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Financial literacy among the young: Evidence and implications for consumer policy

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Listed author(s):
  • Lusardi, Annamaria
  • Mitchell, Olivia S.
  • Curto, Vilsa

Abstract

We examined financial literacy among the young using the most recent wave of the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low; fewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification. Financial literacy was strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings was about 45 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy. These findings have implications for consumer policy.

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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2010/09.

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Date of creation: 2010
Handle: RePEc:zbw:cfswop:201009
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Keywords: Financial Knowledge; Peer Effects; Family Background;

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Find related papers by JEL classification:
  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving

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  1. James J. Choi & David Laibson & Brigitte C. Madrian, 2005. "Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)," Levine's Bibliography 122247000000000966, UCLA Department of Economics.
  2. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc.
  3. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
  4. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(04), pages 332-368, October.
  5. Annamaria Lusardi & Ricardo Cossa & Erin L. Krupka, 2001. "Savings of Young Parents," Journal of Human Resources, University of Wisconsin Press, vol. 36(4), pages 762-794.
  6. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
  7. Stephan Meier & Charles Sprenger, 2007. "Selection into financial literacy programs: evidence from a field study," Public Policy Discussion Paper 07-5, Federal Reserve Bank of Boston.
  8. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
  9. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
  10. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  11. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 42(1), pages 35-44, January.
  12. Frank P. Stafford & Ngina S. Chiteji, 1999. "Portfolio Choices of Parents and Their Children as Young Adults: Asset Accumulation by African-American Families," American Economic Review, American Economic Association, vol. 89(2), pages 377-380, May.
  13. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2013. "Who Is ‘Behavioral’? Cognitive Ability And Anomalous Preferences," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1231-1255, December.
  14. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center.
  15. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2004. "Social Interaction and Stock-Market Participation," Journal of Finance, American Finance Association, vol. 59(1), pages 137-163, 02.
  16. Jeffrey R. Brown & Zoran Ivkovic & Paul A. Smith & Scott Weisbenner, 2008. "Neighbors Matter: Causal Community Effects and Stock Market Participation," Journal of Finance, American Finance Association, vol. 63(3), pages 1509-1531, 06.
  17. Geng Li, 2014. "Information Sharing and Stock Market Participation: Evidence from Extended Families," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 151-160, March.
  18. 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.
  19. James J. Heckman & Jora Stixrud & Sergio Urzua, 2006. "The Effects of Cognitive and Noncognitive Abilities on Labor Market Outcomes and Social Behavior," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 411-482, July.
  20. Mitchell, Olivia S. & Utkus, Stephen P. (ed.), 2004. "Pension Design and Structure: New Lessons from Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780199273393.
  21. 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.
  22. repec:use:tkiwps:2323 is not listed on IDEAS
  23. Annamaria Lusardi & Punam Anand Keller & Adam M. Keller, 2009. "New Ways to Make People Save: A Social Marketing Approach," NBER Working Papers 14715, National Bureau of Economic Research, Inc.
  24. Justine S. Hastings & Lydia Tejeda-Ashton, 2008. "Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico," NBER Working Papers 14538, National Bureau of Economic Research, Inc.
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