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Financial Literacy and Financial Education: Review and Policy Implications

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  • Annamaria Lusardi
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    Abstract

    In recent years, as workers have gained an unprecedented degree of control over their pensions and savings, the importance of financial literacy and financial education has increased considerably. Large changes in the structure of financial markets, labor markets, and demographics in developed countries have led to this change. Consumers have a bewildering array of complex financial products – from reverse mortgages to annuities – to choose from, making saving decisions increasingly complex. Knowledge about the working of compound interest rates, the effects of inflation, and the working of financial markets is essential to make saving decisions. Several initiatives have been undertaken to improve financial literacy. The Organization for Economic Co-Operation and Development (OECD) comprehensively defines financial education as "the process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being." Building upon this definition, I provide a review of the current state of financial literacy and financial education programs, and discuss whether workers possess the financial literacy necessary to process information and formulate saving plans.

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    File URL: http://indstate.edu/business/NFI/leadership/briefs/2006-PB-11_Lusardi.pdf
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    Bibliographic Info

    Paper provided by Indiana State University, Scott College of Business, Networks Financial Institute in its series NFI Policy Briefs with number 2006-PB-11.

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    Length: 13 pages
    Date of creation: May 2006
    Date of revision:
    Handle: RePEc:nfi:nfipbs:2006-pb-11

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    Web page: http://indstate.edu/business/nfi/
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    Keywords: Financial knowledge; retirement seminars; savings.;

    References

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    1. 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.
    2. 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.
    3. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
    4. 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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    Cited by:
    1. Meier, Stephan & Sprenger, Charles, 2008. "Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs," IZA Discussion Papers 3507, Institute for the Study of Labor (IZA).
    2. Tatom, John, 2010. "Financial wellbeing and some problems in assessing its link to financial education," MPRA Paper 26411, University Library of Munich, Germany.
    3. Meier, Stephan & Sprenger, Charles D., 2013. "Discounting financial literacy: Time preferences and participation in financial education programs," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 95(C), pages 159-174.
    4. Sharon Tennyson, 2011. "Consumers’ Insurance Literacy," NFI Policy Briefs, Indiana State University, Scott College of Business, Networks Financial Institute 2011-PB-06, Indiana State University, Scott College of Business, Networks Financial Institute.

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