Financial Literacy and Individual Financial Behavior: Is There a Relationship

This paper investigates the impact of financial literacy on financial behaviour. In particular, we examine the probability of people to make precautionary savings for the case of emergency, which includes job loss, illness, economic downturn, etc. The research topic is relevant for making decisions regarding the further development of financial literacy programmes. Holding emergency funds is a basic component of financial stability. The absence of such assets is characterized by a negative impact on the well-being of both individual households and the economy as a whole due to increased sensitivity to financial fluctuations. The paper uses data from the research on the financial behaviour of US residents for 2012, 2015 and 2018 waves. The results suggest that financial literacy has a positive effect on the probability to have precautionary savings, and underline the significance of some other factors.