Financial Literacy Around the World: An Overview
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TLDR
Around the world, financial literacy is critical to retirement security and instrumental variables estimates show that the effects of financial literacy on retirement planning tend to be underestimated.Abstract:
In an increasingly risky and globalized marketplace, people must be able to make well-informed financial decisions. Yet new international research demonstrates that financial illiteracy is widespread when financial markets are well developed as in Germany, the Netherlands, Sweden, Japan, Italy, New Zealand, and the United States, or when they are changing rapidly as in Russia. Further, across these countries, we show that the older population believes itself well informed, even though it is actually less well informed than average. Other common patterns are also evident: women are less financially literate than men and are aware of this shortfall. More educated people are more informed, yet education is far from a perfect proxy for literacy. There are also ethnic/racial and regional differences: city-dwellers in Russia are better informed than their rural counterparts, while in the U.S., African Americans and Hispanics are relatively less literate than others. Moreover, the more financially literate are also those most likely to plan for retirement. In fact, answering one additional financial question correctly is associated with a 3-4 percentage point higher chance of planning for retirement in countries as diverse as Germany, the U.S., Japan, and Sweden; in the Netherlands, it boosts planning by 10 percentage points. Finally, using instrumental variables, we show that these estimates probably underestimate the effects of financial literacy on retirement planning. In sum, around the world, financial literacy is critical to retirement security.read more
Citations
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References
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Financial Literacy and Stock Market Participation
TL;DR: In this article, the authors evaluated the importance of financial literacy by studying its relation to the stock market: are more financially knowledgeable individuals more likely to hold stocks? To assess the direction of causality, they make use of questions measuring financial knowledge before investing in the stock markets.
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Household Financial Management: The Connection between Knowledge and Behavior
TL;DR: In this paper, the authors focus on four financial management activities (cash-flow management, credit management, saving, and investment) and analyze the connections between knowledge and behavior, finding that those who knew more were more likely to engage in recommended financial practices.
Journal ArticleDOI
Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs
TL;DR: In this article, a review reveals that many households are unfamiliar with even the most basic economic concepts needed to make saving and investment decisions, and that financial illiteracy is widespread: the young and older people in the United States and other countries appear woefully under-informed about basic financial computations.
Journal ArticleDOI
Financial Literacy Among the Young
TL;DR: The authors showed that financial literacy is low among the young; fewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification, and that financial knowledge is strongly related to sociodemographic characteristics and family financial sophistication.
Journal ArticleDOI
Planning and Financial Literacy: How Do Women Fare?
TL;DR: The authors found that women display much lower levels of financial literacy than the older population as a whole, and women who are less financially literate are also less likely to plan for retirement and be successful planners.