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Financial Literacy Around the World: An Overview

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  • Annamaria Lusardi

    ()
    (Dartmouth College)

  • Olivia S. Mitchell

    ()
    (University of Pennsylvania - The Wharton School)

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.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 106.

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Length: 25 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:crp:wpaper:106

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References

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  1. John Ameriks & Andrew Caplin & John Leahy, 2003. "Wealth Accumulation And The Propensity To Plan," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(3), pages 1007-1047, August.
  2. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers, Center for Research on Pensions and Welfare Policies, Turin (Italy) 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  3. Jere R. Behrman & Olivia S. Mitchell & Cindy Soo & David Bravo, 2010. "Financial Literacy, Schooling, and Wealth Accumulation," NBER Working Papers 16452, National Bureau of Economic Research, Inc.
  4. Maarten van Rooij & Annamaria Lusardi & Rob Alessie, 2007. "Financial Literacy and Stock Market Participation," CeRP Working Papers, Center for Research on Pensions and Welfare Policies, Turin (Italy) 66, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  5. Dimitrios Christelis & Tullio Jappelli & Mario Padula, 2006. "Cognitive Abilities and Portfolio Choice," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 157, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  6. Justine S. Hastings & Olivia S. Mitchell, 2011. "How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors," NBER Working Papers 16740, National Bureau of Economic Research, Inc.
  7. Justine S. Hastings & Lydia Tejeda-Ashton, 2008. "Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico," NBER Working Papers 14538, National Bureau of Economic Research, Inc.
  8. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2009. "Financial Literacy and Financial Sophistication Among Older Americans," NBER Working Papers 15469, National Bureau of Economic Research, Inc.
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