Not Just Literacy: Some Control Required

Control. Control. You must learn control.
– Yoda, Star Wars Episode V: The Empire Strikes Back

Approximately 57% of Americans are financially literate, typically measured by answering simple financial literacy questions correctly. The work of Anna Maria Lusardi and her colleagues have demonstrated the woeful state of the world related to financial knowledge and education in the United States and around the world. Often, this group of researchers measures financial literacy with a few questions (you can see them here). Even with what might be considered basics of personal finance, just over half of Americans can answer these questions correctly.

To build wealth, however, basic financial literacy is not enough. Think about the last time you worked with a brilliant colleague who couldn’t or wouldn’t show up on time, consistently pushed the boundaries of behavior that are appropriate at work, or missed deadlines. Something else is at play when it comes to success at work of course: conscientiousness. One of the Big Five personality characteristics, conscientiousness includes aspects of industriousness (working hard, confidence), virtue (doing what’s right morally/socially), self-control (being cautious, delaying gratification), order (the detail-orientation component), responsibility (doing what’s right for others, community), and traditionalism (adhering to authority and rules, disliking change). It has been consistently tied to job performance and retention in a variety of jobs and organizations. If you’re in the position to hire someone and you can only measure one aspect of personality, this is the one you want (with some key, artistic exceptions).

As in the workplace, those who are conscientious tend to do better at financial management. We hear a lot about the importance of discipline in financial management, but typically it’s without much research to back it up. However, the findings over the past 40+ years of research regarding financially successful, self-made Americans consistently support the conclusion that discipline (e.g., frugality), hard work, and perseverance are factors in economic success. From studies of high- and ultra-high net worth individuals in The Millionaire Mind to the mass affluent studies conducted by DataPoints, we see that consistent aspects of conscientiousness, whether in terms of how they run their businesses or how they manage their family finances, comes into play. It’s been cited as the most important success factor, but it’s also demonstrated relationships with net worth, independent of age and income.

In one study that examined the 1997 National Longitudinal Survey of Youth (NLSY), researchers found that conscientiousness, specifically self-control, was related to illiquid and liquid asset holdings, as well as net worth (Letkiewicz & Fox, 2014). Financial literacy had some effect on net worth, but only in relationship to self-control, a key component of conscientiousness. Specifically:

Financial literacy by itself is not significant, but when paired with conscientiousness it seems to help those low in conscientiousness to increase net worth.

The authors call on early intervention as well as the financial services industry in general to focus efforts not only on education but also on self-control…

…perhaps the concept of “financial education” should be interpreted more broadly. Interventions to increase conscientiousness and self control could be more innovative approaches to “education.” (p. 296).

Likewise, the authors suggest that financial professionals should focus efforts on helping to improve their clients’ ability to be disciplined when it comes to spending. They state:

…financial planners and educators can serve consumers by making them aware of their self-control shortcomings and providing tips and practices to help increase financial well-being. Suggesting practices such as cash-based spending, automatic savings plans, or automatic bill-pay may help consumers reign [sic] in some of their negative spending patterns. (p. 296).

To become financially independent or reach economic goals, education is important. This insightful interview with Dr. Lusardi gives some practical information on areas of focus for financial education.  For the best chances of success, however, we need to broaden our parenting, educational, and advisory efforts to include teaching and demonstrating the importance of self-control when it comes to spending, saving, and investing.


Additional References

Letkiewicz, J. C., & Fox, J. J. (2014). Conscientiousness, financial literacy, and asset accumulation of young adults. Journal of Consumer Affairs, 48(2), 274-300.

Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: an overview. Journal of Pension Economics & Finance, 10(4), 497-508.

Roberts, B. W., Chernyshenko, O. S., Stark, S., & Goldberg, L. R. (2005). The structure of conscientiousness: An empirical investigation based on seven major personality questionnaires. Personnel Psychology, 58(1), 103-139.

Schmidt, F. L., & Hunter, J. E. (1998). The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 85 years of research findings. Psychological Bulletin, 124(2), 262.

Schmidt, F. L. Oh, I., & Shaffer, J. A. (2016). The Validity and Utility of Selection Methods in Personnel Psychology: Practical and Theoretical Implications of 100 Years of Research Findings. Fox School of Business Research Paper. Available at SSRN:

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