Financial Literacy Contribute to Happiness?
Dan Stone, Ben Wier, and Stephanie M. Bryant
SEPTEMBER 2007 - he AICPA’s 360 Degrees of
Financial Literacy educational program, begun in May 2004, partners
with state CPA societies to help people of all ages better manage
their finances (www.360financialliteracy.org).
The importance of improving financial literacy is underscored
by the results of a recent study funded by the AICPA
- Americans’ personal savings rate has declined each
year since 1982.
- The U.S. savings ratings became negative for the first time
in April 2005.
- The past 20 years show decreasing attention to asset accumulation.
- Tomorrow’s workforce is not financially prepared.
A core aspect of the 360 Degrees program is the
identification of 11 life stages, each with its own financial
issues and concerns (Exhibit
1). Some life stages are determined by age (e.g., childhood,
“sandwich generation,” retirement), while others are
determined by individual choice (e.g., military duty, home ownership,
Hundreds of volunteer CPAs, financial planners,
accounting professors, and students work independently through
their state societies to improve financial literacy. Some offer
pro bono financial planning services, while others present financial
literacy information to student or community groups. The AICPA
provides a wealth of resources, such as PowerPoint presentations,
mobilization kits, and other tools to support these volunteers
Twenty-six states also have developed financial literacy programs.
A central premise of the program is that financial
education improves the quality of one’s life. But are there
other benefits to achieving financial literacy? For example, are
the financially literate happier than the financially illiterate?
Much research exists on the self-inflicted psychological harm
caused by greedy individuals who value money and possessions above
other core personal values. The authors’ interest, consistent
with 360 Degrees, is whether individuals with more positive attitudes
toward money and more financial knowledge are happier than others.
To investigate these and related questions, the
authors conducted five research studies involving 1,252 students
and 207 professionals. Exhibit
2 summarizes these studies, which were designed to draw some
conclusions about the relationships among financial attitudes,
financial knowledge, and happiness.
The first two studies adapted a psychological concept
called “self-determination theory” to develop, test,
and refine three measures of “positive” financial
attitudes. These are: 1) financial self-efficacy, the belief that
one can competently manage one’s finances; 2) financial
autonomy, the belief that one’s financial decisions result
from personal choices; and 3) financial community and relatedness,
the belief that financial resources can create and sustain community
and interpersonal relationships. The second study also measured
participants’ personal financial knowledge (financial literacy).
Studies 2 through 5 measured participants’ happiness using
several measures of psychological health. The happiness measures
evaluated participants’ satisfaction with life (e.g., “I
am satisfied with my life”), vitality (e.g., “I feel
alive and vital”), depression (e.g., “In the past
week, I felt downhearted and blue”), anxiety (e.g., “In
the past week, I found it hard to wind down”), financial
stress (e.g., “How often do you worry about your financial
situation?”), and life stress (e.g., “In the past
week, I found it difficult to relax”).
The first study was conducted using paper instruments,
while studies 2 through 5 were administered online. Participants
received either class credit (for students) or the opportunity
to win a cash prize (for professionals) for participating. About
64% of participants had two years or less of full-time work experience,
about 24% had three to 10 years of work experience, and about
12% had 11 to 55 years of work experience. All of the results
discussed here are statistically significant based on general
The results indicate that, among both student and
professional participants, individuals with more positive financial
attitudes are happier and have higher financial literacy. As accounting
teachers, the authors had expected to also find that higher financial
knowledge leads to more happiness. Surprisingly, however, the
link between financial attitudes and happiness appears
stronger than the link between financial literacy and
happiness. Unfortunately, the research method doesn’t allow
a determination as to exactly why these relationships
occur. Common sense suggests that part of the value of increasing
financial literacy may be changing people’s attitudes about
money. Specifically, people who are financially literate are also
more likely to believe that: 1) They can successfully manage their
finances; 2) Their financial decisions reflect their personal
values and choices; and 3) Financial resources are valuable mostly
because they can create and sustain community and interpersonal
The authors found evidence for life-stage differences
in financial attitudes and knowledge. For example, older respondents
had more financial knowledge, a greater sense of financial autonomy,
more intrinsic financial goals (e.g., retirement, an emergency
fund, and donations to charity), and fewer extrinsic financial
goals (e.g., to be wealthy, to own expensive possessions, to be
financially successful) than did younger respondents.
The authors’ research has led to a deeper
appreciation and admiration of the AICPA’s 360 Degrees of
Financial Literacy campaign. We now believe that such programs
not only change people’s knowledge of money, but also contribute
to happiness and psychological health. Academic researchers are
eager to partner with state societies, CPAs, and financial planners
who want to further explore the connection between financial literacy,
positive financial attitudes, and psychological health.
Dan Stone, PhD, CPA (inactive), is the Gatton
Endowed Professor of Accounting in the Gatton College of Business
and Economics at the University of Kentucky, Lexington, Ky.
Ben Wier, MSA, PhD, is a professor of accounting
in the school of business at Virginia Commonwealth University, Richmond,
Va. Stephanie M. Bryant, PhD, CPA (inactive), is
the Dan R. and Tina P. Johnson Distinguished Professor of Accounting
in the college of business administration at the University of South
Florida, Tampa, Fla.