Financial Literacy, Household Investment and Household Debt: Evidence from Switzerland

We use a novel, representative survey to document the level of financial literacy among Swiss households and to examine how financial literacy is related to household investment and borrowing. We find that half of the respondents were able to answer three questions on basic financial concepts (compound interest, inflation and risk diversification) correctly. Financial literacy is lower among low-income and immigrant households as well as among women. Young households seem to be less familiar with the concept of inflation, while retirees are less familiar with the concepts of compound interest and risk diversification. We find that financial literacy is strongly correlated with financial market participation, voluntary retirement saving and mortgage borrowing.