Financial Literacy and Economic Outcomes: Evidence and Policy Implications

Abstract

This paper reviews what we have learned over the past decade about financial literacy and its relationship to financial decision-making around the world. Using three questions, we have surveyed people in several countries to determine whether they have the fundamental knowledge of economics and finance needed to function as effective decision-makers. We find that levels of financial literacy are low not only in the United States. but also in many other countries including those with well-developed financial markets. Moreover, financial illiteracy is particularly acute for some demographic groups, especially women and the less-educated. These findings are important since financial literacy is linked to borrowing, saving, and spending patterns. We also offer new evidence on financial literacy among high school students drawing on the 2012 Programme for International Student Assessment implemented in 18 countries. Last, we discuss the implications of this research for policy.

The National Strategy on Financial Literacy: A Conceptual Review of South African Perspectives

“…Indeed, there is also a need to improve understanding of information on financial products such as bank accounts, credit products, savings products to combat the increasing sophistication of the financial landscape and financial services for a rising middle class in fast developing economies (Mitchell & Lusardi, 2015;Smyczek & Matysiewicz, 2015). The OECD and Russia's G20 Presidency issued a report in 2013 on propelling national methodologies for financial training, itemising progress by the administrations of the world's real economies in actualising national systems for enhancing household financial literacy.…”

Financial Knowledge, Personality Traits, and Risky Borrowing Behaviors in Iranian Households

“…A lack of financial knowledge (or financial illiteracy) affects financial well-being, as it is linked to borrowing, saving, and spending patterns. Mitchell and Lusardi [6] used three basic knowledge questions to demonstrate that financial literacy is low in many countries, including those with well-developed financial markets. Financial knowledge is especially low in some demographic groups, including women and the less educated.…”

Examination of Black Men's Perceptions Of Personal Finance And Lived Experiences Developing Financial Literacy and Building Financial Capability Through The Lens of Institutional Racism

“…Financial freedom is a life without poor financial behaviors of overspending, extreme debt and the stress associated with financial uncertainty (Mica, 2008). In the most economically empowered nation states, across the world financial illiteracy is an issue even for the most welleducated populations (Mitchell & Lusardi, 2015). The capability of financial literacy affects behavior across five factors a) credit card use, b) investment decisions, c) borrowing decisions, d) insurance selection, and e) financial services selection (Allgood & Walstad, 2012).…”

“…Bernanke's statement speaks to the purpose of improving society financial literacy, but simultaneously fails to acknowledge that not all families and communities are faced with the same financial education barriers. Those that live with insufficient incomes are less likely to change their savings behavior with the intervention of financial literacy education (Mitchell & Lusardi, 2015). A person living check-to-check just to make ends meet and or dependent upon subsidies to maintain their financial obligations is unable to save money for the future.…”

“…This gap in the literature is concerning because Black men along with Black women as leaders in their families and communities are lagging far behind White men, thus creating a growing generational and racial socioeconomic disparity between the two demographics. More than one third of U.S. wealth inequality is due to differences in financial knowledge (Mitchell & Lusardi, 2015). Black men are more prone to accumulate debt through borrowing as a way to counter lower incomes and a lack of owning financial assets because they lack the financial knowledge.…”