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Financial Literacy: An Essential Tool for Informed Consumer Choice?

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  • Annamaria Lusardi
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    Abstract

    Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This paper demonstrates widespread financial illiteracy among the U.S. population, particularly among specific demographic groups. Those with low education, women, African-Americans, and Hispanics display particularly low levels of literacy. Financial literacy impacts financial decision-making. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. While financial education programs can result in improved saving behavior and financial decision-making, much can be done to improve these programs' effectiveness.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14084.

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    Date of creation: Jun 2008
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    Handle: RePEc:nbr:nberwo:14084

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    1. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments, The Field Experiments Website 00141, The Field Experiments Website.
    2. Esther Duflo & Emmanuel Saez, 2003. "The Role Of Information And Social Interactions In Retirement Plan Decisions: Evidence From A Randomized Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(3), pages 815-842, August.
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    4. Maarten van Rooij & Annamaria Lusardi & Rob Alessie, 2007. "Financial Literacy and Stock Market Participation," CeRP Working Papers 66, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    5. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Soto," Policy Research Working Paper Series, The World Bank 4635, The World Bank.
    6. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Financial literacy and retirement planning: New evidence from the Rand American Life Panel," CFS Working Paper Series, Center for Financial Studies (CFS) 2007/33, Center for Financial Studies (CFS).
    7. James Choi & David Laibson & Brigitte Madrian, 2006. "Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)," NBER Working Papers 11979, National Bureau of Economic Research, Inc.
    8. Xavier Gabaix & John C. Driscoll & David Laibson & Sumit Agarwal, 2008. "The Age of Reason: Financial Decisions Over the Lifecycle," 2008 Meeting Papers 322, Society for Economic Dynamics.
    9. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers, University of Michigan, Michigan Retirement Research Center wp144, University of Michigan, Michigan Retirement Research Center.
    10. Marianne A. Hilgert & Jeanne M. Hogarth & Sondra G. Beverly, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
    11. Annamaria Lusardi & Olivia S. Mitchell, 2011. "Financial Literacy and Planning: Implications for Retirement Wellbeing," NBER Working Papers 17078, National Bureau of Economic Research, Inc.
    12. Lusardi, Annamaria & Mitchell, Olivia S., 2008. "Planning and financial literacy: How do women fare?," CFS Working Paper Series, Center for Financial Studies (CFS) 2008/03, Center for Financial Studies (CFS).
    13. Suresh de Mel & David McKenzie & Christopher Woodruff, 2010. "Who are the Microenterprise Owners? Evidence from Sri Lanka on Tokman versus De Soto," NBER Chapters, National Bureau of Economic Research, Inc, in: International Differences in Entrepreneurship, pages 63-87 National Bureau of Economic Research, Inc.
    14. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, Elsevier, vol. 87(7-8), pages 1487-1519, August.
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    Cited by:
    1. Marieke Huysentruyt & Daniel Read, 2010. "How do people value extended warranties? Evidence from two field surveys," Journal of Risk and Uncertainty, Springer, Springer, vol. 40(3), pages 197-218, June.
    2. Webley, Paul & Nyhus, Ellen K., 2013. "Economic socialization, saving and assets in European young adults," Economics of Education Review, Elsevier, Elsevier, vol. 33(C), pages 19-30.
    3. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(3), pages 590-602.
    4. Paolo Crosetto & Alexia Gaudeul, 2011. "Do consumers prefer offers that are easy to compare? An experimental investigation," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2011-044, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
    5. Arrondel, Luc & Calvo-Pardo, Hector, 2014. "Subjective return expectations, information and stock market participation: evidence from France," Discussion Paper Series In Economics And Econometrics, Economics Division, School of Social Sciences, University of Southampton 1415, Economics Division, School of Social Sciences, University of Southampton.
    6. Wilko Bolt & David Humphrey, 2012. "A Frontier Measure of U.S. Banking Competition," DNB Working Papers, Netherlands Central Bank, Research Department 359, Netherlands Central Bank, Research Department.
    7. Elsa Fornero & Annamaria Lusardi & Chiara Monticone, 2009. "Adequacy of Saving for Old Age in Europe," CeRP Working Papers 87, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    8. Orlando Gomes & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2012. "Exponential Discounting Bias," Working Papers Series 2, ISCTE-IUL, Business Research Unit (BRU-IUL) 12-05, ISCTE-IUL, Business Research Unit (BRU-IUL).
    9. Scott Schuh & Joanna Stavins, 2008. "Summary of the workshop on Consumer Behavior and Payment Choice," Public Policy Discussion Paper, Federal Reserve Bank of Boston 08-5, Federal Reserve Bank of Boston.
    10. Giuseppe Cappelletti & Giovanni Guazzarotti & Pietro Tommasino, 2011. "What determines annuity demand at retirement?," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 805, Bank of Italy, Economic Research and International Relations Area.
    11. John Gathergood & Joerg Weber, 2012. "Self-Control, Financial Literacy and Co-Holding Puzzle," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2012-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    12. Binswanger, J. & Carman, K.G., 2010. "The Miracle of Compound Interest: Does our Intuition Fail?," Discussion Paper, Tilburg University, Center for Economic Research 2010-137, Tilburg University, Center for Economic Research.
    13. Singh, Ardhendu & Venkataramani, Bhama, 2012. "Financial Education: Institutes of Higher Education as delivery channels," MPRA Paper 43336, University Library of Munich, Germany.
    14. Bucher-Koenen, Tabea, 2011. "Financial Literacy, Riester Pensions, and Other Private Old Age Provision in Germany," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 11250, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    15. Jinhee Kim & Jaslean LaTaillade & Haejeong Kim, 2011. "Family Processes and Adolescents’ Financial Behaviors," Journal of Family and Economic Issues, Springer, Springer, vol. 32(4), pages 668-679, December.
    16. Oliver Williams & Stephen Satchell, 2011. "Social welfare issues of financial literacy and their implications for regulation," Journal of Regulatory Economics, Springer, Springer, vol. 40(1), pages 1-40, August.

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