Savings decisions of American households: The roles of financial literacy and financial practice

This paper finds that financial literacy, along with financial practice, play a role in the financial decision making process of households. Building upon earlier works, this paper examines whether basic financial literacy, in the absence of sufficient household financial management practice, is associated with suboptimal savings behavior. Using a nationally representative dataset, we find new evidence that households, with below average financial practice skills but with higher than average financial literacy scores, were less likely to have sufficient precautionary savings.