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Financial Literacy and Financial Education: Review and Policy Implications

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  • Annamaria Lusardi

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.

Suggested Citation

  • Annamaria Lusardi, 2006. "Financial Literacy and Financial Education: Review and Policy Implications," NFI Policy Briefs 2006-PB-11, Indiana State University, Scott College of Business, Networks Financial Institute.
  • Handle: RePEc:nfi:nfipbs:2006-pb-11
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2006-PB-11_Lusardi.pdf
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    References listed on IDEAS

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    1. 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, Oxford University Press, vol. 118(3), pages 815-842.
    2. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    3. 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, vol. 87(7-8), pages 1487-1519, August.
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    Cited by:

    1. Sharon Tennyson, 2011. "Consumers’ Insurance Literacy," NFI Policy Briefs 2011-PB-06, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. Meier, Stephan & Sprenger, Charles D., 2013. "Discounting financial literacy: Time preferences and participation in financial education programs," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 159-174.
    3. John A. Tatom, 2010. "Financial Wellbeing and Some Problems in Assessing Its Link to Financial Education," NFI Working Papers 2010-WP-03, Indiana State University, Scott College of Business, Networks Financial Institute.

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