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Financial literacy: An essential tool for informed consumer choice?

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  • Lusardi, Annamaria
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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 Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2008/19.

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    Date of creation: 2008
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    Handle: RePEc:zbw:cfswop:200819

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    Related research

    Keywords: Financial Literacy; Financial Education; Saving Decisions;

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    References

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    1. 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.
    2. 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.
    3. 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.
    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. Singh, Ardhendu & Venkataramani, Bhama, 2012. "Financial Education: Institutes of Higher Education as delivery channels," MPRA Paper 43336, University Library of Munich, Germany.
    2. 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).
    3. 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.
    4. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(3), pages 590-602.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. Arrondel, Luc & Calvo-Pardo, Hector, 2014. "Subjective return expectations, information and stock market participation: evidence from France," Discussion Paper Series In Economics And Econometrics 1415, Economics Division, School of Social Sciences, University of Southampton.

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