Magazine article The CPA Journal

Does Financial Literacy Contribute to Happiness?

Magazine article The CPA Journal

Does Financial Literacy Contribute to Happiness?

Article excerpt

The 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 ( 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, entrepreneurship).

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 (see 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.

Research Studies

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. …

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