A family’s ability to make good everyday financial decisions is likely correlated to its ability to accumulate wealth over time. As part of their essay on the connection between education and wealth, researchers from the St. Louis Fed’s Center for Household Financial Stability examined the financial decision-making of families who have achieved various levels of education.
Senior Economic Adviser William Emmons and Lead Policy Analyst Bryan Noeth measured the quality of financial decisions of families via the center’s financial health scorecard, which looks at answers to five questions given as part of the Federal Reserve’s triennial Survey of Consumer Finances (SCF):1
Answers were given a score of 0 or 1. The highest possible score, indicating strong financial health, was 5. Over the period 1992-2013, the average total score among SCF survey respondents was 3.01.
The authors broke respondents down into four groups, based on the educational attainment of the head of household:2
The table below shows the average financial health scores for each education group.
In the essay, the authors noted that average financial health scores were strongly related to education. They concluded, “In general, the higher a group’s average financial health score, the higher its balance sheet liquidity, the greater its asset diversification and the lower its leverage—all elements of the conservative financial decision-making that is likely to lead to greater wealth accumulation.”
1 The specific questions asked in the survey and how they were scored are available in the In the Balance issue “Five Simple Questions That Reveal Your Financial Health and Wealth.”
2 The authors restricted the sample in the essay to families headed by someone 40 years old or older. This minimizes the possibility that a family will be placed in an education category lower than its ultimate degree attainment because a very small number of people over 40 receive a diploma.
The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.
- Vulgar, obscene, profane or otherwise disrespectful or discourteous
- For commercial use, including spam
- Threatening, harassing or constituting personal attacks
- Violating copyright or otherwise infringing on third-party rights
- Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.