Financial Literacy, Financial Education, and Economic Outcomes

Abstract

In this article we review the literature on financial literacy, financial education, and consumer financial outcomes. We consider how financial literacy is measured in the current literature, and examine how well the existing literature addresses whether financial education improves financial literacy or personal financial outcomes. We discuss the extent to which a competitive market provides incentives for firms to educate consumers or offer products that facilitate informed choice. We review the literature on alternative policies to improve financial outcomes, and compare the evidence to evidence on the efficacy and cost of financial education. Finally, we discuss directions for future research.

Financial literacy, financial advice, and financial behavior

“…Hastings et al (2013) document that respondents with higher cognitive abilities and more comfortable with numerical calculations on average exhibit higher levels of financial literacy. They also review a number of studies which find a positive relationship between cognitive abilities and numeracy on the one hand and sound financial behavior on the other hand (e.g., Banks and Oldfield 2007;Grinblatt et al 2009;Christelis et al 2010).…”

“…Hastings et al (2013) emphasize that it is generally unclear if questions are a suitable means for measuring financial capability and, if so, which questions lend themselves most effectively for identifying it. Specifically, the authors criticize that surveys eliciting financial literacy levels do not incentivize respondents to provide carefully considered answers reflecting their actual knowledge.…”

“…Financial literacy, financial advice, and financial behavior 583 excellent reviews provided by Hastings et al (2013) and along at least three different lines. First, while these surveys focus on U.S.-based evidence, we adopt a different perspective and instead put emphasis on what is known about financial literacy in Germany, since German consumers face No.…”

The state of financial knowledge in college: New evidence from a national survey

“…Financial literacy then, means understanding money enough to act responsibly as a member of the economy. Researchers have studied financial literacy by measuring both knowledge and actions, a body of work that has been reviewed by Hastings et al (2013), Fernandes et al (2014), and Lusardi and Mitchell (2014). Financial actions can be hard to judge.…”

“…Second, NPSAS:16 draws on a nationally representative sample that allows for inference about how financial literacy varies across different types of students (see Section 4). To our knowledge the NPSAS:16 is the largest sample ever to answer the basic three (Hastings et al 2013). Third and most importantly, NPSAS:16 included measures of student loan literacy that are more specific to the college context.…”