Time horizon: a new focus for enhancing financial stability

Consumers’ financial behavior impacts both individual financial health and the broader economy. Organizations have devoted considerable resources to nudging financial literacy, long correlated with financial behaviors, to improve citizens’ financial resilience. The authors’ research investigates whether time horizon is related to positive financial behaviors separate from the impact of financial literacy, potentially offering new insights to complement the existing focus on literacy. Using the Federal Reserve’s Survey of Consumer Finances, the authors examine the relationship between financial behaviors and time horizon for saving and investing. The findings indicate that time horizon is significantly associated with positive financial behaviors and may play a complementary role to financial literacy in promoting positive financial habits. These findings persist when progressively restricting the sample down to poverty level thresholds. The positive correlation between time horizon and positive financial behaviors also prevails in subsamples of less educated and retired individuals and across various demographics.