An Exploration of Member Financial Literacy and
Financial Behavior in the Credit Union Model
CHAPTER 1: INTRODUCTION
Financial literacy has been studied for decades across multiple survey tools and
populations (Hastings, Madrian, & Skimmyhorn, 2013; Huston, 2010). Financial literacy
is defined as “the ability to do some simple calculations and knowledge of some
fundamental financial concepts” (Lusardi & Mitchell, 2011, p. 510). Financial literacy’s
economic importance is well documented (Kaiser, Lusardi, Menkhoff & Urban, 2020;
Lusardi & Mitchell, 2014) and widely adopted as a central piece of overall financial
capability (Goyal & Kumar, 2021; Lusardi, 2011; Sherraden, 2013; Xiao, 2016; Xiao,
Chen, & Sun, 2015). Financial capability is “both an individual and a structural idea. It
combines a person’s ability to act with their opportunity to act” (Sherraden, 2013, p. 3).
More recently, financial literacy has included an increasing focus on financial
behaviors (L’Hostis et al., 2020), and many are asking whether financial literacy leads to
more productive financial behaviors (Fernandes, Lynch, & Netemeyer 2014; Goyal &
Kumar, 2021; Huston, 2010; Stolper & Walters, 2017) and if financial literacy could best
be seen as a means to financial wellness (Huston, 2010; Yakoboski, Lusardi, & Hasler,
2019).
Vast amounts of research have been devoted to the financial literacy domain
(Babiarz & Robb, 2014; Goyal & Kumar, 2021; Klapper, Lusardi, & Panos, 2013;
Lusardi, 2019; Lusardi & Mitchell, 2011). However, Willis (2011, 2017) questions the
overall value of financial literacy education efforts, given the true cost of financial
education, coupled with the growing complexity of financial products. All the while, test
based financial literacy evaluation scores are on the decline (Lin et al., 2019; Yakoboski,
Lusardi & Hasler, 2020). This has highlighted the potential and significant economic loss
resulting from widespread financial illiteracy (Lusardi & Tufano, 2015).
For over a century, credit unions have played a pivotal role in the financial life of
U.S. households (McKillop, French, Quinn, Sobiech, & Wilson, 2020). Despite their
importance in consumer finance, scholarly research on credit unions is minor compared
to traditional banks (McKillop & Wilson, 2011; Rubin, Overstreet, Beling, &
Rajaratnam, 2013). Credit unions are a form of a financial cooperative that is member-
owned and governed. A core pillar of the credit union model is social responsibility, with
a primary focus on achieving the social and economic goals of its membership (Croteau,
1963; McKillop et al., 2020; Taylor, 1971). One component of social responsibility is
member financial education (McKillop & Wilson, 2015). The authors note that “activities
and initiatives in financial education and literacy are essential to the dual social and
economic character of credit unions in serving member needs” (p. 104). McKillop and
Wilson observed that credit unions are well-positioned to deliver financial literacy to
their members.
Recognizing that the purpose of credit unions is to build member financial
capability and promote member economic wellbeing (Byrne, Power, McCarthy, & Ward,
2010), credit unions may be well positioned to deliver financial literacy to members
(McKillop & Wilson, 2015). Thus, understanding how credit unions are capitalizing on
this intended outcome that involves elements of both financial literacy and financial
behavior is meaningful.
FINANCIAL LITERACY AND BEHAVIOR IN CREDIT UNIONS
This study seeks to establish a greater understanding of financial literacy and
behavior among credit union members. Given the backdrop of retirement savings
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shortfalls, widespread financial illiteracy, and financial consumers who lack
knowledge about complex products and services (Lusardi, 2019), a better
understanding of member financial literacy levels and subsequent financial behavior in
credit unions could be valuable.
This chapter introduces the research study. The chapter begins by providing a
statement of the problem. The study’s purpose, justification, research questions,
assumptions, limitations, delimitations, use of the study, a definition of key terms,
theoretical framework, and a summary of the study follows.
Statement of the Problem
The financial world is becoming increasingly complex (Klapper & Lusardi,
2020; Lusardi, 2019). Given the growing complexity in the marketplace for financial
products and services, consumers are struggling to save and invest (Kaiser &
Menkhoff, 2017; Riitsalu & Põder, 2016). Within the past few decades, consumer
financial decision-making has become significantly more perilous (Klapper & Lusardi,
2020). This is partly due to the volume and exotic style of products and services being
offered by financial institutions (Fernandes et al., 2014). For example, the authors
notes that baby boomers have borne the brunt of the damage from the 2007-2009
financial crisis, as they experienced hyper-complex mortgage loans, enhanced access
to credit, alternative payday borrowing options, and a dramatic increase in
bankruptcies (Fernandes et al., 2014).
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The hazards are amplified by a combination of convoluted products and
services with ease of access. For example, the investment site Robinhood has increased
the availability of investing and trading for millions of individuals. At the same time,
meme stocks, powered by a community of Reddit users and cryptocurrency investors,
have increased substantially (Literat & van den Berg, 2019). This combination of
complexity and access has spawned a community of speculators susceptible to the
harsh reality that comes with their activities (Van Kerckhoven, & O’Dubhghaill,
2021).
There is recent evidence that there is a positive relationship between financial
education and financial literacy (Kaiser et al., 2020). Researchers have also noted a
positive relationship between financial literacy and financial behavior (Fernandes et al.,
2014; Lusardi & Mitchell, 2011; Mitchell & Lusardi, 2015), with those possessing higher
levels of financial literacy displaying better financial behavior including saving from each
paycheck, paying off credit cards, and investing for retirement, . Klapper and Lusardi
(2020) highlight that people need to be financially knowledgeable to make more
informed financial decisions.
There is also growing concern that financial education alone does not translate
into better financial behaviors. Researchers note the extraordinarily complex relationship
between financial literacy and financial behaviors and that financial literacy does not
guarantee positive financial decisions (Grable et al., 2020; Tang & Baker, 2016). For
example, the U.S.’s traditional user of financial technology is a high-earning, well-
educated male (Lusardi, 2019). Users of financial technology such as mobile payment
apps displayed “expensive financial behaviors, such as spending more than they earn,
using alternative financial services, and occasionally overdrawing their checking
accounts” (Lusardi, 2019, pp. 5-6).
Researchers Lusardi and Tufano (2015) note that the argument for ‘learning
by experience’ also fails to keep individuals from making poor financial decisions.
Their research highlights a group of respondents that have the most experience with
saving and borrowing while also having the highest levels of assets in the study.
Despite more experience and more assets, the group reported carrying credit card
balances into the next month and paying finance charges and late fees as a result.
Capuano and Ramsay (2011) suggest poor financial decision making includes
a myriad of “flawed” actions including: 1) a disregard for key features of financial
products before making purchasing decisions, 2) not taking time to read terms and
conditions, 3) a failure to do side-by-side testing of various products and services, 4)
purchasing products that are not needed, and 5) ignoring investment objectives and
needs when purchasing a product or service.
There is much speculation about the root cause of consumer financial illiteracy
and subsequent poor financial decision-making. Observations include the way
education is delivered (Fernandes et al., 2014), the intensity of the instruction
(Kaiser & Menkhoff, 2017), the size and timing of the intervention (Fernandes et al.,
2014), the difficulty in assessing the impact of financial education and subsequent
changes in behavior (Byrne et al., 2010), demographic impacts (Yakoboski et al.,
2020), and product and service information asymmetry (McKillop et al., 2020).
It may be convenient to view financial literacy as a means to an end, with
financial education leading to financial literacy, which yields better behavior
(Yakoboski et al., 2019). However, financial literacy is on the decline (Lin et al.,
2019; Yakoboski et al., 2020), and consumers continue to display poor financial
behavior (Capuano & Ramsay, 2011; Tang & Baker, 2016), so there must be more to
explore as we seek answers to the challenge of consumer financial knowledge and
positive financial behaviors.
Purpose of the Study
The purpose of this exploratory study is to establish greater understanding of
financial literacy and behavior among credit union members. The study is a starting
place to determine if increased financial literacy and positive financial behavior can
be achieved within this cooperative financial services model. Credit unions may use
this study’s results to gain insights into their membership and their ability to translate
financial literacy into positive financial behavior. Results could prompt credit unions
to expand their efforts to promote financial literacy in particular demographic areas.
Moreover, credit unions could use the findings to establish just-in-time financial
education linked to the financial behaviors they intend to improve (Fernandes, 2014).
For researchers, this study’s findings could help determine if credit unions’ unique
structure facilitates or enables increased levels of financial literacy and subsequent
increase of positive financial behavior. For governments, examining the results could
promote policy decisions aimed at expanding support for credit unions.
It is also believed that the results of this research will lead to future studies
involving other state and federally chartered credit unions and further exploration into
the urban and rural communities that they serve. Moreover, future studies involving
credit unions with specific demographics could prove meaningful. Possible outcomes
of this and future research are that consumers, academics, and governments will
reconsider the unique role that credit unions play in delivering financial literacy
education and shepherding consumer behavior when making financial decisions.
Justification for the Study
There is a well-documented relationship between financial literacy and
financial behavior (Fernandes et al., 2014; Lusardi & Mitchell, 2011; Mitchell &
Lusardi, 2015). Despite this known connection and known importance of financial
literacy, financial literacy is on the decline (Lin et al., 2019; Yakoboski et al., 2020),
and individuals continue to display poor financial behavior (Capuano & Ramsay,
2011; Tang & Baker, 2016). Huston (2010) notes that “other influences such as
behavioral/cognitive biases, self-control problems, family, peer, economic,
community, and institutional” (p. 308) may impact behaviors and, in turn, financial
wellbeing. The author posits that individuals with financial knowledge may not
exhibit expected behaviors or enhanced financial wellbeing because of these “other
influences.”
Huang, Nam, and Sherraden (2013) recognize the limitations of financial
literacy alone and consider financial capability as a proper blend of consumer
financial literacy and access to beneficial products and services. The authors note the
necessity of the “institutional setting” (p. 2) as a key influence in nurturing an
individual’s financial capability and wellbeing, which Huston (2010) identified as a
potential influence on positive financial behavior. One of the many institutional
settings where financial literacy and behaviors are on display is in the credit union
construct, an area where scholarly research has been low (Bauer, 2008; Croteau,
1963; McKillop & Wilson, 2011).
McKillop and Wilson (2015) note the importance of financial literacy
strategies for individuals and that “credit unions are well placed and have the
credibility to deliver such strategies” (p. 109). Credit unions are structured as not-
forprofit organizations focused on their member-owners’ economic and social goals
(McKillop et al., 2020). They differentiate themselves from banks by focusing on
members and their needs, versus maximizing profits and prioritizing shareholder
returns (McKillop & Wilson, 2015). Their unique structure and focus allow credit
unions to provide “many services free or below cost to assist members, for example,
the provision of small loans, low-balance share accounts and financial advice and
counseling” (McKillop, Ward, & Wilson, 2007, p. 37).
McKillop and Wilson (2015) note that member financial education is a core
credit union principle and an extension of their social responsibility. The authors
highlight that “activities and initiatives in financial education and literacy are
essential to the dual social and economic character of credit unions in serving member
needs” (p.104). With their member-owned cooperative structure, not-forprofit
emphasis, and belief that financial education and literacy of their members is a social
responsibility (Byrne et al., 2010; McKillop & Wilson, 2015), credit unions could
present an opportunity to make strides towards addressing a decline in financial
literacy (Lin et al., 2019) and corresponding behavior.
Research Questions
Research questions for this study include:
RQ1: How do financial literacy levels of credit union members compare with
financial literacy levels of NFCS (2018) respondents?
RQ2: Does higher or lower self-reported financial knowledge correspond with
actual financial knowledge as indicated on the financial literacy assessment?
RQ3: Is higher financial literacy in credit union members associated with the
following positive financial behaviors? 1) Paying bills on time, 2) Staying
with a budget or spending plan, 3) Paying off credit card balances in full each
month, 4) Not maxing out the limit on a credit card, 5) Starting or maintaining
an emergency spending account, 6) Saving money from each paycheck, 7)
Contributing to a retirement account.
Assumptions of the Study
There are several assumptions made for this research. For example, it is
assumed that the person taking the assessment is the actual member. It is also
assumed that the survey participants will respond to the questions without using
another resource, such as an online tool, spouse, or friend. It is also believed there
were no barriers to comprehending the questions being asked, such as language,
vision, or general reading comprehension. It is also assumed that member responses
to the question were made to the best of their ability. Finally, it is assumed that the
survey response information will be forwarded by the credit union unaltered.
Limitations and Delimitations of the Study
The scope of research was narrowed by the research process. The research is
designed to look specifically at financial literacy and financial behavior in credit
union members. The survey was conducted on credit union members from a single
multi-branch credit union in Oregon and another single multi-branch credit union in
Virginia. Both organizations are state-chartered credit unions with an urban/suburban
setting. Excluded from the survey were federal credit unions or credit unions
headquartered in rural areas or other cooperative groups, such as a farm collective or
first-nation tribe. Another limiting factor is the volume and representativeness of
member responses—as not all members were asked to respond to the survey, and only
a small portion of the surveys sent to members were completed and returned. It is also
important to recognize that both respondents and responses to this kind of money
survey are typically biased, as is the case with response, and non-response survey bias
(Heerwegh & Loosveldt, 2007).
An additional limitation to this study is that it was conducted via online
survey. Stanton (1998) notes the association between certain demographic variables
and computer anxiety. The author notes that “greater levels of educations are
associated with lower computer anxiety” (p.712). Therefore, it reasonable to state that
the demographic profile of those who participated in the survey, may be unlike those
who are unwilling participants.
Another limitation to this study is the use of five financial knowledge
questions to gauge overall financial literacy. These questions, which cover concepts
on interest rate, inflation, risk diversification, mortgage, and bond, are not exhaustive
and may not measure the fullness of objective financial knowledge (Schmeiser &
Seligman, 2013; Tang & Baker, 2016). Additionally, not all financial behavior was
measured. Although this researcher will utilize several essential personal financial
behaviors such as paying bills on time, credit card use, and retirement savings, the list
was not exhaustive and therefore should be considered a limiting factor to this
research.
It is also essential to note that the survey was conducted during the novel
coronavirus (COVID-19) Pandemic, which originated in the Chinese city of Wuhan in
December of 2019 (Mazur, Dang, & Vega, 2021). The U.S. Bureau of Labor
Statistics
(2020) noted the unemployment rate at 3.2% in December of 2019, and by April of
2020, unemployment rates had reached 14.2%. With infections and death rates rising,
the U.S. economy declined by 4.8%, and the Dow Jones Industrial Average fell 26%
in 4 days (Mazur et al., 2020).
As of June 2021, the U.S. Bureau of Labor Statistics reported an
unemployment rate of 5.9%, a significant improvement from the April 2020 high of
14.2%. Notably, the Dow Jones Industrial Average had recovered all its losses, and as
of July 19, 2021, is 3.43% from its all-time high (CNBC, 2021).
Finally, trends that occur during the time of the survey may impact how
individuals respond to questions. For example, mortgage volume levels for Q2 2020
were double the quarterly trend for the last decade (Statista, 2021). An increase in
mortgage volume could cause the responses to mortgage or interest rate questions to
be more informed, resulting in more correct responses.
Use of the Study
The researcher plans to share the results of this study with the participating
credit unions. Additionally, this researcher desires that the data be combined and used
to create a first-of-its-kind credit union financial literacy index. The researcher hopes
that more credit unions will look to participate by utilizing the survey instrument for
members. Credit unions that have already participated may consider creating a regular
cadence for administering the same survey in the future to compare results to the
baseline. This can become an important mechanism to measure whether financial
wellness efforts are positively impacting member outcomes.
If financial literacy and financial behavior continue to be a matter of concern
for consumers, scholars, policymakers, and educators, this study could add to the
growing body of literature on the topic and prompt other related studies. Moreover, it
could introduce the credit union as a unique financial entity in which financial literacy
and financial behavior can be measured and a focal point for financial intervention
efforts.
Definition of Terms
In this research, there are several important terms, and each requires a clear
definition drawn from relevant literature. These terms and their operational
definitions are:
Financial Literacy
Lusardi and Mitchell (2011a) define financial literacy as “the ability to do
some simple calculations and knowledge of some fundamental financial concepts” (p.
510).
Financial Knowledge
Huang, Nam and Sherraden (2013) note that “financial literacy and financial
knowledge are often used interchangeably in research literature” (p. 4), consequently,
financial literacy and financial knowledge are used interchangeably in this study.
Financial Behavior
Hasibuan, Lubis, and Altsani, (2018) define financial behavior as “how good a
household or individual manages financial resources that include savings budget
planning, insurance and investment. A person’s financial behavior can be seen from
how good he manages cash, debt, savings and other expenses” (p. 504).
Financial Wellbeing
Financial wellbeing is “a state of being wherein a person can fully meet
current and ongoing financial obligations, can feel secure in their financial future, and
is able to make choices that allow them to enjoy life” (Consumer Financial Protection
Bureau, 2017, p. 6).
Financial Wellness
Financial wellness is a “state of being wherein a person has control over
dayto-day, month-to-month finances; has the capacity to absorb a financial shock; is
on track to meet his or her financial goals; and has the financial freedom to make
choices that allow enjoying life” (Yakoboski et al., 2020, p. 15).
Financial Capability
Financial capability is “both an individual and a structural idea. It combines a
person’s ability to act with their opportunity to act” (Sherraden, 2013, p.3). In this
definition Sherraden highlights that financial capability is a combination of what an
individual does to make wise financial decisions, and the institutions
(bank/broker/other) role in creating an opportunity to act (transparent products,
services, and costs.) Huang, et al. note that “financial capability does not reside solely
within the individual; it captures the relationship between people’s internal ability and
their external environments” (2013, p. 3).
Cooperative
Cooperatives are defined as “enterprises that are owned by consumers,
managed democratically, and aimed at addressing the members’ needs and
aspirations. Accordingly, they are based on customer ownership” (Talonen, Jussila,
Saarijärvi, & Rintamäki, 2016, p. 142).
Credit Union
Credit unions are defined as “member-owned and member-governed financial
organizations that aim to achieve pre-determined economic and social objectives”
(McKillop et al., 2020, p. 1).
Although this list of terms and definitions is not exhaustive, the definitions
make sense for the context in which they are presented. There are other definitions
from the literature that could have been used. For this section of the paper, the focus
is on sharing a handful of the critical terms that oftentimes have various definitions in
order to operationalize them for the context for this research.
Theoretical Framework
The theoretical framework considered for this research is the consumer
cooperative. Consumer cooperatives are “enterprises that are owned by consumers,
managed democratically, and aimed at addressing the members’ needs and
aspirations” (Talonen, et al., 2016, p. 142). Credit unions are a form of consumer
cooperative that are “member-owned and member-governed financial organizations
that aim to achieve pre-determined economic and social objectives” (McKillop et al.,
2020, p. 1).
McKillop and Wilson (2015) note the importance of financial literacy
strategies for individuals and that “credit unions are well placed and have the
credibility to deliver such strategies” (p. 109). Talonen et al. (2016) recognized the
importance of the customer-owner structure in providing education, while McKillop
et al. (2020) noted the critical role of credit unions in reducing income inequality.
Financial literacy and behavior must be explored within the cooperative model
because of the potential to steward financial literacy and subsequent behavior more
responsibly.
The purpose of the study is to examine member financial literacy and financial
behavior within the cooperative model as displayed by credit unions.
Summary of the Introduction
The purpose of this exploratory study is to understand credit union member
financial literacy and behavior. This chapter introduced the research problem, the
purpose of the study, the justification for the study, the research questions,
assumptions, limitations, delimitations, uses for the study, definition of key terms, and
the theoretical framework.
CHAPTER 2: LITERATURE REVIEW
This chapter introduces the relevant literature that supports this study. The
chapter will review previous academic literature, leading this researcher to the
purpose of this exploratory study, which is to examine member financial literacy and
behavior in credit unions.
History of Financial Literacy
Financial literacy is a wide-ranging topic. Lusardi and Mitchell (2011) define
financial literacy as “the ability to do some simple calculations and knowledge of
some fundamental financial concepts” (p. 1). The United States has a long history of
promoting financial literacy and education about money. John Adams (1787) was one
of the first to recognize the importance of financial literacy in citizens’ lives. In a
letter written to Thomas Jefferson, he wrote, “All the perplexities, confusions, and
distresses in America arise, not from defects in their constitution or confederation, not
from a want of honor or virtue, so much as from downright ignorance of the nature of
coin, credit, and circulation.”
In the 50s and 60s, the U.S. government established policy initiatives to
improve an individual’s financial behavior through financial education. These efforts
focused on high school students taking courses related to managing household
finance. Researchers noted positive effects on awareness and assets growth
(Bernheim, Garrett, & Maki, 2001). Nearly 30 years ago, Noctor, Stoney, & Stradling
(1992) defined the concept of financial literacy as “the ability to make informed
judgments and to make effective decisions regarding the use and management of
money” (p. 4). It was a pioneering definition of the term financial literacy, with the
meaning later expanded upon to mean financial capability, including concepts such as
“an understanding of credit, debt, budget, insurance, and all other financial
dimensions” (Goyal & Kumar, 2021, p. 81).
In the mid-90s, Bernheim (1995, 1998) was one of the first researchers to
recognize that financial knowledge was low in the United States. Both Moore (2003)
and Mandell (2004) documented a deficit in consumer financial wisdom. Agnew and
Szykmann (2005) presented strong evidence that individuals were deficient in their
understanding of stocks, bonds, mutual funds, and interest rates. Despite these early
findings by Bernheim and others, it did little to spur an institutional focus on financial
literacy research.
Financial literacy research in the early 2000s was meager (Goyal & Kumar,
2021; Stolper & Walter, 2017). Nevertheless, the Great Recession was the impetus for
a remarkable surge in financial literacy research (Goyal & Kumar, 2021; Stolper &
Walter, 2017), as the dire state of household finances triggered a new interest in
measuring consumer financial knowledge. Lusardi and Mitchell (2008) created a
special module designed for the 2004 Health and Retirement Study (HRS). In it, they
established three simple test-based questions aimed at measuring consumer financial
literacy. The three questions (which became known as the Big Three) were important
questions that helped researchers examine 1) why people were unsuccessful in
planning for retirement and 2) how planning informed retirement saving choices.
In addition to stimulating research focused on consumer financial literacy, the
Great Recession prompted policymakers to address several challenges. First,
policymakers failed to enforce rules and protect consumers from financial services
firms’ nefarious actions—particularly mortgage lenders. Second, the recognition that
consumer financial knowledge was low and low financial literacy levels are a
contributing factor to poor financial decisions (Lusardi & Mitchell, 2011). As part of
addressing the challenges of protecting and educating consumers, the Dodd-Frank
Wall Street Reform and Consumer Protection Act was signed into law in 2010,
creating widespread protection for consumers. For example, one component of the act
was creating the Consumer Financial Protection Bureau (CPFB). The CPFB
established the Office of Financial Education, whose primary goal was to improve
consumer financial literacy (Hastings et al., 2013).
Notably, the formation of the CFPB, coupled with the founding of the Office
of Financial Education, launched a movement in both consumer protection and
financial education (Goyal & Kumar, 2021; Stolper & Walter, 2017). In 2012, the
influential G20 endorsed multiple high-level financial literacy strategies—all the
while, the volume of financial literacy literature more than doubled (Goyal & Kumar,
2021; Stolper & Walter, 2017).
Essential Terms and Concepts About Financial Literacy
Goyal and Kumar (2021) observed that financial literacy is a wide-ranging
topic. Huang et al. (2013) suggest that financial literacy is synonymous with financial
knowledge. While Atkinson and Messy (2012) note that financial knowledge without
financial behavior is a waste.
Huston (2010) views financial knowledge as “an integral dimension of, but not
equivalent to, financial literacy” (p. 307). While Lusardi and Mitchell (2011a)
initially defined financial literacy as “the ability to do some simple calculation and
knowledge of some fundamental concepts” (p.1), Huston (2010) suggested that
financial literacy is more than simple calculations and knowledge of fundamental
concepts. She notes that financial literacy involves how consumers utilize the
information they have obtained.
The remaining definitions are essential to understand some of the distinctions
and nuances that provide context to concepts like financial literacy, financial
behavior, financial security, and financial wellbeing.
Financial wellbeing—is an expression defined as “a state of being wherein a
person can fully meet current and ongoing financial obligations, can feel secure in
their financial future, and is able to make choices that allow them to enjoy life”
(Consumer Financial Protection Bureau, 2017, p. 6).
Financial wellness is “a state of being wherein a person has control over
dayto-day, month-to-month finances; has the capacity to absorb a financial shock; is
on track to meet his or her financial goals and has the financial freedom to make
choices that allow enjoying life” (Yakoboski et al., 2020, p. 15).
Financial security is “the peace of mind felt when we are not worried about
money” (Law, 2021, p. 1).
Financial capability “encompasses a combination of knowledge, resources,
access, experience, and habits” (Lin et al., 2019, p. 2). By some, financial capability is
viewed as a synonym to financial literacy (Kempson, Collard, & Moore, 2006). To be
financially capable, “families must have not only financial knowledge and skills but
also access to appropriate financial products and services” (Huang, et al., 2013, p.
1).
Financial behavior is defined as “how good a household or individual manages
financial resources that include savings, budget, planning, insurance, and investments.
A person’s financial behavior can be seen from how well he manages cash, debt,
savings, and other expenses” (Hasibuan et al., 2017, p. 504).
Other terms surrounding the topic of financial literacy include financial
fragility (Yakoboski et al., 2020), financial preparation (Fernandes et al., 2014),
financial complexity (Klapper & Lusardi, 2020), and financial resilience, which data
shows is closely associated with financial literacy (Lusardi et al., 2020).
Why Financial Literacy Matters
Financial literacy’s economic importance is well documented (Kaiser et al.,
2020; Lusardi & Mitchell, 2017). Both in the U.S. and around the world, greater
access to the capital markets (Klapper & Lusardi, 2020), the surge in financial
technology, and the digitization of financial transactions have placed financial
products and services on the doorstep of consumers (Goyal & Kumar, 2021; Hanson
& Olson, 2018; Lusardi, 2019). While access to the capital markets has increased, so
has the complexity of products and services offered by financial institutions
(Fernandes et al., 2014; Goyal & Kumar, 2021; Kaiser & Menkhoff, 2017; Klapper &
Lusardi, 2020; Lusardi, 2019; Stolper & Walter, 2017). Examples of complex
products include student loans, mortgages, credit cards, annuities, and pension
accounts (Lusardi & Mitchell, 2014)—and more recently, payday loans, pawnshops,
and rent-to-own stores (Lusardi, 2019).
Personal responsibility for financial decisions is on the rise (Lusardi, 2019;
Lusardi & Mitchell, 2017; McKillop et al., 2020; Ryan, Trumbull, & Tufano, 2011).
Changes to how households save for retirement have also shined a spotlight on the
importance of financial literacy. In the 1970s, most households retired on a
combination of Social Security and payments from an employer defined-
benefitpension plan. Today, most working Americans have a 401(k), or possibly a
403(b) plan, that is sponsored by their employer but managed by the individual
(Lusardi, 2019). This has thrust workers into the role of both investment manager and
financial planner—coupled with learning about the nuances of company-sponsored
retirement accounts like matching, administrative fees, mutual fund expense ratios,
target retirement investments options, advice fees, and vesting schedules.
The shift in responsibility for workers and retirees has yielded troubling
results. In a review conducted by the U.S. Government Accountability Office (GAO),
the authors note that retirement savings are low. Their study observed that 52% of
U.S. households have no retirement savings and that those who had saved had saved
very poorly (Jeszeck, Collins, Glickman, Hoffrey, Grover, 2015). With the current
understanding that higher financial literacy levels are associated with greater
retirement savings and a host of positive financial behaviors (Fernandes et al., 2014;
Lusardi & Mitchell, 2011; Mitchell & Lusardi, 2015), financial literacy should matter
to households and governments alike.
Financial Literacy and Implications
Financial literacy is associated with financial behavior (Fernandes et al., 2014;
Kaiser et al., 2020; Lusardi & Mitchell, 2011; Mitchell & Lusardi, 2015). Those with
more financial knowledge show better financial behavior, which often yields better
financial outcomes (Lusardi & Mitchell, 2014). For example, financial knowledge is
known to help individuals organize their finances—including planning and saving
(Brounen, Koedijk, & Pownall., 2016; Lusardi, 2019; Lusardi & Mitchell, 2017).
Individuals with financial knowledge are more inclined to establish emergency funds
(Babiarz & Robb, 2014) in addition to being able to survive emergency expenses and
handle income shocks (Hasler, Lusardi, & Oggero, 2018). Financially literate people
are better at debt management and are savvier in their borrowing practices (Huston,
2012; Lusardi & Mitchell, 2014; Lusardi & Tufano, 2015). For example, financial
literacy plays a crucial role in credit card debt, with financially knowledgeable
consumers more likely to pay off their balances in full versus paying the minimum
(Lusardi & Tufano, 2015).
Adams and Rau (2011) recognize that “Perhaps one of the most robust
findings across the literature is that financial literacy [a cognitive factor…] plays a
key role in financial preparation for retirement” (p. 6). The act of preparing for
retirement involves saving for retirement—something done best by those who are
financially literate (Clark, Morrill, & Allen, 2012; Goyal & Kumar, 2021; Lusardi,
2019; Lusardi & Mitchell, 2014; Yakoboski et al., 2020).
Those with greater financial knowledge more frequently participate in the
capital markets and invest in stocks (Almenberg & Dreber, 2015; Khan, Rabbani &
Kadoya, 2020; Van Rooij, Lusardi, & Alessie, 2011), a key driver of long-term
retirement accumulation. Moreover, those with additional financial knowledge are
more likely to have portfolios that are accurately diversified based on their age and
risk tolerance, an essential aspect of managing risk and return throughout an
individual’s financial life (Abreau & Mendes, 2010; Lusardi, Mitchell, & Curto,
2010; Mouna & Jarboui, 2015). Finally, empirical evidence reported by Lusardi and
Mitchell (2014) shows that financially literate people accumulate more wealth than
those with low financial literacy.
Conversely, those with low financial knowledge face many challenges (Goyal
& Kumar, 2021; Lusardi & Mitchell, 2007). For example, individuals with low
financial literacy levels struggle to make sound financial decisions and find it difficult
to manage personal finances (Yakoboski et al., 2020). Individuals who lack financial
literacy have mortgages with higher rates and carry heavier debt loads (Lusardi,
2019).
Consumers with low financial literacy are less likely to save for retirement
(Lusardi & Mitchell, 2008) and more inclined to have a loan against their 401(k)
(Utkus & Young, 2011). People with low levels of financial literacy are less likely to
participate in the stock market (Van Rooij et al., 2011), a key driver of long-term
wealth creation (Stango & Zinman, 2009; Yoon, 2011). Those with low financial
literacy levels are less likely to plan (Goyal & Kumar, 2021), another primary driver
of wealth creation (Hastings et al., 2013).
Unfortunately, most consumers are financially illiterate (Klapper & Lusardi,
2019; Lin et al., 2019; Lusardi, 2019; Lusardi & Mitchell, 2017) and “A lack of
financial literacy is problematic if it renders individuals unable to optimize their own
welfare…” (Hastings et al., 2013). Lin et al. (2019) suggest that financial knowledge
is not equally distributed. For example, financial literacy is low among young people,
with less than 30% answering the Big Three financial literacy questions correctly by
age 40. This is of great concern because major financial decisions such as car, home
buying and retirement savings often occur before age 40 (Lusardi, 2019).
Other demographic factors such as gender and race play an essential role in
financial literacy. For example, financial knowledge has been found to be low for
women, particularly women aged 55 and older (Lusardi & Mitchell, 2008). Similarly,
financial acuity has been found to be low amongst individuals earning less than
$25,000 per year and those without a college degree—as is the same within Black and
Hispanic populations (Lin et al., 2019). Byrne et al. (2010) observed that low
financial knowledge levels are closely associated with financial and social exclusion.
Financial illiteracy is common for the economically vulnerable—which adds to
growing wealth inequality in the U.S (Stolper & Walter, 2017).
Measuring Financial Literacy
If financial literacy is viewed as beneficial (Kaiser et al., 2020), then
measuring financial literacy is essential (Marcolin & Abraham, 2006). The global
standard for measuring financial literacy is Lusardi and Mitchell’s Big Three financial
literacy questions (Hastings et al., 2013). The questions address three basic financial
concepts (interest rates and compounding, inflation, and risk diversification) and are
the standard-bearer for determining individuals’ objective financial literacy (Hastings
et al., 2013; Stolper & Walter, 2017). The Big Three questions were first adopted as a
special module to the 2004 Health and Retirement Study (HRS) (Hastings et al.,
2013; Stolper & Walter, 2017), where just 34% of respondents answered all three
questions correctly.
The Big Three have been asked in other significant U.S. surveys, including the
Survey of Consumer Finances (SCF) and the Aegon Retirement Readiness Survey
(Lusardi, 2019). In 2009, Lusardi and Mitchell extended the Big Three questions in
the National Financial Capability Study (NFCS). In it, they asked two more questions
about mortgages and bond pricing, which expanded how financial knowledge was
viewed (Stolper & Walter, 2017). The Big Three questions have been modified in
other studies, as was the case with the S&P Global Financial Literacy Survey, which
delivered the most comprehensive gauge of financial literacy to date (Klapper &
Lusardi, 2020). Although worded slightly different, the S&P Global Financial
Literacy Survey addressed four financial literacy questions that covered the same Big
Three topics of inflation, risk diversification, and interest rates.
Measuring financial literacy goes beyond the above-mentioned and surveys.
For example, the Jump$tart Survey of Financial Literacy addresses the financial
literacy of high school seniors (Mandell, 2006), while the Consumer Financial
Literacy Survey test the financial literacy of 40,000 consumers who receive services
through the National Foundation for Credit Counseling (Roll & Moulton, 2019).
Additionally, the National Financial Educators Council (NFEC) deploys a host of
tests which includes financial literacy tests such as the Financial Foundation Decision
Test as well as the National Financial Capability Survey (Murarka & Oats, 2020).
Financial literacy has been studied extensively, and there have been multiple tools
developed for measuring it.
Challenges to Financial Literacy
There are many challenges to financial literacy. For example, measuring
financial literacy is problematic given the simplistic nature of test-based approaches
(Huston, 2010). Although more challenging to administer, outcomes-based
approaches could offer a more comprehensive look at the true impact of financial
literacy on behavior. Hastings et al. (2013) note that “if we are interested in
understanding the abilities that improve financial outcomes, we should define
successful measures as those that, when changed, produce improved financial
behavior” (p. 357). Examples offered by the authors include reviewing robust
administrative data in 401(k) plans that look at participants who are taking advantage
of company matching programs or actively refinancing debt to reduce payments and
interest liability.
Researchers must balance the ability to distribute a simple survey (test-based)
with their capacity to access robust administrative data (outcomes-based) and
determine which approach makes the most sense. The test-based approach, which
includes the Big Three, although simple, may be challenged given its inability to
determine the “effect of financial literacy on the quality of individual financial
decisions” (Stolper & Walter, 2017, p. 611). This was the observation made by
Hastings et al. (2013) that “there is remarkably little evidence on whether this set of
survey questions is the best approach, or even a superior approach, to measuring
financial literacy” (2013, p. 355). Alternatively, an outcome-based approach relies on
massive datasets and is more time and administratively intensive than traditional
testbased approaches (Hastings et al., 2013).
Challenges to Financial Literacy Education
There have been enormous sums of money allocated to financial literacy
education, and some question whether financial literacy education improves financial
knowledge (Stolper & Walter, 2017) or whether the cost is worth it (Willis, 2008).
Stolper and Walter observed that financial education programs intended to increase
financial literacy and positive financial behavior were disappointing (2017). Mandell
(2006) observed that financial education amongst high school students had little effect
in cultivating financial literacy—with those participating in financial education
programs no better off than students that did not participate. Xiao, Serido, and Shim
(2011) note a similar phenomenon: financial education is not always a companion to
objective financial knowledge.
Financial literacy education’s effectiveness on marginalized populations is
being challenged and poses a great test to researchers and policymakers alike
(Fernandes et al., 2014; Kaiser & Menkhoff, 2017). These findings come on the heels
of data that sheds light on an expanding racial wealth gap (Markley, Hafley, Allums,
Holloway, & Chung, 2020). Lin et al. (2019) examined data from the 2018 NFCS.
They note that “despite economic growth and declining unemployment, there are
signs of persistent or widening divides between those who are prospering and those
who are struggling financially — younger Americans, those without a college degree,
African-Americans and those with lower incomes” (p.2).
Literature underscores the importance of financial literacy strategies and
education for minority populations (Looney, 2011; Lusardi & Mitchell, 2009), yet the
effect of financial education programs on financial literacy has been limited (Lusardi,
Hasler, & Yakoboski, 2020; Lusardi & Mitchell, 2009). Despite a widespread
institutional focus on financial education, financial literacy levels are declining (Lin et
al., 2019; Yakoboski et al., 2021).
Willis is skeptical of financial literacy education (2008, 2011, 2017). Her
research points to several concerns, including information asymmetry, financial
complexity, and neoliberalism as primary culprits for financial education’s
ineffectiveness. It is difficult to determine from the literature whether she believes all
financial education efforts are a waste of time or if it is “traditional conceptions of
financial literacy” (2017, p. 16) that fail individuals. Regardless, Willis notes that
financial education has “little chance of improving individual and collective financial
wellbeing” (2017, p. 16) and that costs for establishing financial education programs
far outweigh any benefit.
Another challenge posed by financial literacy education is that its perceived
ineffectiveness places blame on the individual. Byrne et al. (2010) note that financial
education’s failure should be shared by financial service providers whose ineffective
programs and products and services need improvement. The authors note that the
‘blame the consumer’ approach allows institutions to sidestep change. Some view
efforts to improve consumer financial knowledge as a side-show that does not work
(De Meza, Irlenbusch, & Reyniers, 2009; Willis, 2009, 2017), allowing institutions to
avoid necessary improvements to their products and services.
Goyal and Kumar (2021) note that “people can be financially literate when
they have knowledge, understanding, and skills to take care of their finances, but they
cannot be called financially capable unless it is reflected in their actual behavior” (p.
81). Financial education’s importance depends largely on its ability to affect financial
literacy and influence healthy financial behavior (Stolper & Walter, 2017). Given the
many challenges facing financial literacy education approaches, research has begun to
look at behavior comprehensively. This is partly due to the absence of methods that
would suitably explain the components required for successful short- and long-term
financial management (Riitsalu & Poder, 2016).
Financial Behavior
Financial behavior refers to “any human behaviors relevant to money
management” (Xiao, 2008, p. 70). An individual’s financial behavior can be
determined based on how they treat their personal finances with positive financial
behavior that includes making money, managing spending, and investing (Hasibuan
et al., 2018).
In 2010, Huston began examining the relationship between financial literacy,
knowledge, education, behavior, and wellbeing. In addition to the effect of financial
literacy on behaviors, she notes the impact of “other influences” and includes
“cultural/familial, economic conditions time preference, and behavioral biases” (p.
308) as contributing factors to consumers’ financial behavior. Huston’s consequential
scrutiny of the interworking relationship between objective financial literacy and
“other influences” helped expand how researchers view objective financial
knowledge and its effect on financial behavior.
Researchers point to the “something more” or “hard to capture” aspects of
personal finance that go beyond traditional test-based objective measures of financial
literacy (Hastings & Mitchell, 2020; Riitsalu & Poder, 2016; Stolper & Walter, 2017).
This more contemporary understanding of financial behavior suggests that financial
behavior is part of the more significant discussion surrounding financial literacy
instead of the more traditional view that there is a cause-and-effect relationship
between financial literacy and financial behavior. (Riitsalu & Poder, 2016).
Psychological Antecedents
Factors contributing to financial behavior include the vital role of
psychological antecedents (Brown & Taylor, 2014; Tang & Baker, 2015). There is
ample research that examines the impact of self-esteem on financial behavior and the
relationship between them (Dare et al., 2020; Hastings & Mitchell, 2011; Tang &
Baker, 2016). Tang and Baker (2016) note the strong effect of self-esteem on
behaviors such as saving and investing, investing in risky assets, and credit
management.
Dare et al. (2020) observe the impact of financial confidence on financial
behavior. They note that “individuals with more financial confidence may be
convinced of their ability to handle their financial situation…this confidence may
translate into positive financial behaviors, such as working toward financial goals and
managing credit” (p. 4). Asaad (2015) evaluated the effect of positive self-perception
and noted the effect on financial behavior. The author observed that individuals with
high objective financial literacy but low self-perception might not make the right
financial management decision. Tang and Baker (2015) note that positive financial
behavior requires persistence and coping, particularly in challenging economic
environments. Strömbäck, Lind, Skagerlund, Västfjäll, and Tinghög, (2017) note the
psychological effect of self-control and its influence on people’s financial behavior.
Dare et al. (2020) highlight the impact of spending self-control and its effect on
positive financial behavior.
Hastings and Mitchell (2010) tested the effect of impatience on retirement
wealth and investing behavior. At the same time, they used the Big Three questions to
determine objective financial literacy levels. They note that the “impatience measure
strongly predicts respondents’ self-reported retirement saving and health investments.
Financial literacy is also associated with more retirement savings, but it is less closely
associated with sensitivity to framing of investments information” (pp. 12-13).
Future orientation and attitudes about money can also affect financial behavior
(Rutledge & Deshpande, 2014). Dare et al. (2020) describes that an individual’s
attitude about planning for the future can lead to being more hopeful about the future
itself. A hopeful future-oriented mindset can result in positive financial behavior
(Rutledge & Deshpande, 2014).
Subjective financial knowledge plays a vital role in consumer financial
behavior (Dare et al. 2020). Literature notes the positive correlation of test-based
assessments of financial knowledge and self-reported financial knowledge (Lusrdi &
Mitchell, 2009). Allgood and Walstad (2013) examined the effect of objective
(testbased) financial knowledge and subjective (self-assessed) financial knowledge
and observed that subjective financial knowledge is more powerful in determining
financial behavior than objective financial knowledge. A simple example of
selfassessed financial knowledge can be found in the 2018 National Financial
Capability Survey, where respondents were asked to rate their self-perceived financial
knowledge. Instead of measuring financial knowledge by scoring right and wrong
answers, as is the case with the objective approach, respondents score themselves
based on how they feel about their own financial knowledge.
Bucher-Koenen and Lusardi (2011) note that personal desires or impulses to
deal with financial transactions are connected to financial behavior. Lusardi (2019)
observed that educated and high-earning males, who are typically associated with
higher levels of financial literacy, show poor financial behavior when dealing with
digital payments. An understanding that desires and impulses play a role in financial
behavior is, in part, why Fernandes et al. (2014) highlight the importance of narrow,
at the moment, interventions to halt potentially adverse outcomes as a result of acting
on emotions.
Monticone (2010) notes the positive effect of wealth on financial behavior,
suggesting there is more to healthy financial behaviors than objective financial
knowledge. Stopler and Walter (2017) note the relationship between intelligence,
superior numerical abilities, motivation to deal with personal finances, and patience
as being associated with financial behavior.
Measuring Financial Behavior
Instruments have been developed to better understand and measure financial
behavior. Dew and Xiao created the Financial Management Behavior Scale (FMBS)
to help financial professionals and researchers measure financial management
behaviors (2011). The questions included in the FMBS are derived from seven
articles and reports that utilized financial management and behavior scales. A review
of the articles and reports resulted in the establishment of five domains: consumption,
cash flow, credit, savings and investment, and insurance. The domains were selected
because they were deemed “important areas of sound financial management and
behaviors” (p. 45). This type of scale is necessary given the extent to which
consumers engage in financial behaviors, and the decisions a consumer makes is
tethered to their overall financial wellness (Dew & Xiao, 2011). An important
observation of the scale is that as scores on the FMBS responses improved, reported
levels of debt declined and savings increased.
The importance of measuring consumer financial behavior is evidenced by the
inclusion of financial behavior-related questions in several prominent surveys. Today,
it is common for behavior-related questions to appear alongside test-based,
selfassessed, and outcomes-based questions to determine overall financial wellbeing.
For example, in addition to testing financial knowledge, the National Financial
Capability Study (NFCS) was “designed to understand and measure a rich, connected
set of perceptions, attitudes, experiences, and behaviors across a large, diverse sample
in order to provide a comprehensive analysis” (Lin et al., 2019, p. 2).
The Consumer Financial Protection Bureau (CFPB) has helped to reorient and
substantiate some of the thinking surrounding financial literacy. The CFPB
established the Financial Well-Being Scale, which is “a subjective measure of
financial perceptions” (Collins & Urban, 2020). The Financial Well-Being Scale
omits financial literacy from a traditional sense and focuses on financial wellness
more comprehensively, with measurable data in areas such as “financial behaviors,
skills, and attitudes” (p.4).
Instead of making financial literacy the yardstick for the exclusive purpose of
research and test-based results, they suggest that the goal of financial literacy
education is financial wellbeing (CFPB, 2017), which is best measured by outcomes.
They describe financial wellbeing “as a state of being wherein a person can fully meet
current and ongoing financial obligations, can feel secure in their financial future, and
is able to make choices that allow enjoyment of life” (p. 4).
The CFPB approach appears to fall in the contemporary camp of thinking on
financial literacy and behavior—that financial behavior is part of and not a byproduct
of financial literacy. Even those that have historically considered financial literacy as
“the ability to do some simple calculations and knowledge of some fundamental
financial concepts” (Lusardi & Mitchell, 2011, p.1) now refer to financial literacy as
“both knowledge and financial behavior” (Lusardi, 2019, p.1), a clear sign that
financial literacy research is evolving.
Financial Literacy and Behavior: Something More?
One line of research posits that individuals are either financially literate or
illiterate. Those who are literate can perform simple computations such as
compounding interest, and this knowledge produces positive financial behaviors.
Conversely, financially illiterate individuals cannot perform simple computations and,
consequently, are destined to make poor financial decisions.
Another direction of research views psychological antecedents and sometimes
“hard-to-capture” demeanors (Stolper & Walter, 2017), such as being concerned with
the future (Meier & Sprenger, 2010), self-esteem (Tang & Baker, 2016), patience
(Hastings & Mitchell, 2010), money attitudes (Lay & Furnham, 2018), the effect of
nurturance (Raghunathan, Yang, & Chandrasekaran, 2020), financial discipline
(Shefrin & Thaler, 1988), confidence (Lind et al., 2020), self-control (Tang & Baker,
2016), or simply having better cognitive and numeracy ability (Hastings et al., 2013)
as the drivers of positive and negative financial behaviors.
A third component used to explain financial literacy and behavior should be
considered (Huang et al., 2013). The authors observed that “to be financially capable,
families must have not only financial knowledge and skills, but also appropriate
financial products and services” (p. 1). The authors highlight that “together,
individual ability and institutional setting, shape a person’s financial capability and
wellbeing” (p. 2). The researchers make a vital observation highlighting the
institution’s critical role in shepherding an individual’s wellbeing through beneficial
financial products and services.
Credit Unions
Credit unions are “member-owned and member-governed financial
organizations that aim to achieve pre-determined economic and social objectives”
(McKillop et al., 2020, p. 1). Taylor (1971) notes that “the credit union is the purest
form of cooperation” (p. 213).
The volume of scholarly research on credit unions is low (Bauer, 2008;
Croteau, 1963; McKillop & Wilson, 2011), which is somewhat surprising given credit
unions’ extensive involvement in the financial lives of U.S. households. Credit unions
play a critical role in the U.S. financial system—serving the needs of 123.7 million
members from 5,133 federally insured credit unions (NCUA, 2020). Credit unions are
not-for-profits and are member-owned, which makes their structure unique.
Moreover, they have a long history of community advocacy, democratic controls,
financial education, and social responsibility (McKillop et al., 2020). Social
responsibility extends far beyond an obligation to treat others well. For many credit
unions, it has traditionally meant protecting the weak and vulnerable among us
(Croteau, 1963). McKillop and Wilson (2015) note that “credit unions are agitators
for human and social development” (p. 213), suggesting that part of the credit union
ethos is to seek opportunities to work with others and cooperate so that communities
and societies at large are financially healthy.
Credit Union History
The Rochdale Society of Equitable Pioneers, a group of 28 impoverished
weavers, is credited with creating the first cooperative organization in Rochdale,
England, in 1844 (Fairbairn, 1994; McKillop & Wilson, 2015; Taylor, 1971). The
Rochdalian Principles are a set of rules about the organization and operations of all
types of cooperatives—including credit cooperatives or credit unions, as they are
referred to in the United States (McKillop & Wilson, 2015). Credit unions are a
unique organization, deriving their meaning from several common concepts. These
ideas include: “a consumer cooperative; a micro-financial intermediary; a legal
corporation; a social movement and a social philosophy” (McKillop & Wilson, 2015,
p. 97).
The first urban cooperative financial institution was established in 1850 by
Hermann Schulze-Delitzsch, a judge and politician. The first Schulze-Delitzsch credit
cooperative failed, but his next iteration was a success, where “wealthy patrons were
not allowed; the only members were working and small business people, each of
whom was required to make a more substantial contribution to the bank’s capital”
(Isbister, 1994, p. 33). “By 1861, there were 364 Schulze-Delitzsch credit
cooperatives with nearly 49,000 members” (Guinnane, 2002).
In 1862, Friedrich Wilhelm Raiffeisen formed the first rural credit cooperative
(McKillop & Wilson, 2015) and like Schulze-Delitzsch, Raiffeisen’s first credit
cooperative failed. He eventually succeeded by imitating much of what was done by
Schulze-Delitzsch. By the 1880s, Raiffeisen had become larger than the
SchulzeDelitzsch credit cooperative (Isbister, 1994). Guinnane (2020) notes that the
purpose of the Raiffeisen credit cooperative was to promote Christian principles,
while
Schulze-Delitzsch was focused on economic self-reliance. McKillop and Wilson
(2015) observed that both the Schulze-Delitzsch and Raiffeisen credit cooperative’s
primary focus was on supporting individuals who suffered from economic hardship.
At the beginning of the 20th Century, financial cooperatives had spread from
Europe to North America. In 1901, the first credit cooperatives in North America
were established in Quebec, Canada, by Alphonse Desjardins (McKillop et al., 2020;
McKillop & Wilson, 2011, 2015). Desjardins was motivated to start the credit union
to support individuals who had been victimized by loan sharks (McKillop & Wilson,
2015). The credit union was established based on a mix of “Catholic revulsion of
usury, and the Quebec political and religious philosophy of la survivance” (McKillop
& Wilson, 2011, p. 83). “The philosophy was founded on three fundamentals: the
Church, the Soil and the Hearth” (McKillop & Wilson, 2015, p.98).
As the credit union movement progressed in Canada and having learned more
about credit cooperatives while corresponding with European credit union leaders
(McKillop & Wilson, 2011), Desjardins facilitated the creation of the first U.S. credit
union in Manchester, New Hampshire, in 1908 (McKillop et al., 2020; Moody & Fite,
1984). The credit union was established for a Franco-American parish that served
French-speaking immigrants (McKillop & Wilson, 2015; Moody & Fite, 1984).
Desjardins helped launch the U.S. credit union movement when he passed the torch of
responsibility to Pierre Jay, the leader of banks in Massachusetts, and Edward Filene,
a Boston merchant, and philanthropist (McKillop et al., 2020; McKillop & Wilson,
2011, 2015).
Jay and Filene played essential roles in helping to establish the Massachusetts
Credit Union Enabling act of 1909. Filene and Roy Bergengren (a Massachusetts
lawyer) formed the Credit Union National Extension Bureau, which lobbied at the
state and federal level—and ultimately helped pass the U.S. Federal Credit Union act
in 1934 (McKillop et al., 2020; McKillop & Wilson, 2011, 2015). This legislation’s
importance was to consolidate much of what was known about credit union structure
and capture it into law (McKillop & Wilson, 2011; Moody & Fite, 1984).
Credit Union Pillars
McKillop et al. (2020) note that there are four core pillars of the credit union.
These core principles, which set credit unions apart from their banking counterparts,
include self-help, identity, democracy, and cooperation among cooperatives. Self-help
refers to the idea that cooperatives are member-owned and member-managed
organizations that focus on accomplishing their members’ financial and social goals
(McKillop et al., 2020). Identity refers to a common bond amongst members. This
common bond often refers to an area or region—and even a household bond (Croteau,
1963). These are commonly known as community credit unions. A common bond
may also be recognized through being part of a trade organization, occupations type,
or the military, as with the Navy Federal Credit Union—where all members
“identify” with the U.S. Navy. The democratic nature of the credit union is essential
so that each person has equal sway on the membership and its needs. Individuals with
a significant financial relationship with the credit union should have no more
influence than individuals with a small car loan (McKillop et al., 2020; Rubin et al.,
2013). The democratic structure enables credit unions to nurture economic
empowerment to credit union members and community members at large (McKillop
& Wilson, 2015). Finally, the notion that cooperatives should help cooperatives is
necessary as smaller credit unions band together and have shared services agreements
and network alliances (McKillop et al., 2020; McKillop & Wilson, 2015).
The Distinctiveness of Credit Unions
There are several key attributes of credit unions that separate them from other
financial service entities. One unique aspect of the credit union model is that they
operate as a not-for-profit (Croteau, 1963; McKillop et al., 2020; McKillop, Ward, &
Wilson, 2007; McKillop & Wilson, 2015, 2011; Taylor, 1971). While this status
means that credit unions in the United States are not taxed on profits, it also speaks
directly to the mission and purpose of the financial institution. Having no profit
motive allows credit unions to pour all available resources back into their
membership’s financial and social goals (Croteau, 1963). For example, redistributed
net income from credit union services is used to lower loan rates and increase deposit
rates—or possibly create or improve services to members (McKillop & Wilson,
2015). Croteau (1963) notes that credit unions are a “pure” form of cooperative
“possessing a non-profit character” (p. 6). The author implies that being a non-profit
is not just about tax code but rather an ethos surrounding all aspects of the credit
union efforts for members and their community.
This non-profit spirit was best seen during the financial crisis, which lasted
from 2007-2009. While profit-driven shareholder-owned banks restricted credit to
households, non-profit credit unions continued to extend credit to their members
(McKillop et al., 2020). McKillop and Wilson (2015) note that “This philanthropic
type of behavior, which cannot be expected from profit-maximizing banks, perhaps
justifies the tax-exempt privileges that credit unions often receive” (2015, p. 103).
Social responsibility is another core attribute of the credit union which
separates them from their for-profit financial peers (Croteau, 1963; McKillop et al.,
2020; McKillop & Wilson, 2015, 2011; Taylor, 1971). The social goals are that of the
member-owners, who are typically households (Croteau,1963; Taylor, 1971). Social
values, which are an extension of the credit union’s social responsibility, allow for a
myriad of social objectives contingent upon the member interests (Croteau, 1963). At
Navy Federal Credit Union, member-owners may consider extending discounted
loans to military combat veterans who are returning home from deployment.
Conversely, Providence Federal Credit Union, which serves a community associated
with Providence Health Systems, may establish scholarships for members' children or
offer car loan incentives for young employees so they can drive to work.
For most credit unions, "a vision of social justice extends both to individual
members and to the larger community in which they work and reside" (McKillop &
Wilson, 2015). Social justice initiatives are foundational to credit unions. Individual
credit unions have established programs to integrate community members into more
conventional financial services and fight against predatory money lenders and other
high-cost financing sources such as pawnshops, payday lenders, and check-cashing
companies (Byrne et al., 2010). Examples of cooperatives and social justice efforts
include Robert Owen and other cooperative owners, who agreed to limit their
investment capital returns and return profits to the community. Desjardins started his
credit union to minimize predatory lenders' negative impact on community members,
while Schulze-Delitzsch focused on its members' financial self-sufficiency (McKillop
et al., 2020). McKillop and Wilson (2015) observed that credit unions are "agitators
for human and social development" (p. 109) and focus on the socially disadvantaged.
Moreover, Taylor (1971) points to the credit union's role in providing social
interaction for its members. Importantly, McKillop and Wilson (2015) posit that "one
aspect of social responsibility is that of financial education, a core cooperative
principle in its own right" (p.109).
Credit Unions and Financial Wellness
Member financial wellness is an ideology of the credit union model (Croteau,
1963). The unique member-owner model allows for financial wellness to be a reality
in the credit union construct where the credit union's needs are subordinate to
members' needs. Simultaneously, a symbiotic relationship exists between members
and the institution as member financial success generates success for the credit union.
Byrne et al. (2010) note the opportunity to promote financial inclusion and
financial capability within the credit union model. They underscore the sensitive
nature of credit unions’ original goal of financial inclusion—"particularly within the
context of economic recession, which is likely to stimulate demand for financial
capability enhancing measures" (p.3.) The authors emphasize members' interests, the
promotion of budgets, and wise use of credit should be promoted, which helps to
heighten member financial capability.
Financial capability and wellness in credit unions includes products and
services to sustain members and programs aimed at rehabilitating households with
financial challenges (Croteau, 1963). The author notes the benefit of financial
counseling and highlights that it could be a "costly and time-consuming undertaking.
Still, it may be considered worthwhile in light of the household needs of credit union
members" (p. 7).
A lack of profit motive and incentive to put member needs ahead of the
institution itself provides a tremendous opportunity to execute on financial wellness
objectives. McKillop, Ward, and Wilson (2007) suggest that "Credit unions may
provide many services free or below cost to assist members, for example, the
provision of small loans, low-balance share accounts and financial advice and
counseling" (p. 37). This focus could promote financial inclusion and substantially
benefit marginalized members excluded from mainstream financial services
(McKillop & Wilson, 2015).
To promote financial capability with the end goal of financial wellness, credit
unions must put member needs above their own (McKillop & Wilson, 2015). The
authors observe that credit union members require competitive products and services,
including low-cost access to capital and as high a return on invested capital as
possible. In stark contrast to credit unions are commercial banks that "aim to
maximize profits and prioritize the welfare of owners over customers" (p. 80).
Credit Unions Lose their Focus
Despite the benefits of financial cooperatives, Croteau (1963) reminds credit
unions not to become like banks and put profits ahead of members. He notes that "to
pursue profit maximization and to neglect the other services which a credit union may
offer could make the financial objectives of the credit union an end in itself and could
lead to a goal of continually expanding and strengthening the credit union to the
neglect of the personal goals of its members" (p. 8). McKillop and Wilson (2015)
observe that despite credit unions' unique structure, they are susceptible to the same
human desires to build and grow, which comes in conflict with the social goals of its
members and the philosophical objectives of the households. To combat this potential
conflict, the modern credit union must maintain the members’ central place in
governance and oversight of the social objectives of the credit union. The researchers
observe that "This has been somewhat diluted as credit unions have developed into
professionally managed multi-product financial organizations" (p.109).
Byrne et al. (2010) highlight the credit union's purpose as the "promotion of
financial wellbeing of their members, and building financial capability is central to
this" (p. 68). However, the authors question that if the true resolve of a credit union is
wellbeing through financial capability, then "why are credit unions not playing a
bigger role in this area" (p. 68). The authors speculate that credit unions' services may
be too generic, while McKillop and Wilson (2015) point to the ineffectiveness in
promoting financial education because efforts have lacked scale and focus.
Summary of the Literature
Research has shown that financial illiteracy is a global challenge. Some of the
modern implications have escalated in importance due to the growing responsibility
placed on consumers to manage their personal finances. The literature points to a
generational transition of how households save for retirement—with the previous
generation supported by defined benefit pension plans and a consistent annuity
payment after retirement. In short, employers bore the responsibility of managing
individuals’ retirement funding and distribution. Conversely, retirement savers today
shoulder the responsibility of retirement saving within the context of a financial plan
that they are ill-equipped to manage. Moreover, the research points to growing access
to financial products and services coupled with an amplification of the complexity
brought about by the proliferation of the internet and product and service digitization.
The literature points to evidence that financial literacy plays a vital role in
downstream financial behavior. The research suggests that this line of thinking views
financial behavior as a byproduct of financial literacy—implying that more financial
knowledge equals better financial behavior. However, there is no consensus on this
view, and even some dismiss financial literacy efforts altogether. As such, research
has begun to take a wide-ranging look at behavior, which is partly due to the absence
of methods that would suitably and neatly explain the components required for
successful short and long-term financial wellbeing.
Research highlights the unique structure of member-owned financial
cooperatives. The literature notes their philanthropic ethos, which is afforded to them
by their non-profit structure. Notably, the research identifies financial literacy and
financial wellness as core credit union principles. The literature notes that credit
union research has been negligible. There is a void of literature focused on measuring
financial literacy and financial behaviors exclusively within credit union membership.
The goal of this research project includes: (1) an examination of financial literacy
levels of credit union members, (2) determining if self-reported financial knowledge
corresponds with actual financial knowledge, and (3) an understanding of whether
financial literacy levels in credit union members affect financial behavior.
CHAPTER 3: METHODS
This chapter describes the methods and procedures that the researcher utilized
to answer the research questions offered in Chapter I of this study. This exploratory
study aims to examine the financial literacy and financial behavior of credit union
members.
Much is known about financial literacy and financial behavior. The previous
research on financial literacy and behavior helped establish a host of clear terms and
definitions while providing the framework for this study. At the same time, scholarly
research on credit unions is minor compared to traditional banks (McKillop &
Wilson, 2011; Rubin et al., 2013). Although the topic of this study is not new, the
context for the study is what resulted in the establishment of research questions versus
a directional hypothesis.
The results of this project and the clarity that is gained may provide a
meaningful extension of previous research on financial literacy and behavior while
exploring the credit union domain.
Research Design and Rationale
The research design involved the construction of a financial literacy and
financial behavior survey instrument, collection of primary data within the
memberships of two community credit unions, the development of a set of research
questions aimed at exploring the nature of financial literacy and financial behavior
within the credit union population, and an analysis of the data to answer the research
questions. The purpose of utilizing primary data collection through a constructed
survey was to explore the nature of credit union members' financial literacy and
general financial behavior. Moreover, a survey design allowed for efficient and
targeted information gathering about member financial knowledge (objective),
selfperceived financial knowledge (subjective), and member behavior.
Participants and Sample
As identified and discussed in Chapter 1, the purpose of this study is to learn
more about the financial literacy levels and financial behaviors of credit union
members. The rationale for this study is that previous research on financial literacy
and behavior in the credit union domain appears underexplored (Bauer, 2008;
Croteau, 1963; McKillop & Wilson, 2011), and the credit union context provides a
unique corporate structure for examination (McKillop et al., 2020). Credit unions play
a significant role in the U.S. financial system and serve the financial needs of 123.7
million members from 5,133 federally insured credit unions (NCUA, 2020). It is the
credit unions’ focus on investing in their members, including financial education, and
low-cost credit products that can be transformative. At the same time, it is the credit
unions’ not-for-profit status and member-owned structure that helps enable their focus
and product offering.
The selection of a target population and sampling technique was decided in
accordance with the purpose of obtaining foundational information rather than
generalizing to a larger population. The sample for this survey is members of two
different credit unions: one on the west coast and another on the east coast of the
United States. Having data from credit unions from two different parts of the country
allows for more diversity in sample responses. Additionally, the researcher can
analyze the financial literacy of the sample not only with the overall population but
also using state-level data from the National Financial Capability Study.
To collect the data and answer the research questions, the researcher used a
convenience sampling method. This researcher has selected two geographically
diverse credit unions—one credit union from Oregon and Virginia. The credit union
from Oregon has 85,000 members covering 10 branches throughout the state (NCUA,
2020). The Virginia credit union serves 312,000 members across 21 locations
(NCUA, 2020). One rationale for selecting the credit unions was data availability, as
each credit union was willing to participate in this research as well as resourcing with
staff to submit the instrument to their members.
Another reason for surveying populations in Oregon and Virginia is the size,
geography, and member diversity. Notably, the Big Five questions, which include the
Big Three (Hastings et al., 2013), and the financial literacy self-assessment, were
included in the National Financial Capability Study (Lin et al., 2019). The NFCS
includes responses state-by-state, which allowed for credit union member survey
responses from Oregon and Virginia to be compared against a larger sample from the
same geography that is not restricted to credit union members.
The initial stage of the process involved a random sampling of members that
were 18 years or older and had an active checking account.
Development of the Instrument
Previous literature provided the framework for the construction of the survey
instrument and as a resource for questions. The first five questions focused on
objective (test-based) measures of financial literacy. One question was asked as a
means of examining subjective (self-assessed) financial literacy. Seven questions
were tested to scrutinize member financial behaviors. The instrument concluded with
four demographic questions targeted at race, gender, location, and employment status.
Financial Literacy: Test-Based
Hung, Parker and Yoong (2009) and Tang and Baker (2016) note the
extensive use of test-based approaches. Test-based approaches are a common method
for measuring financial literacy (Hastings et al., 2013). Therefore, collecting data via
survey and including test-based questions from mainstream assessment tools made
good sense (Hastings et al., 2013; Parker, Yoong, Bruin de Bruin, Willis, 2012; Van
Rooij et al., 2011). The first five questions of the study (APPENDIX A) mirror the
same five questions that make up the Big Five financial literacy questions (Hastings
et al., 2013). These questions focused on objective test-based measures of financial
literacy. The questions have been asked every three years since 2009 (most recently in
2018) in the National Financial Literacy Survey (NFCS).
Lusardi and Mitchell’s Big Three questions (which are part of the Big Five
questions) are the international standard for measuring objective financial literacy
(Hastings et al., 2013). The Big Three questions were first added to the 2004 Health
and Retirement Survey (Lusardi & Mitchell, 2007). The questions have been tested in
other surveys, including a survey of state employees of Nebraska, the Dutch DNB
Household Survey, the Italian Household Survey on Income and Wealth, a pilot study
of participants in Mexico’s privatized Social Security plan, as well as inclusion in a
study of entrepreneurs in Sri Lanka (Lusardi, 2008). The three primary questions test
basic knowledge on compound interest, real rates of return, and risk diversification.
The three questions are as follows:
•Suppose you had $100 in a savings account and the interest rate was 2
percent per year. After 5 years, how much do you think you would
have in the account if you left the money to grow: more than $102,
exactly $102, less than $102, don’t know, refused.
•Imagine that the interest rate on your savings account was 1 percent
per year and inflation was 2 percent per year. After 1 year, would you
be able to buy more than, exactly the same as, or less than today with
the money in this account: more than today, exactly the same as today,
less than today, don’t know, refused?
•Do you think that the following statement is true or false? “Buying a
single company stock usually provides a safer return than a stock
mutual fund.”
Over the past fifteen years, the Big Three have served as the foundational
questions in surveys created to measure financial literacy worldwide. For example,
the questions were added to the U.S. National Longitudinal Survey of Youth (Lusardi
& Mitchell, 2017), the Survey of Consumer Finances, and private sector surveys such
as the Aegon Retirement Readiness Survey (2018), as well as surveys conducted in
Netherlands, Japan, Germany, Chile, Mexico, Indonesia, and India, to name a few
(Hastings et al., 2013). Global surveys note that overall, consumers are financially
illiterate, and despite efforts to curb the issue, financial illiteracy is persistent (Lin et
al., 2019; Yakoboski et al., 2021).
In 2009, the Big Three questions were added to two existing questions from
the NFCS. These five combined questions have become known as the Big Five
(Hastings et al., 2013) and have been asked every three years since 2009 (most
recently in 2018). The two NFCS questions measure respondent's understanding of
mortgages and bond pricing. The two additional questions are as follows: • Do you
think that the following statement is true or false: A 15-year mortgage typically
requires higher monthly payments than a 30-year mortgage, but the total interest
over the life of the loan will be less?
•If interest rates rise, what will typically happen to bond prices: they
will rise, they will fall, they will stay the same, there is no relationship,
don’t know, refused?
Financial Literacy Self-Assessment
The second gauge of financial literacy that has been utilized in the literature
measures self-assessed financial literacy (Lin et al., 2019; Hastings et al., 2013).
Selfassessed financial literacy has been found to have a positive correlation with
objective-based financial knowledge (Allgood & Walstad, 2016; Hung et al., 2009;
Lusardi & Mitchell, 2007; Lusardi & Tufano, 2015).
Lusardi and Tufano (2015) note that asking a question about ‘overall financial
knowledge’ is essential when placed alongside objective questions which measure
specific financial knowledge. Pairing a broad, self-reported measure of financial
knowledge alongside narrower, objective-based measures allows for the evaluation
and comparison of answers, which helps determine if respondents know how much
they know. This is essential given Hastings et al.'s (2013) observation that there is a
persistent gap between self-assessed measures of financial literacy and test-based
financial literacy.
While there are various questions to determine self-reported financial literacy,
this researcher utilized a question from Lusardi and Mitchell (2014), which is also
included in Lusardi and Tufano (2015), as well as the NFCS instrument (2018). The
self-reported financial literacy question is:
• On a scale from 1 to 7, where 1 means very low and 7 means very high,
how would you assess your overall financial knowledge?
Financial Behavior
The ultimate goal of financial literacy is to produce positive financial
behaviors. Robb and Woodyard (2011) note six financial best practices they consider
positive financial behaviors. Positive financial behavior includes: 1) having an
emergency fund, 2) obtaining a credit report, 3) no overdrafts, 4) credit card payoff,
5) retirement saving, and 6) risk management (p. 64).
Financial education and literacy have been the aim of scholars, policymakers,
and educators since the U.S. financial crisis. However, financial literacy has been
viewed as a subtle means to an end. Financial literacy is deemed critical because of its
believed relationship with financial behaviors. To simplify this argument, the more
financially literate an individual is, the more positive their financial behaviors.
Despite widespread efforts to increase financial literacy, financial knowledge is
declining (Lin et al., 2019; Yakoboski et al., 2021). The persistent nature of financial
illiteracy has caused some to determine that aspects of personal finance go beyond
objective test-based measures of financial literacy. Researchers note the vital role of
self-esteem, self-confidence, impatience, and other psychological antecedents—and
their relationship to action and outcomes. As such, this researcher determined it was
essential to gauge members' financial behaviors and their objective and subjective
financial literacy.
The survey instrument asked respondents about their financial behavior. The
survey includes seven questions reflecting respondents’ financial behavior in paying
bills, staying on budget, paying off credit cards, limiting out credit card balances,
emergency funds, saving money, and investing for retirement. The questions intended
to evaluate financial behavior are from the Dew and Xiao’s Financial Management
Behavior Scale (2011). These behavioral-related financial questions are imagined to
address standard personal financial management practices, and the categories are used
by other studies to evaluate personal financial behavior (Dew & Xiao, 2011; Hilgert,
Hogarth, & Beverly, 2003; Robb & Woodyard, 2011) (APENDIX A).
The seven questions are concentrated on financial behaviors associated with
the kinds of financial activity that transpire in a credit union. The seven questions are
as follows:
•Please indicate how often you have paid all of your bills on time in the
past six months: never, seldom, sometimes, often, always?
•Please indicate how often you have stayed within your budget or
spending plan in the past six months: never, seldom, sometimes, often,
always?
•Please indicate how often you have paid off credit card balances in full
each month in the past six months: never, seldom, sometimes, often,
always?
•Please indicate how often you have maxed out the limit on one or
more credit cards in the past six months: never, seldom, sometimes,
often, always?
•Please indicate how often you began or maintained an emergency
savings fund in the past six months: never, seldom, sometimes, often,
always?
•Please indicate how often you have saved money from every paycheck
in the past six months: never seldom, sometimes, often, always?
•Please indicate how often you have contributed money to a retirement
account in the past six months: never, seldom, sometimes, often,
always?
Demographic Questions
There are four demographic questions included in the survey instrument. Race
plays an essential role in financial literacy. One question asking about race is included
because previous work has noted low levels of financial literacy amongst minority
populations—particularly individuals who identify as Black and Hispanic (Lin et al.,
2019). One question is asked about the respondent's zip code to determine if there are
demographics within particular zip codes with higher (or lower) financial literacy.
Gathering zip code information can provide clues into member financial knowledge
in urban, suburban, and rural communities.
Gender is also a factor in financial literacy, with previous research noting that
women have lower financial knowledge (Lusardi & Mitchell, 2008). Gaining insights
into whether a similar challenge exists in the credit union environment could be
beneficial.
A single question on employment status is included in the survey. Financial
acuity is low amongst individuals with no or low income, the unemployed, and
students (Lin et al., 2019). Byrne et al. (2010) note that low financial knowledge
levels are closely associated with financial and social exclusion. Financial illiteracy is
common for the economically vulnerable—which adds to growing wealth inequality
in the U.S (Stolper & Walter, 2017).
The demographic questions in the survey are as follows:
•How would you describe your race: Black/African American,
Hispanic, Caucasian/White, Asian, Other (please specify)?
•What is your zip code?
•How would you best describe your gender: Male, Female, “Other” was
included as an option for the survey conducted at the Oregon credit
union, and “non-binary” was included as an option for the Virginia
credit union.
•How would you best describe your employment: Employed, Not
Employed, Retired, Student?
Research Questions
As was mentioned in Chapter one, three research are included in this study:
(1) How do financial literacy levels of credit union members compare with financial
literacy levels of NFCS (2018) respondents? (2) Does higher (lower) self-reported
financial knowledge correspond with actual financial knowledge as indicated on the
literacy assessment? (3) Is higher financial literacy in credit union members
associated with the following positive financial behaviors? a) Paying bills on time, b)
Staying with a budget or spending plan, c) Paying off credit card balances in full each
month, d) Not maxing out the limit on a credit card, e) Starting or maintaining an
emergency spending account, f) Saving money from each paycheck, g) Contributing
to a retirement account?
Below, the research questions are stated, and the corresponding survey
questions that helped answer the research question are outlined.
Research Question 1
How do financial literacy levels of credit union members compare with financial
literacy levels of NFCS (2018) respondents?
The financial literacy of credit union members was measured with five
questions in the instrument (see Table 1). Each question includes a multiple-choice
response. To answer this question, a series of independent two sample t-tests were
conducted. The independent sample t-test is appropriate to conduct when research
aims to compare two groups on a continuous dependent variable (Gerald, 2018). In
these analyses, the groups being compared were the credit union and NFCS
respondents. The dependent variable was the number of financial literacy questions
the respondents answered correctly. For each comparison, normality, skewness, and
kurtosis was tested. Additionally, a Levene’s test and Welch’s t-test were operated.
Table 1
Financial Literacy Questions
Item #
1. Suppose you had $100 in a savings account and the interest rate was 2% per
year. After 5 years, how much money do you think you would have in the
account if you left the money to grow?
2. Imagine that the interest rate on your savings account was 1% per year and
inflation was 2% per year. After 1 year, how much would you be able to buy
with the money in this account?
3. Buying a single company’s stock usually provides a safer return than a stock
mutual fund?
4. If interest rates rise, what will typically happen to bond prices?
5. A 15-year mortgage typically requires higher monthly payments than a
30year mortgage, but the total interest paid over the life of the loan will be
less.
Research Question 2
Does higher (lower) self-reported financial knowledge correspond with actual
financial knowledge as indicated on the literacy assessment?
To compare self-reported financial knowledge with actual financial
knowledge, the researcher compared survey responses from question six (see Table 2)
with responses to survey questions one through five (see Table 1). To answer this
question, a Pearson correlation analysis was conducted on the credit union sample. A
Pearson correlation is appropriate to perform when the research goal is to examine if a
relationship exists between two continuous variables (Schober, Boer, & Schwarte,
2018).
Table 2
Self-Assessed Financial Literacy Versus Actual Financial Literacy
Item #
6. On a scale from 1 to 7, where 1 means very low and 7 means high, how
would you assess your overall financial knowledge?
Research Question 3
Is higher financial literacy in credit union members associated with the following
positive financial behaviors? 1) Paying bills on time, 2) Staying with a budget or
spending plan, 3) Paying off credit card balances in full each month, 4) Not maxing
out the limit on a credit card, 5) Starting or maintaining an emergency spending
account, 6) Saving money from each paycheck, 7) Contributing to a retirement
account?
To determine if higher financial literacy is associated with certain positive
financial behaviors, a Spearman correlation analysis was conducted on the credit
union sample. Spearman correlations are appropriate to perform when the research
aims to determine if there are relationships between variables that are “nonnormally
continuous data, for ordinal data, or data with relevant outliers” (Schober et al., 2018,
p. 1763).
Table 3
Financial Literacy and Behavior
Item #
7. Please indicate how often you have paid all of your bills on time in the past
six months.
8. Please indicate how often you have stayed within your budget or spending
plan in the past six months.
9. Please indicate how often you have paid off credit card balance(s) in full
each month, in the past six months.
10. Please indicate how often you have maxed out the limit on one or morecredit
cards in the past six months.
11. Please indicate how often you began or maintained an emergency
savingsfund, in the past six months.
12. Please indicate how often you have saved money from every paycheck, inthe
past six months.
13. Please indicate how often you have contributed money in a
retirementaccount, in the past six months.
Explanation of Procedures
Each credit union (Oregon and Virginia) expressed interest in participating in
the member financial literacy and behavior survey. Upon acceptance of this research
proposal, each credit union selected was emailed the survey instrument (APPENDIX
A). The survey tool was administered using SurveyMonkey to both solicit and collect
survey responses.
The survey was sent to a random sample of credit union members that are 18
years of age or older. The survey included an introductory email from the CEO
communicating that their participation is voluntary and that responses will be kept
anonymous. Members had two weeks to respond to the survey and received two
reminder emails soliciting their response. Once the survey was closed, the data was
exported from SurveyMonkey into Microsoft Excel and sent to the researcher.
It is noted that each of the credit unions has an extensive history of conducting
member surveys. However, neither has tested membership on their financial
knowledge nor examined financial literacy utilizing the Big Five survey questions.
Protection of Human Subjects
Before conducting the study, an application was made to the Institutional
Review Board (IRB) of George Fox University for approval since the research
involves human subjects. Potential respondents in the study were asked to complete a
questionnaire that tests their financial knowledge, asks for a self-assessment of their
financial knowledge, requests responses to how they behave with their finances and
requests demographic information. All data was collected and analyzed without
identifying the member, and no names were requested on the survey. Access to the
survey responses were given to each credit union, the chair of the dissertation
committee, and the Principal Investigator.
The purpose of the research survey and its voluntary nature were explained on
the survey instrument's first page. In the cover letter, members were informed that
their responses would remain confidential and that the survey is for research
purposes. By completing the survey, members acknowledged their voluntary
agreement to participate in the study and consent for the results to be used in data
analysis. Respondents were allowed to comment about the survey to the researcher
via email. Members completing the survey with questions about the survey tool were
also given contact information for their respective credit unions.
The potential risks for subjects participating in this financial literacy and
behavior study are that some subjects may feel anxious or uncomfortable completing
one or all of the questions. Some subjects may be uneasy about the confidentiality or
privacy of their responses despite it being communicated that the survey was private
and voluntary. The researcher is not aware of any physical risk to subjects, given that
the survey was conducted online via email. The data collection tool did not increase
risks for subjects more than minimally beyond ordinary risks of daily life.
Discussion of Instrument Validity
The research questions asked within the instrument have been widely utilized,
either in whole or part, and tested for reliability (Dew & Xiao, 2011; Knoll & Houts,
2012; Robb & Woodyard, 2011). However, this researcher recognizes that an
instrument consisting of questions that have been validated in other survey
instruments does not imply that the instrument is reliable.
To assess the financial literacy of members, this researcher selected the Big 5
questions made popular by researchers Lusardi and Mitchell (2008) and included a
self-assessed financial literacy question as seen in Lusardi and Tufano (2009). In
2011, Robb and Woodyard utilized the NFCS (2009) data and asked the Big 5
questions to test financial knowledge and four questions aimed at assessing
selfassessed financial literacy.
Alternatively, Knoll and Houts (2012) evaluated four financial literacy
assessments between 2006 and 2009. The assessments were each part of a dataset
provided by RAND’s American Life Panel (ALP). The authors tested the reliability of
Lusardi and Mitchells (wave 5) survey, which included thirteen questions (including
the Big 5 and self-assessed financial literacy).
Dew and Xiao (2011) provide a comprehensive analysis of their Financial
Management Behavior Scale (FMBS). In it, they note a Cronbach’s Alpha of .81 for
the full FMBS, while subscales representing investments, insurance, cash
management, and credit showed Cronbach Alpha’s between .78 and .57, indicating
some items that made up the subscales “did not hang together well” (p. 49).
Moreover, the authors conducted a validity analysis for both face validity and content
validity. In both face and content validity, their expert panel “agreed that the FMBS
items appeared to measure what it purported to measure” (p. 50). Although only a
subset of the Dew and Xiao scale is utilized, the questions cover standard consumer
financial-management practices such as paying bills, budgeting, credit cards,
spending, saving, retirement contributions. (Hilgert et al., 2003; Tang & Baker, 2016;
Xiao, Ahn, Serido, & Shim, 2014).
Data Analysis
Data was screened before any analysis was conducted. The researcher used
Microsoft Excel to identify incomplete survey responses. Incomplete answers of any
kind were excluded. The researcher worked with the dissertation committee to
determine which statistical treatments were necessary to answer the research
questions for this study, as indicated above in the Research Question section.
Summary of Methodology
The purpose of this exploratory study is to examine financial literacy and
behavior in credit union members. This chapter describes the sample selection and
data source, the development of the survey instrument, relevant research questions,
procedures used, human subject protection, instrument validity, and data analysis
methods that were used. The strength of this study is that it is exploratory in nature.
The research looks to add to the existing body of knowledge on financial literacy and
behavior, where the credit union context that is being examined is underexplored.
CHAPTER 4: RESULTS
The purpose of this study is to establish a greater understanding of financial
literacy and behavior among credit union members. Three research questions were
addressed in this study: (1) How do financial literacy levels of credit union members
compare with financial literacy levels of NFCS (2018) respondents? (2) Does higher
(lower) self-reported financial knowledge correspond with actual financial knowledge
as indicated on the literacy assessment? (3) Is higher financial literacy in credit union
members associated with the following positive financial behaviors? a) Paying bills
on time, b) Staying with a budget or spending plan, c) Paying off credit card balances
in full each month, d) Not maxing out the limit on a credit card, e) Starting or
maintaining an emergency spending account, f) Saving money from each paycheck,
g) Contributing to a retirement account?
This chapter presents and discusses the results of the analysis conducted,
which addresses the research questions. To start, descriptive statistics of the samples
are presented, followed by the results of the analysis for each research question. This
chapter concludes with a summary of the findings from the analysis.
Descriptive Statistics
A total of 1111 responses from two credit unions: (1) ORCU (n = 523) and (2)
VACU (n = 588), were included in the analyses. Responses from the National
Financial Capability Study (NFCS) (n = 27091) were also included in the analyses.
The demographic variables of the NFCS and credit union samples are presented in
Table 4.
Table 4
Demographic Characteristics of NFCS and Credit Union Samples
NFCS NFCS NFCS NFCS CU CU CU
National OR and
VA
OR VA OR and
VA
OR VA
Variable n
%
n % n % n % n % n % n %
Race
White 17224 64
1314
75
987
79
327
64
809
73
472
90
337
57
Black 3239 12 116 7 21 2 95 19 195 18 7 1 188 32
Hispanic 4334 16 174 10 133 11 41 8 43 4 16 3 27 5
Asian 1598 6 95 5 61 5 33 7 14 1 10 2 4 1
Other 696 3 61 3 48 4 14 3 18 2 18 3 0 0
Missing
0
0
0 0 0 0 0 0 32 3 0 0 32 5
Gender
Male
11956
44
848
48
606
49
242
48
443
40
207
40
236
40
Female 15135 56 912 52 644 52 268 53 655 59 310 59 345 59
Other 0 0 0 0 0 0 0 0 13 1 6 1 7 1
Missing
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Employment
Employed
15190
56
932
53
654
52
278
55
749
67
321
61
428
73
Not Employed 4875 18 340 19 239 19 101 20 73 7 50 10 23 4
Retired 6116 23 416 24 309 25 107 21 264 24 146 28 118 20
Student 910 3 72 4 48 4 24 5 25 2 6 1 19 3
The “CU OR and VA” data include the combined responses from two credit
unions in Oregon and Virginia. The pooled Oregon and Virginia credit union data reflect
a White (73%), Female (59%), and Employed (67%) member. However, the Virginia
respondents were noticeably more diverse (40%), with (32%) of the overall respondents
Black. The “NFCS OR and VA” are combined data from Oregon and Virginia NFCS
respondents. The merged Oregon and Virginia NFCS data reflects a White (75%),
Female (52%), and Employed (53%). The visible difference between the “CU OR and
VA” and “NFCS OR and VA” is the employment level of respondents. CU respondents
were more likely to be employed (67%) versus NFCS respondents (53%).
Research Question 1
Research Question 1: How do financial literacy levels of credit union members
compare with financial literacy levels of NFCS (2018) respondents? To answer this
question, a series of independent two-sample t-tests were conducted. The independent
sample t-test is appropriate to conduct when research aims to compare two groups on a
continuous dependent variable (Gerald, 2018). In these analyses, the groups being
compared were the credit union and NFCS respondents. The dependent variable was the
number of financial literacy questions the respondents answered correctly.
First, the complete credit union sample was compared to the total NFCS sample. It
is essential to test for normality when choosing between parametric and non-parametric
tests (Gerald, 2018). Normality was tested using a Kolmogorov-Smirnov (KS) test, which
works best when the sample size exceeds 50 (Pallant, 2020). The KS test was significant
(p < .001), indicating that the data distribution was significantly different from normal.
However, skewness (-0.27) and kurtosis (-0.89) values were within normal limits (Byrne,
2010; George & Mallery, 2010; Westfall & Henning, 2013), and the t-test is robust
towards divergence from normality, especially with large sample sizes (Das & Imon,
2016), so the analysis was continued.
Levene’s test is a common way to test for equality of variance and is the default in
SPSS (Delacre, Lakens, & Leys, 2017). As such, a Levene’s test was utilized to test the
equality of variance. Levene’s test results were significant (p < .001), demonstrating that
the variance was significantly different between the two groups. Therefore, the Welch
ttest was interpreted, as this version of the t-test does not assume equal variances (Delacre
et al., 2017). The results of the t-test were significant, t(1256.04) = 20.68, p < .001, d =
0.52, indicating that credit union respondents answered more questions correctly on
average (M = 3.57, SD = 1.20) compared to NFCS respondents (M = 2.80, SD = 1.50).
Table 5 displays the statistical comparison of the two groups.
Table 5
Number of Correct Answers for Credit Union and NFCS Respondents
Group n Mean Std. Deviation Std. Error Mean Sig.
Credit Union 1111 3.57 1.20 0.04 < .001
NFCS 27091 2.80 1.50 0.01
Next, the full credit union sample was compared to the NFCS sample respondents
from Oregon and Virginia. The KS test of normality was significant (p < .001), indicating
that the distribution of the data was significantly different from normal. However,
skewness (-0.49) and kurtosis (-0.66) values were within normal limits (Byrne, 2010;
George & Mallery, 2010; Westfall & Henning, 2013). Levene’s test results were
significant (p < .001), indicating that the variance was significantly different between the
two groups. Therefore, the Welch t-test was interpreted. The results of the t-test were
significant, t(2708.76) = 15.36, p < .001, d = 0.56, indicating that credit union
respondents answered more questions correctly on average (M = 3.57, SD = 1.20)
compared to NFCS respondents from Oregon and Virginia (M = 2.79, SD = 1.49). Table
6 displays the statistical comparison of the two groups.
Table 6
Number of Correct Answers for Credit Union and NFCS Respondents (OR and VA Only)
Group n Mean Std. Deviation Std. Error Mean Sig.
Credit Union 1111 3.57 1.20 0.04 < .001
NFCS 1760 2.79 1.49 0.04
Finally, the ORCU and VACU samples were compared separately to the
corresponding NFCS samples from Oregon and Virginia. The KS tests of normality
were significant (p-values < .001), indicating that the distribution of the data was
significantly different from normal. However, skewness and kurtosis values were within
normal limits
(Byrne, 2010; George & Mallery, 2010; Westfall & Henning, 2013). The results of
Levene’s tests were significant (p-values < .001), indicating that the variance was
significantly different between the two groups. Therefore, the Welch t-test was
interpreted. The results of the t-test comparing ORCU respondents and NFCS
respondents from Oregon were significant, t(1291.09) = 14.41, p < .001, d = 0.67. The
results of the t-test comparing VACU respondents and NFCS respondents from Virginia
were significant, t(986.95) = 9.07, p < .001, d = 0.56. These results indicate that, within
each state, credit union respondents answered more questions correctly on average
compared to NFCS respondents. Table 7 displays the statistical comparison of the two
groups for each state.
Table 7
Number of Correct Answers for Credit Union and NFCS Respondents by State
Group n Mean Std. Deviation Std. Error Mean Sig.
ORCU 523 3.79 1.11 0.05 < .001
Oregon NFCS 1250 2.87 1.48 0.04
VACU 588 3.38 1.24 0.05 < .001
Virginia NFCS 510 2.61 1.51 0.07
Research Question 2
Research Question 2: Does higher (lower) self-reported financial knowledge
correspond with actual financial knowledge as indicated on the literacy assessment? A
Pearson correlation analysis was conducted on the credit union and NFCS samples to
answer this question. A Pearson correlation is appropriate to perform when the research
goal is to examine if a relationship exists between two continuous variables (Schober, et
al., 2018). In this analysis, respondents’ self-reported financial knowledge was correlated
with the number of financial literacy questions they answered correctly. Table 8 displays
the correlation coefficients for each sample. All correlation coefficients were positive and
significant, (all p-values < .001), indicating that respondents who rated themselves as
more knowledgeable tended to answer more financial knowledge questions correctly. The
correlation coefficients in the credit union sample (ranging from .42 to .43) were
markedly greater than the correlation coefficients in the NFCS samples (ranging from .23
to .27), indicating that the relationship between self-reported financial knowledge and
actual financial knowledge was stronger in the credit union samples.
Table 8
Pearson Correlations Between Self-Reported Financial Knowledge and Number of
Correct Answers
Sample r Sig.
Credit Union All .42 < .001
ORCU .43 <. 001
VACU .42 <. 001
NFCS All .27 < .001
NFCS Oregon and Virginia .23 < .001
NFCS Oregon .23 < .001
NFCS Virginia .23 < .001
Research Question 3
Research Question 3: Is higher financial literacy in credit union members
associated with the following positive financial behaviors? a) Paying bills on time, b)
Staying with a budget or spending plan, c) Paying off credit card balances in full each
month, d) Not maxing out the limit on a credit card, e) Starting or maintaining an
emergency spending account, f) Saving money from each paycheck, g) Contributing to a
retirement account? To answer this question, a Spearman correlation analysis was
conducted on the credit union sample.
Spearman correlations are appropriate to perform when the research aims to
determine if there are relationships between variables that are “nonnormally continuous
data, for ordinal data, or data with relevant outliers” (Schober et al., 2018, p. 1763). In
this analysis, the independent variable was the number of financial literacy questions the
respondents answered correctly. The dependent variables are the respondents’ ratings of
how regularly they engaged in certain financial behaviors (i.e., paying bills on time,
staying with a budget or spending plan, paying off credit card balances in full each
month, maxing out the limit on a credit card, starting or maintaining an emergency
spending account, saving money from each paycheck, and contributing to a retirement
account).
The results show that financial knowledge is positively associated with paying
bills on time, staying with a budget or spending plan, paying off credit card balances in
full each month, starting or maintaining an emergency spending account, saving money
from each paycheck, and contributing to a retirement account. When respondents
answered more financial literacy questions correctly, it was more common for them to
display positive financial behavior. The findings show that financial knowledge was
negatively correlated with maxing out the limit on a credit card, indicating that
respondents who correctly answered more financial literacy questions were less likely to
max out their credit card. Not maxing out a credit card is a positive financial behavior.
Table 9 displays the results of the Spearman correlations.
Table 9
Spearman Correlations Between Number of Correct Answers and Financial Behaviors
Dependent Variable
Correlation (ρ) with Number
of Correct Answers P
Paying bills .22 < .001
Spending plan .18 < .001
Paying off credit cards .24 < .001
Maxing credit cards -.21 < .001
Emergency fund .26 < .001
Saving each paycheck .23 < .001
Retirement contribution .15 < .001
Exploratory Analysis
A multiple linear regression analysis was conducted on the credit union sample to
determine if demographic characteristics were associated with financial knowledge.
Multiple linear regression is appropriate to perform when the research aims to determine
if multiple independent variables (predictors) are related to a continuous dependent
variable (Tranmer & Elliot, 2008). In this analysis, the independent variables were race,
gender, and employment status. The categorical variables were dummy-coded for the
analysis. For race, “White” served as the reference category; for gender, “male” served as
the reference category; and for employment status, “employed” served as the reference
category. The dependent variable was the number of financial literacy questions the
respondents answered correctly.
The regression model predicting financial knowledge was significant, F(9, 1065)
= 20.37, p < .001, R2 = .15 . The results represented that together, the demographic
variables explained a significant amount of variance (15%) in financial literacy. Table 10
displays the results for the individual regression coefficients. Race was associated with
financial literacy such that Black (B = -0.93, p < .001) and Hispanic (B = -0.83, p < .001)
respondents tended to answer fewer financial literacy questions correctly when compared
to White respondents. Gender was correlated with financial knowledge such that women
(B = -0.38, p < .001) are apt to answer fewer financial literacy questions correctly than
men. Employment status was related to financial knowledge. Respondents who were not
employed (B = -0.30, p = .028) typically answered fewer financial literacy questions
correctly than respondents who were employed.
Table 10
Coefficients for Regression with Demographic Characteristics Predicting Knowledge
Variable B Std. Error Beta Sig. Lower Upper VIF
Race: Black -0.93 0.09 -0.30 < .001 -1.10 -0.75 1.06
Race: Hispanic -0.83 0.17 -0.14 < .001 -1.17 -0.49 1.02
Race: Asian 0.14 0.30 0.01 .634 -0.44 0.72 1.01
Race: Other 0.01 0.26 0.00 .969 -0.50 0.52 1.01
Gender: Female -0.38 0.07 -0.16 < .001 -0.52 -0.25 1.03
Gender: Other 0.47 0.45 0.03 .293 -0.41 1.36 1.01
Status: Not employed -0.30 0.14 -0.06 .028 -0.57 -0.03 1.04
Status: Retired -0.10 0.08 -0.04 .222 -0.25 0.06 1.06
Status: Student -0.42 0.24 -0.05 .080 -0.88 0.05 1.01
95 % CI
Summary
Independent sample t-tests were conducted to examine how the financial literacy
of credit union members compared to the NFCS. The results showed that, on average,
credit union members answered more financial literacy questions correctly when
compared to NFCS respondents at a statistically significant level. A Pearson correlation
was conducted to determine if self-reported financial knowledge was associated with
actual financial knowledge. The results showed that self-reported knowledge was
positively associated with actual financial knowledge at a statistically significant level. A
Spearman correlation analysis was conducted to determine if financial knowledge was
associated with positive financial behaviors among credit union members. The results
showed that financial knowledge was positively related to paying bills on time, staying
with a budget or spending plan, paying off credit card balances in full each month,
starting or maintaining an emergency spending account, saving money from each
paycheck, and contributing to a retirement account. Financial knowledge was negatively
correlated with maxing out the limit on a credit card, thus indicating positive financial
behavior. Each of these results was at a statistically significant level. Finally, a multiple
linear regression was conducted to determine if demographic characteristics were
associated with financial knowledge among credit union members. The results showed
that Black and Hispanic respondents tended to have lower financial knowledge than
White respondents (p < .001), female respondents tended to have lower financial
knowledge than male respondents (p < .001), and not employed respondents tended to
have lower financial knowledge than employed respondents (p = .028).
CHAPTER 5:
DISCUSSION, IMPLICATIONS, RECOMMENDATIONS, AND CONCLUSION
The purpose of this study is to establish a greater understanding of financial
literacy and behavior among credit union members. Three research questions are
addressed in this study: (1) How do financial literacy levels of credit union members
compare with financial literacy levels of NFCS (2018) respondents? (2) Does higher
(lower) self-reported financial knowledge correspond with actual financial knowledge as
indicated on the literacy assessment? (3) Is higher financial literacy in credit union
members associated with the following positive financial behaviors? a) Paying bills on
time, b) Staying with a budget or spending plan, c) Paying off credit card balances in full
each month, d) Not maxing out the limit on a credit card, e) Starting or maintaining an
emergency spending account, f) Saving money from each paycheck, g) Contributing to a
retirement account?
This chapter will discuss this study's findings, which were analyzed in the
previous chapter. Additional topics that will be addressed in this chapter include the
study's implications, the researcher's recommendations, and a conclusion based on the
study results.
Data were gathered from a sample of credit union members (n = 1111) drawn
from two credit unions headquartered in Oregon and Virginia. A survey instrument was
designed and emailed to credit union members to assess test-based financial literacy,
selfassessed financial literacy, and financial behaviors.
Research question one examined financial literacy among credit union members
and compared the results to the National Financial Capability Study (NFCS) (n = 27091).
The findings from this comparison indicate that credit union members answered more
test-based financial literacy questions correctly than the national sample from NFCS.
Additionally, when comparing the credit union member responses to a reduced NFCS
sample representing only the states of Oregon and Virginia, the results also indicate
higher mean scores for credit union members. Similarly, comparing the sample of Oregon
responses to the NFCS Oregon results indicates that credit union members answered
more test-based financial literacy questions correctly. Finally, when comparing the
Virginia credit union responses to the NFCS Virginia results, the analysis again illustrates
that Virginia credit union members answer more questions correctly on average when
compared to NFCS Virginia respondents.
Research question two explored the relationship between self-reported financial
literacy (subjective) and test-based financial literacy (objective). The results indicate that
self-reported financial literacy is positively correlated with the number of financial
literacy questions a credit union member answered correctly. In other words, members
who self-reported greater financial literacy also tended to answer more test-based
financial literacy questions correctly.
Research question three results demonstrate that financial knowledge is positively
associated with certain financial behaviors, including paying bills on time, staying with a
budget or spending plan, paying off credit card balances in full each month, starting or
maintaining an emergency spending account, not maxing out credit cards, saving money
from each paycheck, and contributing to a retirement account. When respondents
answered more financial literacy questions correctly, they tended to display positive
financial behavior.
Financial literacy is economically essential (Kaiser et al., 2020). Both in the U.S.
and around the world, there is growing access to the capital markets, given the surge in
financial technologies and the digitization of financial transactions (Klapper & Lusardi,
2020). At the same time, financial products have become increasingly complex, while
consumers bear a greater responsibility for managing their own finances. The findings
from this study show that credit union members score better on test-based financial
literacy survey questions than NFCS respondents. This study's findings are significant
given the lift in scores that occurred in the credit union. Despite this critical finding,
credit unions remain an underexplored domain (McKillop & Wilson, 2011).
Self-assessed financial literacy has been positively correlated with objectivebased
financial knowledge (Allgood & Walstad, 2016; Hung et al., 2009; Lusardi & Mitchell,
2007; Lusardi & Tufano, 2015). The results of this credit union member financial
knowledge study indicate a significant positive relationship between selfreported
financial literacy and actual financial literacy. Respondents who rated themselves as more
financially knowledgeable tended to answer more financial knowledge questions
correctly. These findings are essential given it implies that instead of asking credit union
members to answer five test-based financial literacy questions to determine their financial
knowledge, a credit union could simply ask its members to rate their own financial
knowledge and rely on this response as an accurate inference of their objective financial
knowledge.
Financial literacy contributes to financial behavior, with more financially
knowledgeable individuals displaying greater positive financial behaviors (Behrman,
Mitchell, Soo, & Bravo, 2012). This study affirms Behrman et al. within the credit union
domain, as members with higher mean scores on a test-based financial literacy exam
consistently displayed greater positive financial behaviors. These results highlight the
essential nature of financial knowledge; greater financial knowledge is most valuable not
because someone can answer more questions correctly but because greater financial
knowledge typically equates to more positive financial behaviors. Some have questioned
whether financial knowledge leads to better financial behavior (Fernandes et al., 2014;
Goyal & Kumar, 2021; Huston, 2010; Stolper & Walters, 2017). However, this study's
results indicate a significant relationship between the financial literacy and financial
behavior of credit union members.
An additional analysis was conducted on race, gender, and employment status.
The results indicated that these demographic variables explained a significant amount of
the variance in financial literacy. The results are important given they reiterate the
unfortunate results from other studies: women, minorities, and not employed respondents
display lower levels of financial knowledge (Calcagno, Alperovych, & Quas, 2020:
Lusardi et al., 2020).
Implications
The following section provides possible implications for individuals,
governments, researchers, and credit unions. This researcher will also comment on the
results within the context of the stakeholders as a cohort.
Individuals.
For individuals, this research may warrant a second look at credit unions as a
proper place to manage their finances, given that a primary focus within credit unions is
on financial wellness and stewarding financial education. Although a causal relationship
is not suggested by these findings, the emphasis on financial education activities and
initiatives within credit unions may explain why credit union members answered more
financial knowledge questions correctly than respondents in the NFCS.
Financial knowledge is an important factor for individuals saving for retirement.
Adams and Rau (2011) recognize that "Perhaps one of the most robust findings across the
literature is that financial literacy (a cognitive factor…) plays a key role in financial
preparation for retirement" (p. 6). The act of preparing for retirement involves saving for
retirement—something done best by those who are financially literate (Clark et al., 2012;
Goyal & Kumar, 2021; Lusardi, 2019; Lusardi & Mitchell, 2014; Yakoboski et al., 2020).
If preparing for retirement is done best by those who are financially literate, and financial
literacy levels are shown to be elevated in the credit union environment, then individuals
could benefit from the credit union structure; if the credit union has an appropriate mix of
products and services to meet the retirement needs of their members.
Greater financial literacy among credit union members is associated with more
positive financial behaviors. The goal of a household is not only about obtaining financial
knowledge, but it is more of a means to an end, with good money behaviors that lead to a
state of financial well-being being the critical end. Consequently, individuals may benefit
from knowing that the purpose of credit unions is to build member financial capability
and promote member economic well-being (Bryne et al., 2010) and that credit unions
appear to be delivering on that purpose (McKillop & Wilson, 2015).
With an understanding that the purpose of credit unions is to promote member
financial capability and economic well-being, members should consider becoming more
involved in their credit union, and work to promote the benefits of credit unions. Because
of the unique member-owner structure, members can have a meaningful impact on the
credit union's direction and work to impact the local economy.
The credit union structure, coupled with member involvement and community
advocacy, could answer some of the challenges posed by Willis (2017). In her address,
she notes that financial literacy alone is an inadequate remedy to “improve the financial
well-being of individuals and society” (p. 16). Willis notes that the goal of financial
education is to “foster financially-informed citizens, who have the capacity for civic
engagement that can create citizen-informed economic policies and financial regulation”
(p. 16). Willis seemingly describes the credit union model without calling it by name: (1)
financially informed citizens, (2) who have a capacity for civic engagement. Individual
involvement in credit unions, which extends into the communities in which they reside,
could have a lasting impact.
McKillop et al. (2020) note that the mission of the credit union is to “maximize
the welfare of stakeholders that are located in the local community” (p. 7). With engaged
individual members, credit unions can fill the gap in providing necessary loans to
lowincome individuals and financial education to marginalized communities and schools.
As an example, a focus on promoting financial education, financial literacy, and positive
financial behavior in schools may help younger generations achieve better financial
outcomes while also increasing overall credit union membership. This could prove
essential given that schools no longer prioritize teaching financial education.
Government Policy Makers.
For governments, the findings from this research could be utilized in several ways.
Comparing the results from the combined credit union sample and the OR/VA NFCS data
shows credit union members score 28% higher than the NFCS sample on the test-based
financial literacy questions. This finding is critical because of financial literacy's
association with financial behavior (Kaiser et al., 2020), positive financial outcomes
(Lusardi & Mitchell, 2014), planning, saving, and debt management (Lusardi, 2019;
Lusardi & Tufano, 2015). The government may mobilize these findings to justify the
continued support of credit unions.
It has been observed that workers with low financial literacy spend six hours of
worktime per week on personal financial issues—compared with one hour per week for
the financially literate (TIAA, 2020). Improving employee output through financial
education may serve the needs of both corporations and the government. For companies,
offering workplace financial education services may improve employee productivity.
This, in turn, can improve a company’s contribution to the broader economy—something
governments monitor regularly and publish results of GDP quarterly.
It may also be worth the government's time to imagine how credit unions could
help the Consumer Financial Protection Bureau as well as the Office of Financial
Education. If one of the goals of the CFPB is to measure financial well-being, and
financial literacy of individuals is a key component, then it could serve the government
well to consider the role credit unions play in accomplishing higher financial literacy
scores for its members.
Importantly, given that 52% of U.S. households have no retirement savings
(Jeszeck et al., 2015) and that financial literacy is on the decline (Lin et al., 2019;
Yakoboski et al., 2020), governments could use this research to justify the benefit of
credit unions in preparing individuals for retirement. The more individuals that are
financially prepared for life after work, the less dependence there is on social programs
such as Social Security and Medicaid—which are already stretched thin. Moreover,
governments could use this research to justify the continued investment in low-income
designated credit unions and credit unions that qualify as Community Development
Financial Institutions (CDFI). Members of these low-income credit unions could benefit
from the financial resource subsidies which focus on financial education.
Governments could use the findings of this research to promote credit unions as a
potential resource for closing the racial wealth gap. A particular focus on funding aimed
at credit unions with large, marginalized populations or CDFI eligible credit unions could
prove beneficial. Finally, the government may use the findings to warrant the continued
support of the tax-exempt treatment of credit unions, given the ongoing and widespread
benefit to individuals and communities.
Trade Organizations.
For credit union trade organizations, the findings of this research could prove
beneficial in legislative advocacy. If credit unions are to maintain their preferential tax
treatment, they must show value that exceeds the benefits they are granted. Moreover,
with the results of this study, trade organizations could be moved to sponsor an additional
study that expands the scope of this research, or participate in the development of a credit
union index. Importantly, this research could play a part in helping trade organizations
unify credit unions in their focus on member financial wellness—with financial literacy
and positive financial behavior playing an important role.
Researchers.
For researchers, the results of this study could be used to focus on demographic
areas where there is a persistent financial literacy gap. Female, Black, and Hispanic
individuals score poorly on national financial literacy exams (Yakoboski et al., 2020).
The findings could be utilized to expand research on financial literacy and financial
behavior of marginalized populations in credit unions. Moreover, researchers may use
the findings of this study as motivation to expand their financial literacy and wellness
research into the credit union domain. The finding that credit union members score better
than comparable NFCS respondents on test-based financial literacy questions is
significant as it highlights the need for more research in this underexplored realm.
McKillop and Wilson (2015) note that credit unions are well-positioned to deliver
financial literacy to their members. McKillop et al. (2020) determined that credit unions
are "well-positioned" because the primary focus of credit unions is on achieving the
social and economic goals of their membership. Byrne et al. (2010) highlight that the
purpose of credit unions is to promote member financial capability and build member
economic wellbeing. Huang et al. (2013) determined that financial capability includes
three key considerations: (1) financial literacy and ability are critical elements of financial
well-being, (2) consumers need access to financial institutions, and (3) there is
interconnectivity between consumer financial knowledge and the institutional setting.
Johnson and Sherraden (2007) note that financial capability is both an individual and an
institutional ideal, and when they are combined, it facilitates a consumer's ability to
"understand, assess, and act in their best financial interests" (p. 124). This study's findings
can help galvanize previous research by connecting financial literacy, financial behavior,
and the institutional setting as a "collective" to be further explored in the credit union
domain. Questions like “what activities contribute to the increased literacy scores?” and
“what activities can be done to enhance and maximize the advantages that are found
within the credit union ecosystem?” are important considerations.
The findings reported in this research may quell some of the concern about the
overall value proposition of financial literacy education (De Meza, Irlenbusch, &
Reyniers, 2009; Willis, 2009; 2017) given: the reduced cost of delivery given the
economics within the credit union that are different than the government or the private
sector. Although some may argue that the tax subsidies afforded to credit unions are a
cost with little benefit being achieved, this study's findings show that credit union
respondents answer more questions correctly, on average, than NFCS respondents. This
finding is at least a light, at the end of a dimly lit tunnel, as we consider a response to
declining financial knowledge, increased complexity of financial products and services,
and households not saving enough for retirement.
Willis' concerns over information asymmetry, financial complexity, and
neoliberalism as primary culprits for financial education’s ineffectiveness may be valid
(2008, 2001, 2017). However, something appears different within the credit union
ecosystem, and the benefits of such a difference warrant the efforts of further exploration.
Financial literacy may improve individual and collective financial well-being if
disseminated in the proper institutional setting. Although this researcher agrees with
Willis and her sentiments up to this point, the current research findings described in this
paper provide hope for a new era of exploration of financial literacy in the credit union
context.
Researchers may consider the benefit of a longitudinal study that extends this
researcher's work by (1) expanding the type, size, and geography of credit union
respondents and (2) synchronizing the administration of the survey with the NFCS survey
which is conducted every three years. This type of study could be significant given the
state-by-state breakdown of the NFCS data, allowing a comparison of the findings.
Researchers who consider this work could also consider establishing a credit union index,
which quantifies the financial knowledge of credit union members. Significantly, because
credit unions are a global phenomenon, researchers may benefit from examining the
financial literacy of credit union members in different parts of the world to determine if
the “credit union effect” holds up when assessing financial literacy and behavior amongst
global credit union members.
Finally, researchers may want to use the full FMBS scale and compare the
financial behaviors of members to other non-credit union administrations of the FMBS.
Along the same lines, an approach that utilizes the questions from the NFCS but is
administered to a credit union audience could prove beneficial for comparison purposes.
Credit Unions.
Credit unions may take the findings from this study as encouragement that the
focus and effort on its membership's social and economic goals are paying off. Moreover,
the findings that credit union members score higher on test-based financial literacy
questions than NFCS respondents should provide an incentive for credit unions to
continue to invest in their members' financial literacy and to maximize their impact.
Importantly, given the results of this study, credit unions should consider
establishing or expanding their advisory services to members. The 2020 TIAA
InstituteGFLEC study notes that “individuals with greater financial literacy are more
likely to receive financial guidance from a professional advisor or advisory service” (p.
20). The study notes that professional financial advice may improve financial wellness—
which is the overarching goal of financial wellness initiatives.
For credit unions that are not spending time or resources on financial literacy
education and coaching, the results of this study should spur investment in people and
technology that promote financial literacy education. Importantly, because credit unions
are member-owned not-for-profits, credit union leaders may use the results of this study
to motivate their boards to invest in financial literacy education or to conduct financial
literacy surveys of their own to determine the financial knowledge and behavior of their
membership.
Credit unions may consider the finding that subjective measurements of financial
knowledge map to objective measures, as a simple way to determine the financial
knowledge of their membership. Instead of asking a series of test-based questions, credit
unions could simply ask members to rate their own financial literacy and gain valuable
insights on members through a single question. Moreover, there could be a significant
benefit to asking a single financial knowledge question to members, tailoring financial
education programs, and offering an appropriate product mix based on their response. For
example, if a member's response to a self-assessed financial knowledge question indicates
they have low financial knowledge, then offering a credit card with lower minimums and
low-interest rate may be more appropriate than a credit card which may not be paid off
each month and has a higher rate.
Results from this study could prompt credit unions to expand their efforts to
promote financial literacy in particular demographic areas. A focus on female, Black, and
Hispanic members could prove beneficial, given the financial knowledge among
members when compared to the NFCS respondents. Moreover, given the correlation
between financial knowledge and financial behavior, credit unions could establish just-
intime financial education linked to the financial behaviors they intend to improve
(Fernandes, 2014).
Finally, credit unions could use the results from this research for marketing
purposes. They could highlight the importance of financial literacy, and its essential role
in financial capability and financial wellness, while underscoring the distinctiveness of
credit unions from other financial institutions.
Other Considerations.
Even with the positive relationship that exists between financial literacy and
financial behavior (Fernandes et al., 2014; Lusardi & Mitchell, 2011; Mitchell & Lusardi,
2015), which are supported by the findings of this study, there is growing concern that
financial education alone does not translate into better financial behaviors. Grable et al.
(2020) note the extraordinarily complex relationship between financial literacy and
financial behaviors and that financial literacy does not guarantee positive financial
decisions (Tang & Baker, 2016).
Stakeholders who will benefit from the findings of this research must recognize
that the potential exists in the sum of the parts—meaning, a combination of a trusted
financial institution, appropriate and transparent products, and services, coupled with
individuals who are financially literate. Financial education alone is not the answer, if it
were, consumer financial knowledge, as indicated on financial literacy assessments (it is
education that leads to literacy that’s being questioned here), would be increasing, not
declining. Although positive financial behavior of individuals is essential, literacy does
not provide a perfect positive correlation to behavior. Positive financial behaviors require
a combination of access to suitable products and services. If consumers have the financial
knowledge and intent to behave positively, but lack access to beneficial products and
services, then the financial knowledge and intent to behave positively does little for them.
If that same consumer has access to the products and services, but the solutions are
presented in a complex or confusing way, they may end up in the wrong product, despite
their financial knowledge and intent to act wisely. Even this critical addition of beneficial
products still simplifies the situation due to ignoring the complexity of human behavior.
This research may bring meaningful improvement to stakeholders if viewed more
holistically and in line with Huang et al. (2013). The authors note that "families must
have not only financial knowledge and skills but also access to appropriate financial
products and services" (p. 1). It sounds a lot like the authors were describing the credit
union setting. The research findings found within this study indicate that the credit union
environment is prime to capitalize from higher literacy levels when combined with more
nurturing financial products.
Recommendations for Future Research
The following section outlines the recommendations for future research:
1. Expanding the number of credit unions included in the sample could be a way to test
whether the results of this research are robust.
2. Similar to NFCS and other national longitudinal studies, researchers who include
more credit unions in this study could form an index in which credit union member
financial knowledge and behavior could be measured over time and compared with
other national surveys.
3. A study including a geographically diverse sample of credit unions could be helpful
given that the current study was confined to Oregon and Virginia.
4. A study examining credit unions membership affiliations (military, trade groups,
universities, and healthcare) could be beneficial to determine if the financial literacy
varies by vocation.
5. The responses for this study were concentrated on a primarily urban/suburban market.
A future study could focus on rural credit unions to determine financial knowledge
and behavior among members.
6. Because of the potential to benefit marginalized populations, a study focused on
lowincome credit unions and credit unions that are CDFI are essential. The objective
of this future research is to determine the extent of the impact of the credit union
domain on the financial literacy of all members.
7. The current study was done in the middle of the COVID-19 pandemic. A similar
study done with the same credit unions could be helpful to determine the impact the
pandemic had on member financial knowledge and behavior. Member financial
knowledge and corresponding behavior could have been impacted due to significant
stress related to the pandemic.
8. Financially knowledgeable consumers require additional services to accommodate
their desire to plan and save for retirement. A study focused on the product mix of
credit unions could be helpful, given the potential product and service needs of
members and the limitation of product and services choices.
9. The Virginia credit union asked that Gender include a choice for non-binary.
Although the Oregon credit union included a choice for male, female, and "other," in
the future, researchers may want to consider exploring the financial literacy of those
who identify as non-binary or genderqueer.
10. Researchers may want to explore the relationship between financial knowledge and
the number and type of services a member consumes. The purpose of this analysis is
to determine if financial knowledge translates into the consumption of financial
products. If a relationship is determined, credit unions could have an even greater
reason to invest in the financial literacy of their membership.
11. This researcher included a subset of the Dew and Xiao (2011) FMBS questions when
constructing the survey. Future research could include the complete list of FMBS
questions so member responses can be compared to the financial behaviors of other
studies where the full FMBS was utilized.
12. Future researchers could consider aligning their survey instrument more closely with
the National Financial Capability Study (NFCS). Modifying the survey instrument
could include expanding the questions on objective financial knowledge to six (a
sixth question was introduced by NFCS in 2015 focused on compounding interest on
a loan) and asking the same demographic and behavioral questions. In doing so,
researchers would have a process (every three years) for asking the same questions as
conducted on a national survey but within the credit union domain. The survey could
turn into a national or global index used to measure credit union membership's
financial literacy and behavior. The expanded survey could increase the interest in
credit unions and the database.
13. Additional research could be performed beyond the United States as the cooperative
financial model is prevalent in Canada and Europe. The purpose of conducting
similar research outside the U.S. is to determine the effect of the U.S. credit union on
member financial knowledge versus a similar effect outside the U.S.
14. Future research that focuses on demographics where financial illiteracy is persistent is
warranted. If credit unions are shown to impact marginalized populations' financial
literacy positively, the impact could be significant and add to the growing body of
financial literacy and financial behavior literature, but in an underexplored domain,
the credit union.
Conclusion
The conclusion aims to summarize the essential points of this study found in
Chapters I through V.
Financial literacy has been studied for decades spanning numerous survey
instruments and populations (Hastings et al., 2014; Huston, 2010). Financial literacy is
economically essential (Kaiser et al., 2020; Lusardi & Mitchell, 2014) and central to the
concept of financial capability (Goyal & Kumar, 2020; Sherraden, 2013). Financial
capability combines financial knowledge, the ability to act, and the proper institutional
setting to act within (Huag et al., 2013). According to the authors, to be financially
capable, appropriate products and services are necessary. Goyal and Kumar (2020) note
that a financially knowledgeable person cannot be viewed as financially capable unless
their behavior reflects their level of knowledge.
Extensive resources have been devoted to studying financial literacy (Babiarz &
Cobb, 2014; Goyal & Kumar, 2021; Klapper et al., 2013; Lusardi, 2015; Lusardi &
Mitchell, 2011). There is evidence that a positive relationship exists between financial
literacy and financial behavior, with the more financially knowledgeable individual
making more informed financial decisions (Klapper & Lusardi, 2020). Those who score
better on test-based financial literacy questions are known to plan and save more
(Lusardi, 2019), establish emergency funds (Babiarz & Robb, 2014), handle financial
shocks (Hasler et al., 2018), are better at managing debt (Huston, 2012), and saving for
retirement (Goyal & Kumar, 2021; Yakoboski et al., 2020).
Despite the many benefits of financial knowledge, most consumers have low
financial knowledge (Lusardi, 2019). Financial knowledge is not equally distributed as
students and elderly, Black and Hispanic, female, and the unemployed, generally suffer
from low levels of financial knowledge. This demographic information is important given
that low financial knowledge is associated with financial and social exclusion and adds to
the growing wealth inequality in the United States (Solper & Walter, 2017.)
Financial literacy has growing importance given the increased responsibility for
consumers to manage their own finances. Moreover, increased access to financial
products and the growing complexity of financial services has highlighted the need for
financial literacy (Klapper & Lusardi, 2020) and institutions that can deliver appropriate
products and services (Huang et al., 2013). Regardless of the present need for financially
knowledgeable households, financial literacy is on the decline (Lin et al., 2019), and
consumers continue to make poor financial decisions.
The purpose of this study was to explore the financial literacy and financial
behavior of credit union members in hopes that the credit union is found to be a possible
solution to increase financial knowledge and positive financial behaviors. A survey
instrument was created to test for objective and subjective financial knowledge and
included a subset of questions from the FMBS by Dew and Xiao (2011).
The survey responses from credit union members indicated that, on average,
members could answer more test-based financial literacy questions correctly than
respondents from the National Financial Capability Study. Moreover, the study
determined a significant positive relationship between self-reported financial knowledge
and actual financial knowledge. Respondents who rated themselves as more
knowledgeable tended to answer more financial knowledge questions correctly. Notably,
the study's results indicated that financial knowledge is positively correlated with
numerous positive financial behaviors, with members who answered more financial
literacy questions correctly engaged in positive financial behaviors more often. Lastly, in
an exploratory analysis of demographics, including race, gender, and employment, the
results indicated that demographic characteristics collectively explained significant
variance in financial knowledge.
Summary of Discussion, Implications, Recommendations, and Conclusion
This chapter presented the discussion of the findings of this study, the implications to
stakeholders, recommendations for future research, and the conclusion. The discussion
of findings addressed the three research questions defined in Chapter I and reflected
on the research results from Chapter IV. The implications of the study analyzed the
results of the study within the context of the key stakeholders, which included (1)
individuals, (2) government, (3) trade organizations, (4) researchers, and (5) credit
unions. Recommendations were made for future research based on the results of
Chapter IV and the need to expand the exploratory nature of this research. The
conclusion aimed to summarize the essential aspects of Chapter I through V.
