Whether it’s a trade or hobby, understanding how something works is the first step to mastering it. And perhaps one of the most useful skills to master is how to manage your money.
According to a new study, having more financial literacy allows consumers to accrue more money and assets during their lifetime and increases their confidence going into old age. Additionally, researchers say that those who learn to control their money generally have more confidence and can face problems later in life with less stress and difficulty.
“We hypothesize that financial literacy increases preparedness for old age through better savings and investment decisions, leading to the accumulation of more assets and earning more income, which enhances financial capacity and reduces anxiety,” the authors said.
Wealth from understanding
The study, which was conducted by researchers from Hiroshima University, assessed people across Japan on their calculation skills, understanding of pricing behavior, and their financial securities – such as bonds and stocks. Participants were also asked about their lifestyle, assets, and accrued wealth and were instructed to rate their anxiety level about life after the age of 65.
The findings of the study suggest that those who are more financially literate tend to earn more money during their working years, which leads to less worry about growing old. Researcher and professor Yoshihiko Kadoya points out that being financially literate tended to make participants more aware of their financial options and savvier when it came to calculating risk.
Additional findings for the study found that anxiety levels tended to peak around age 40, when home and workplace responsibilities were at their highest. However, these stresses tended to lower over time as participants took advantage of social security, government funded health care, and pensions.
Increasing financial literacy
The researchers hope that their study will help policymakers in Japan and other developed countries focus on financial literacy to help ease anxiety in older consumers. Kadoya concludes his assessment by pointing out that the government can do a lot help put anxious consumers at ease.
"People shouldn't spend time worrying about the future. That is why governments provide pensions, housing, and medical plans. If the perception is that these are not fulfilling their purpose then governments and providers need to look at making them more accessible -- if people are still worried then we need to look at educating people about these services that are supplied for their needs," he said.
The full study has been published in the Journal of Risk Research.