The Big Three Questions

The Big Three are questions that assess individuals’ knowledge of financial concepts that are the universal building blocks for financial decision-making: compound interest, inflation, and risk diversification. These concepts apply over the life cycle, over time, and across countries. Understanding them is critical for managing debt, deciphering loan terms, investing, growing wealth, and generally managing day-to-day finances. 

The Big Three have been asked in many surveys and deployed in hundreds of research papers and projects. They are designed to allow comparisons across groups, and because they are just three questions, they are easy to use. 

Professor and IFDM Faculty Director Annamaria Lusardi of Stanford University and Professor Olivia Mitchell of the Wharton School, trailblazers in the field of financial literacy, developed the questions as benchmarks for evaluating how much people know about basic concepts at the basis of financial decision-making.

Their studies using the Big Three have deepened our understanding of how people manage their personal finances, where—or if—they invest, and what factors influence their financial decisions. Their research has helped us identify the most vulnerable populations, when it comes to financial literacy, and has signaled opportunities for narrowing gaps in financial knowledge.

The Big Three are used around the world.

They were first used in 2004 when the University of Michigan’s Health and Retirement Study added them to a survey module focused on financial literacy and retirement planning. By 2009, the FINRA Investor Education Foundation, the financial education arm of the Financial Industry Regulatory Authority, added them to the National Financial Capability Study, its triennial survey. 

Since then, other organizations around the world, including central banks and regulatory authorities, have integrated the Big Three into their assessments of household finances. In the United States, the Big Three have been used in many surveys, including the American Life Panel, the Survey of Consumer Finances, and the Understanding America Study—each of which examine the entire U.S. population.

Findings from these surveys have helped policymakers in the United States and around the world to design policy, programs, and national strategies to promote financial literacy.

Financial literacy benefits each of us and the population at large. Research shows that people who understand the concepts assessed by the Big Three save more for retirement, make smarter investment decisions, and manage their debts more effectively. They also tend to put money aside for emergencies and better manage day-to-day financial decisions. Unfortunately, there is a troubling shortfall in financial literacy both in the United States and around the globe.

Research using Big Three data provides policymakers with a more focused understanding of how and where to build financial knowledge, as well as the costs and benefits of doing so. For instance, results from surveys using the Big Three can motivate lawmakers to incorporate financial education into high school—or even elementary school—curricula. The results are also useful in identifying vulnerable populations and how to improve the effectiveness of financial education.

Results of surveys using the Big Three underpin hundreds of papers and research projects. They also allow scholars to examine the consequences of financial illiteracy, including within subgroups of the population, and understand what can be done to bridge the financial knowledge gap.