Financial literacy, institutions and education: Lessons from the German reunification

Abstract

A growing body of literature highlights the importance of financial literacy in affecting household choices. However, much fewer studies focus on understanding the determinants of different levels of financial literacy. Our paper contributes to filling this gap by analyzing a specific determinant, i. e., the educational system, to explain the heterogeneity of financial literacy scores across Germany. The results suggest that the lower financial literacy observed in East Germany can be partially attributed to the different institutional framework experienced during the Cold War, more specifically, to the socialist educational system experienced in East Germany, which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context. In support of this hypothesis, we find that individuals exposed to the Eastern educational system exhibit 12 % 12\hspace{0.1667em}\% to 21 % 21\hspace{0.1667em}\% lower financial literacy scores compared with the households in the control group, not exposed to such system.

Financial literacy of secondary school leavers: a case of Latgale region in Latvia

“…The problem of financial literacy of children and youth has been the object of scientific research by Iwanicz-Drozdowska ( 2015), Titko et al (2015), Potrich et al (2016), Andriichuk (2021), Kuzma et al (2022) and others. The relevance of financial education at the university level and its economic and social significance have been revealed in the studies by Kozubíková (2015), Felipe et al (2017), Kozubik et al (2019), Swiecka (2018Swiecka ( , 2019, Davoli and Hou (2021). The research by Davis et al (2018) analyses the financial literacy of Italian students.…”

“…Financial literacy is a totality of knowledge and skills that provide for understanding and successfully organising one's financial management and making rational decisions concerning the choice of various financial services and their proper use, intending to reach financial stability and sustainability (Sarnovics et al, 2016;Davoli and Hou, 2021). A financially literate individual has knowledge of finances and economics in general, and they can apply this knowledge to advance their welfare and financial growth to reach their personal goals (OECD, 2011(OECD, , 2013Taylor and Wagdand, 2013;Latvijas Universitātes, 2017;Garg and Singh, 2018;Kakinuma, 2022 545 2022).…”