could create better opportunities for these decisions to take place. In turn, healthier finances established through increased knowledge and opportunities could provide a foundation for economic security and serve as a catalyst of economic mobility.

Today’s young adults, referred to as Millennials born between the early 1980's and 2000's, are in great need of a secure economic foundation. Millennials are coming of age in an economy that has undermined their financial health by limiting opportunities in the labor market, stagnating income growth, reducing net worth, and increasing reliance on debt. Fewer employment opportunities and reduced paychecks translate into less money to save and invest. The average Millennial has $1,000 in savings ($400 among lower-income Millennials), suggesting that many may struggle to afford necessary expenses in the face of unemployment or to become financially independent. Debt burdens further constrain their finances. About 85% of Millennials hold debt, which averages $60,000 and includes revolving credit, home mortgages, and student loans. The rapid increase of student loan debt is of particular concern for Millennials who want to secure their place in the labor market via higher education. Millennials are borrowing heavily for the opportunity to achieve their educational degrees in hopes of improving their financial health.

Within this context, efforts to build financial capability may be critical to the financial health of young Americans and to the financial health of the nation. Stacia West, PhD Candidate and AEDI Research Associate, and I tested the effectiveness of financial capability by using the 2012 National Financial Capability Study (NFCS) and with generous funding from the FINRA Investor Education Foundation. In particular, we asked whether being financially capable was associated with metrics of Millennials' financial health like locating $2,000 for an unexpected expense, saving for emergencies, using alternative financial services, carrying too much debt, and being satisfied with their financial condition.

What did we find? About 19% of Millennials were financially capable, which was defined as having received financial education through their school, workplace, or the military and owning a savings account.1 Compared to their financially excluded peers who had neither received financial education nor owned a savings account, Millennials who were financially capable were 176% more likely to afford unexpected expenses, 224% more likely to save for emergencies, 21% less likely to use alternative financial services, and 30% less likely to carry burdensome debt. Given these metrics of financial health, it is not surprising that financially capable Millennials also reported being satisfied with their financial condition significantly more often than those who were financially excluded. In other words, being financially capable may have helped Millennials to live the financial lives that they wanted to live. 

The financial health that relates to being financially capable may have long-term implications for Millennials' abilities to achieve economic security and to accumulate wealth. Millennials who save for emergencies, steer clear of high-cost alternative financial services like payday loans and tax advances, and avoid carrying too much debt may find themselves in economically secure positions. In contrast, their peers who cannot afford unexpected expenses, lack emergency savings, use high-cost alternative financial services, and carry too much debt may struggle to save and to be economically secure in the future. Let’s continue to remember the importance of and to find ways to promote Millennials’ financial capability year-round. In doing so, we may shore up Millennials’ financial health, the financial health of future generations, and the financial health of the nation.

An executive summary of this research will be released at an event held at New America in Washington, D.C. on June 5th where a panel of experts will discuss how these findings fit into a broader context of factors influencing financial health for Millennials and what the implications are for public policy. Read the full editorial from the Huffington Post editorial that further describes this research.



1 We also tested different definitions of financial capability. For instance, it might not be enough to have attended financial education. Millennials could have participated in a financial education course, but not have retained any information or gained any competency. Therefore, we tested whether their financial literacy—their demonstrated competency from scores on three financial knowledge questions—also related to the metrics of financial health. Likewise, a checking account or credit card may provide opportunities for Millennials to make financial decisions, and we also tested these financial products. In all cases, the combination of knowledge and opportunities was significantly related to the metrics of Millennials financial health when compared to financial exclusion, financial education, or financial inclusion. In addition, financial capability had the strongest significant relationships to metrics of Millennials’ financial health based on regression coefficients.


This research was supported by a grant from the FINRA Investor Education Foundation. All results, interpretations and conclusions expressed are those of the research team alone, and do not necessarily represent the views of the FINRA Investor Education Foundation or any of its affiliated companies. No portion of this work may be reproduced, cited, or circulated without the express written permission of the authors.

The FINRA Investor Education Foundation, established in 2003 by FINRA, supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools necessary for financial success throughout life. For details about grant programs and other FINRA Foundation initiatives, visit

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