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Personal Finance Education in the Classroom
HEFWA Executive Leadership Forum on Financial Wellness | July 2024
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Financial Literacy and Retirement Fluency: New insights for improving financial well-being
April 2024
The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), now in its eighth year, annually assesses financial literacy among U.S. adults and examines the relationship between financial literacy and financial well-being. In addition to a robust measure of overall financial literacy, the P-Fin Index provides a nuanced analysis of personal finance knowledge across eight areas in which individuals routinely function. For the first time, the 2024 P-Fin Index also assessed basic retirement fluency, i.e., knowledge that promotes financial well-being in retirement.
Click here for the data brief associated with this report.
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Assessing Financial Literacy Among the Young
June 2024
Abstract: Since 2012, the Programme for International Student Assessment (PISA), an initiative of the Organisation for Economic Co-operation and Development (OECD), conducted triennial tests to evaluate the financial literacy of 15-year-old students in various countries. These data provide an opportunity to study the determinants of financial literacy among the young and how it evolves over time. This article examines the data collected so far (2012, 2015, 2018), documents stylized facts across waves, and provides guidance on using the test scores estimated from psychometric models.
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Financial literacy and financial education: An overview
April 2024
Abstract: This article provides a concise narrative overview of the rapidly growing empirical literature on financial literacy and financial education. We first discuss stylized facts on the demographic correlates of financial literacy. We next cover the evidence on the effects of financial literacy on financial behaviors and outcomes. Finally, we review the evidence on the causal effects of financial education programs focusing on randomized controlled trial evaluations. The article concludes with perspectives on future research priorities for both financial literacy and financial education.
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Evaluating the Effects of a Low-Cost, Online Financial Education Program
March 2024
Abstract: This paper provides evidence on how a low-cost, online, and scalable financial education program influences older participants’ financial knowledge. We tested the program using a field experiment that included short stories covering three fundamental financial education topics: compound interest, risk diversification, and inflation. Two surveys were administered eight months apart to measure the effects of those stories on participants’ short-term and longer-term knowledge and financial distress indicators. We show that the risk diversification story was the most effective at improving participants’ knowledge, in both the short and longer term. The compound interest and inflation stories significantly increased participants’ knowledge in the short term, but the gain in financial literacy declined over time.
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Increasing the effectiveness of financial education: Evidence from research
Harvard University | November 2023
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An unrecognized barrier to retirement income security: Poor longevity literacy
August 2023
Longevity literacy is an understanding of how long people tend to live upon reaching retirement age. It is particularly important since retirement income security requires planning, saving, and preparing for a period that is uncertain in length. Unfortunately, data from the 2023 TIAA Institute–GFLEC Personal Finance Index (P-Fin Index) demonstrate a lack of longevity literacy among the vast majority of U.S. adults. Using three new questions to measure longevity literacy, this report highlights two major groups in the population…
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ESG Knowledge and Interest: A study among Householders in 8 countries
July 2023
Abstract: In this study, we surveyed over 16,000 respondents in eight countries to collect information on individuals’ preferences for sustainable investing, ownership of ESG investment products, as well as their level of financial literacy, investing sophistication and understanding of topics connected to ESG criteria. We find that interest in sustainable investing is popular among adults in the eight countries, especially among younger generations. However, actual ownership of ESG investments is still limited in most countries. Most importantly, many investors lack awareness about the sustainability profile of their investments and believe that lack of knowledge, experience, and transparency are the main barriers to ESG investing. When we assessed respondents’ knowledge of topics connected to ESG criteria and financial and investing concepts, we found that most respondents and investors lack the basic knowledge to make savvy investment decisions regarding ESG investing.
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Financial knowledge as an antibody to economic vulnerability (Italian)
I soldi in podcast | Radio24 | January 18, 2022
Summary: The surveys conducted periodically to assess the level of preparedness among Italians regarding economic matters and savings indicate a lack of significant progress. The slow rate of improvement has not provided adequate protection against hasty decision-making, excessive confidence, and even fraudulent activities. In this episode, the current status of initiatives and outcomes is discussed with Director Lusardi.
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The Importance of Financial Literacy: Opening a New Field
Joseph Lucia Memorial Lecture | University of Villanova | November 2023
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Financial Literacy and Personal Finance – An Overview
State of the Art Lecture | Canadian Economics Association Annual Meeting | May 2023
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Why I Teach Personal Finance
Personal Finance Master Lecture | Loyola University New Orleans | April 2023
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Money and the Young: Why we need financial education in school
EFAMA and BETTER FINANCE | Investor Education in times of High Inflation, Financial Repression, and Market Volatility | March 2023
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The Power of Financial Literacy: Global Evidence
Central Bank of Cyprus | Financial Literacy and Education in Cyprus: Challenges, Lessons from Other Countries and the Way Forward | March 2023
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Financial literacy, longevity literacy, and retirement readiness: The 2022 TIAA Institute-GFLEC Personal Finance Index
January 2023
Six years of data from the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) clearly demonstrate that U.S. adults with greater financial literacy tend to have better financial well-being. This report shows that retirement readiness, a specific realm of financial well-being, likewise tends to be better among those with greater financial literacy. In addition, it shows that retirement readiness is also related to longevity literacy. While typically an overlooked factor, the importance of longevity literacy is not surprising since retirement income security inherently involves planning for the time that will be spent in retirement, which is uncertain.
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Promoting evidence-based financial education programs
OECD/CVM Centre 2022 Annual Meeting | Financial literacy to meet LAC's future challenges | Rio de Janeiro | December 2022
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Financial Literacy and Wellbeing: Evidence from Six Years of Data
The Centre for Research on Economic Relations (CER) | Mid Sweden University | December 2022
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The Importance of Financial Education
Keynote presentation. Financial Technology, Financial Inclusion and Competition Policy: Legal and Economic Approaches | University of Torino, Collegio Carlo Alberto, and the Bank of Italy | Turin, Italy | December 2022
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A New Year’s Resolution: Manage Debt
January 2022
Introduction: In a recent study by the Stanford Center on Longevity and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University, researchers showed that financial wellbeing could be assessed by three categories of questions: (1) how people manage debt and cash flow, (2) how they build wealth, and (3) their understanding of financial risks.
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Financial wellness programs in the workplace: Evidence from a Fortune 25 company
September 2022
Abstract: Financial wellness programs in the workplace are the best ways to reach a vast majority of the adult population. This report is part of a more comprehensive study that focuses on a particular financial wellness program launched by Edelman Financial Engines (EFE) in April 2022 as a six-week challenge in a Fortune 25 company. This report aims to analyze the impact of the six-week challenge on financial knowledge, confidence, and behavior. Adopting a before-and-after design, we conduct the impact evaluation on 668 employees; we found that after being exposed to financial education resources, employees improved their financial knowledge (2.5 percentage points, p.p.), their self-assessed financial knowledge (4.5 p.p.), and their attitudes toward retirement planning (5 p.p.). Exposure to the six-week challenge might have also increased employees’ awareness of their financial issues, which may make them feel more anxious when talking about their personal finances (5 p.p.) and more worried about running out of money in retirement (5.5 p.p.). This report also includes insights on forward-looking behaviors, such as employees’ willingness to be savvier about their finances in the future and greater eagerness to talk with a financial counselor before taking important decisions. Our findings should interest both companies and researchers that are validating existing financial wellness tools and guiding stakeholders and policymakers toward future policies to improve financial wellness in the workplace.
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Are your employees in good financial shape? Evidence from a Fortune 25 company
July 2022
Abstract: Workplace financial education is crucial for helping working adults improve their financial well-being. This report shows the results of a six-week challenge called Fast Track to Financial Health, a joint project between Edelman Financial Engines (EFE) and the George Washington University’s Global Financial Literacy Excellence Center (GFLEC). The project aimed to gain critical insights into the financial well-being of employees at a Fortune 25 company. This unique initiative created a financial health score (the FinHealth Score) and provided personalized counseling and access to educational resources based on that score. Data gathered prior to the program showed middle-aged employees (35–54) and minorities to be among the groups most lacking in financial well-being. Moreover, female employees are less knowledgeable about financial topics and the most likely to have used EFE’s financial services in the past. Splitting the sample across different levels of financial exposure revealed that EFE users have a higher level of financial literacy and better financial health. Although the employees plan for retirement and have precautionary savings, 38% declared they feel anxious about their finances and retirement savings. This result is persistent even among employees who have used EFE services in the past. The report concludes that offering workplace financial wellness programs can help with employee retention and overall satisfaction.
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Financial Education at School and at Work: Policy with a Big Payoff
January 2022
Introduction: Financial resilience has many definitions. More than anything, it is the ability to manage unexpected life events that threaten personal finances. Across the United States, the COVID-19 pandemic is testing the financial resilience of households. It has dramatically revealed the fragile construct upon which a large share of the population has built its financial future. Too many people lacked emergency funds even before the pandemic started. They struggled with excessive debt and lived paycheck to paycheck. Their financial vulnerability became obvious when business shutdowns or sickness cut off those income streams.
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The P-Fin Index: What we can learn from six years of data on financial literacy and personal finance
Keynote presentation. 3rd CEAR-RSI Household Finance Workshop | Montreal, Canada | November 2022
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Increasing the effectiveness of financial education: Evidence from research
Harvard University | November 2022
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Millennials’ and Gen Z’s Money Management During COVID-19: Challenges and Opportunities
November 2021
Abstract: The economic consequences of the COVID-19 pandemic have not been felt equally among individuals, with millennials and Gen Z among those hit hardest. We examine responses to a novel survey conducted in May 2021 to understand how the pandemic has influenced personal finances of individuals 40 and under. We find that the pandemic has had a large impact on individuals’ debt and financial anxiety. We also find that the main financial challenges and sources of anxiety differ by generation. Millennials are struggling with debt and debt management, whereas Gen Z struggles with uncertain income and unexpected expenses. While the pandemic has increased uncertainty and financial anxiety, it also provides an opportunity for financial education. Survey responses indicate that millennials and Gen Z are highly motivated to improve their financial literacy and savings.
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Financial literacy and the gender gap
Commonwealth FinTech Event | International Monetary Fund | October 2022
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Financial Education Works: Evidence and Policy Implications
United Nations | Transforming Education Summit | September 2022
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Measuring Financial Literacy: A Global Perspective
United Nations | Transforming Education Summit | September 2022
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Workplace Financial Education: Lessons from ten years of experience
Launch of the OECD/INFE Policy Handbook on Financial Education in the Workplace | June 2022
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Financial Literacy and Well-Being: Evidence from Five Years of Data
European Central Bank and Banca d’Italia | Seventh Conference on Household Finance and Consumption | December 2021
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How financial literacy varies among U.S. adults: The 2022 TIAA Institute-GFLEC Personal Finance Index
April 2022
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an ongoing project now in its sixth year that annually assesses financial literacy among the U.S. adult population. The P-Fin Index is unique in its capacity to produce a robust measure of overall financial literacy plus a nuanced analysis of personal finance knowledge across eight areas in which individuals routinely function. The index relates to common financial situations that individuals encounter and can be viewed as a gauge of “working knowledge.” The P-Fin Index survey also includes indicators of financial well-being which enables examining the relationship between financial literacy and financial well-being.
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Using Factor Analysis to Assess Financial Vulnerability in the United States
January 2022
Abstract: This paper examines the complex nature of financial vulnerability in the United States through the adoption of factor analysis to identify the underlying constructs of financial security. Using data from the FINRA Foundation’s 2018 National Financial Capability Study (NFCS), we identify three underlying factors of financial vulnerability: (1) debt and cash flow management, (2) wealth building and planning, and (3) an understanding financial risks and financial literacy. A composite vulnerability index is created based on the three factors. Linear Probability Regression analyses are used to examine the association between sociodemographic characteristics (e.g., age, race/ethnicity, and income) and vulnerability scores.
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On the costs of financial illiteracy and how to take care of your personal finances
The Harvard Undergraduate Economics Association (HUEA) Speaker Series | December 2021
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Coping with new (and old) vulnerabilities in the post-pandemic world
G20 Global Partnership for Financial Inclusion (GPFI) High-Level Symposium | Rome, Italy | October 2021
The symposium concludes the work programme carried out by the Global Partnership for Financial Inclusion (GPFI) under the Italian G20 Presidency. It aims to take stock of the main experiences gained in financial education and consumer protection, including during the pandemic, areas of intervention identified by the Italian G20 Presidency as priorities for promoting digital financial inclusion.
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Financial literacy and well-being in a five generation America: The 2021 TIAA Insitute-GFLEC Personal Finance Index
October 2021
Summary: With five years of the Gen Z cohort now over age 18, the U.S. adult population spans five generations. This report uses data from the 2021 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to compare financial literacy across the Silent Generation, the Baby Boom Generation, Gen X, Gen Y (millennials) and Gen Z at this point in time. How well individuals navigate financial decisions throughout their lifetime depends, at least in part, on their financial literacy.
The P-Fin Index is a long-term project that annually assesses financial literacy among American adults. Gen Z was quota sampled when fielding the 2021 P-Fin Index survey which enables comparisons with the other generations, as well as a closer examination within the Gen Z adult population. The P-Fin Index survey also includes indicators of financial wellness along several dimensions and those too are examined across generations and within Gen Z.
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Examining the Barriers to Annuity Ownership for Older Americans
October 2021
Abstract: The annuity take-up rate is lower than economic theory predicts.1 Using data from the 2018 National Financial Capability Study, we conduct an empirical analysis of individuals in the retirement-planning phase of the life cycle (ages 40–61) and individuals of retirement age (age 62 and over). We examine individuals’ balance sheets, financial situations, and retirement planning steps to understand the barriers to annuity ownership, and we identify the financial and sociodemographic factors that contribute to annuity ownership. We find that debt obligations, lack of access to liquidity, and low financial literacy are all likely barriers to annuity ownership; the annuity owners in our sample are more likely than the non-owners to have access to liquidity and to report higher levels of financial satisfaction. Results indicate that access to liquidity and to professional investment management are positively associated with annuity ownership. Furthermore, financial literacy could lead to improved take-up rates through improved access to liquidity. These findings lead us to conclude that efforts to improve individuals’ financial literacy levels may lead to enhanced retirement outcomes.
Click here for the executive summary associated with this report.
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Financial Anxiety and Stress Among U.S. Adults: New Evidence From a National Survey and Focus Groups
September 2021
Summary: The economic impact of the COVID-19 pandemic has shed light on the deeply rooted financial insecurity that many Americans face. Our research shows that even before the pandemic hit, and at a time of economic expansion, a large share of Americans was already stressed about their personal finances and could not face a midsized shock, let alone the loss of income and unexpected expenses that many have faced during this crisis. In this brief, we examine the state of financial anxiety and stress among U.S. adults, and the factors that likely contribute to high levels of financial anxiety and stress. The empirical analysis is based on the FINRA Investor Education Foundation’s 2018 National Financial Capability Study (NFCS) and complemented by focus group findings from December 2020.
Click here for the report associated with this issue brief.
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Financial Literacy and Financial Behavior at Older Ages
July 2021
Abstract: Recent research has documented that people are increasingly entering old age holding more debt than ever before, and having done little or no retirement planning. This paper examines some of the reasons why older peoples’ financial behaviors depart from the predictions of the life cycle model, where the latter predicts that older persons would be at the peak of their wealth accumulation process, and manage their money so as not to run out of savings in retirement. Drawing on the rapidly-growing literature on financial literacy and financial behavior at older ages, we highlight findings on financial literacy patterns. We also document that “better” financial behaviors are strongly associated with greater financial literacy in later life. We close with some thoughts regarding limitations, policy implications, and next steps.
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How to Strengthen Household Financial Resilience
August 2021
Introduction: The COVID-19 pandemic and its economic consequences have laid bare the deeply rooted financial insecurity many Americans face daily. Many households are highly dependent upon earned income and have little to buffer an income loss due to business shutdowns or sickness. Though correlated with income and wealth, financial resilience uniquely defines anyone’s ability to sustain an economic shock, such as a health event, job loss, or an economic downturn (O’Neill & Xiao, 2011). In this project, we take a close look at the concept of financial resilience, its drivers, and its characteristics.
Click here for the report associated with this policy brief.
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Financial Resilience in America
August 2021
Summary: In this report, we examine the concept and assessment of financial resilience and its associated factors, which include income and cash flow management, debt management, risk protection, and financial literacy. We use longitudinal data from before and after the Great Recession to evaluate the severity of its impact across subpopulations and how each subpopulation recovered. We find that each subpopulation faces unique challenges. Thus it would be inappropriate to promote a one-size-fits-all approach for building financial resilience.
Click here for the policy brief associated with this report.
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Factors Contributing to Financial Well-Being among Black and Hispanic Women
Journal of Retirement | Issue 1 | Volume 9 | Summer 2021
Abstract: This article provides an in-depth examination of the financial well-being of Black and Hispanic women and the factors contributing to that well-being, using the 2018 survey wave of the National Financial Capability Study. The article documents meaningful differences between Black and Hispanic women versus White women; the former are more likely to face economic challenges that depress financial well-being. Controlling for differences in sociodemographic characteristics, important dissimilarities distinguish the factors that contribute to financial well-being for Black and Hispanic women compared to White women—including the distinct impacts of education, family structure, employment, and financial literacy. The results imply that extant financial education programs inadequately address the needs of Black and Hispanic women.
Access the paper here.
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Gender Differences in Financial Literacy
Florence School of Banking and Finance | Women in Finance Series | June 2021
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Financial Well-being and Literacy in the Midst of a Pandemic
Journal of Accounting and Public Policy 2021 Conference | June 2021
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Women’s Financial Wellbeing and Literacy
SUERF, Joint Vienna Institute, and the Central Bank of Austria's Gender, Money and Finance Dialogue | May 2021
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Financial Fragility during the COVID-19 Pandemic
American Economic Association | May 2021
Abstract: Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus’s spread, and several emergency interventions were implemented. Our analysis of older (45–75) respondents fielded in April–May of 2020 indicates that about 1 in 5 respondents was financially fragile and would have difficulty facing a midsize emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and those with low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic.
Access the paper here.
Click here to see the November 2020 version of this working paper.
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Challenges for Financial Inclusion: The Role for Financial Education and New Directions
FinLit Talks | April 2021
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Financial Anxiety and Stress among U.S. Households: New Evidence from the National Financial Capability Study and Focus Groups
April 2021
Summary: The economic impact of the COVID-19 crisis has brought to light the deeply rooted financial struggles that many Americans face. This paper shows that even before the pandemic, a substantial share of households was already anxious and stressed about their personal finances. The greatest levels of anxiety and stress were expressed by women, young adults, those with lower income, those with more financially dependent children, those who are not married, and those who are unemployed. In this paper, we analyze factors likely contributing to high levels of financial anxiety and stress. The empirical analysis is based on the FINRA Foundation’s 2018 National Financial Capability Study (NFCS) and complemented by findings from focus groups that were conducted in 2020. We find that lack of assets, high debt, and money management challenges are major contributing factors to high levels of financial anxiety and stress. We also find that financial anxiety and stress can have long-term consequences: those who are financially anxious and stressed are less likely to plan for retirement. Financial literacy seems to matter. Those who could correctly answer three questions designed to measure basic financial literacy are significantly less likely to feel financially anxious or stressed. Finally, focus group findings reveal that individuals who experience financial anxiety and stress engage in daily monitoring of their finances and make decisions that are informed by their financial worries.
Click here for the highlights and key findings of this paper.
Click here for the issue brief associated with this report.
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Financial Fragility during the COVID-19 Pandemic
National Association of State Treasurers (NAST) | April 2021
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Financial Resilience in America
May 2021
This fact sheet provides a snapshot of the state of Americans’ financial resilience right before the onset of the COVID-19 pandemic. Many Americans were unprepared to cover a mid-sized emergency expense, and there are considerable variations across groups with different demographic backgrounds and socioeconomic status.
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Financial Well-Being and Literacy in the Midst of a Pandemic: The 2021 TIAA Insitute-GFLEC Personal Finance Index
April 2021
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an annual barometer of knowledge and understanding which enable sound financial decision making and effective management of personal finances among U.S. adults. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function. The 2021 data represents the fifth wave of the P-Fin Index.
Click here for the executive summary.
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Gender Gap in Financial Literacy: A Lack of Knowledge or Confidence?
The Sound of Economics | Bruegel | March 24, 2021
Summary: Bruegel’s podcast talks about the gender gap in financial literacy, and our new research that breaks down how both confidence and knowledge contribute to this gender gap.
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What Causes The Gender Gap With Financial Literacy
Moolala: Money Made Simple | March 20, 2021
Summary: This podcast talks about the gender gap in financial literacy. Director Lusardi talks shares our new research that breaks down how both confidence and knowledge contribute to this gender gap.
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Fearless Woman: Financial Literacy and Stock Market Participation
March 2021
Abstract: Women are less financially literate than men. It is unclear whether this gap reflects a lack of knowledge or, rather, a lack of confidence. Our survey experiment shows that women tend to disproportionately respond “do not know” to questions measuring financial knowledge, but when this response option is unavailable, they often choose the correct answer. We estimate a latent class model and predict the probability that respondents truly know the correct answers. We find that about one-third of the financial literacy gender gap can be explained by women’s lower confidence levels. Both financial knowledge and confidence explain stock market participation.
Click here for the highlights and key findings of this paper.
Click here for the NBER working paper.
Click here for the Centre for Economic Policy Research working paper.
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Evaluating Deliberative Competence: A Simple Method with an Application to Financial Choice
February 2021
We introduce a method for experimentally evaluating interventions designed to improve the quality of choices in settings where people imperfectly comprehend consequences. Among other virtues, our method yields an intuitive sufficient statistic for welfare that admits formal interpretations even when consumers suffer from biases outside the scope of analysis. We use it to study a financial education intervention, which we find improves the quality of decisions only when it incorporates practice and feedback, contrary to the implications of analyses based on conventional efficacy metrics. We trace the failures of conventional metrics to violations of assumptions that our method avoids.
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Black and Hispanic Women’s Financial Well-Being
February 2021
Summary: We provide an in-depth examination of the financial well-being of Black and Hispanic women and the factors contributing to it, using the 2018 wave of the National Financial Capability Study. We document meaningful differences between Black and Hispanic women versus White women, in that the former are more likely to face economic challenges that depress financial well-being, due in part to longstanding institutional biases. Controlling for differences in socio-demographic characteristics, there are additional factors that contribute to financial well-being for Black and Hispanic women compared to White women. These include differential impacts of education, family structure, employment, and financial literacy. Our results imply that extant financial education programs inadequately address the needs of Black and Hispanic women.
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Testing the Use of the Mint App in an Interactive Personal Finance Module
February 2021
Summary: If today’s youth are to be full participants in society, they must be financially literate. To advance understanding of effective financial education methods, the Global Financial Literacy Excellence Center (GFLEC) conducted an experiment using Mint, a financial improvement tool offered by Intuit, whose financial products include TurboTax and QuickBooks. This study measures Mint’s effectiveness at improving students’ financial knowledge, attitudes, and behavior. Students at the George Washington University participated in a half-day budgeting workshop and were exposed to either Mint, which is a real-time, automated platform, or Excel, which is an offline, static tool. We find that participation in both workshops was associated with improved preparedness to have conversations about money matters with parents, a greater sense of financial autonomy, and an increased awareness of the importance of budgeting, but that participants in the Mint workshop were more likely to have a positive experience using the budgeting tool, to feel confident that they could achieve a financial goal, and to be engaged in budgeting one month after the workshop. Results show that even short financial education interventions can meaningfully influence students’ financial attitudes and behavior and that an interactive tool like Mint may have advantages over a more static tool like Excel.
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Testing the Use of the Mint App in an Interactive Personal Finance Module (Summary Report)
February 2021
Summary: If today’s youth are to be full participants in society, they must be financially literate. To advance understanding of effective financial education methods, the Global Financial Literacy Excellence Center (GFLEC) conducted an experiment using Mint, a financial improvement tool offered by Intuit, whose financial products include TurboTax and QuickBooks. This study measures Mint’s effectiveness at improving students’ financial knowledge, attitudes, and behavior. Students at the George Washington University participated in a half-day budgeting workshop and were exposed to either Mint, which is a real-time, automated platform, or Excel, which is an offline, static tool. We find that participation in both workshops was associated with improved preparedness to have conversations about money matters with parents, a greater sense of financial autonomy, and an increased awareness of the importance of budgeting, but that participants in the Mint workshop were more likely to have a positive experience using the budgeting tool, to feel confident that they could achieve a financial goal, and to be engaged in budgeting one month after the workshop. Results show that even short financial education interventions can meaningfully influence students’ financial attitudes and behavior and that an interactive tool like Mint may have advantages over a more static tool like Excel.
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Debt Close to Retirement and its Implications for Retirement Well-Being
November 2020
Abstract: We analyze debt and debt management of Americans nearing retirement age, to document that older people have numerous financial obligations that can lead to financial distress. Using data from the 2015 National Financial Capability Study and drawing on an extensive literature review, we show that lack of financial literacy, lack of information, and behavioral biases help explain the prevalence of debt later in life. Our evidence indicates that debt at older ages can negatively influence retirement well-being.
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Avoiding Prejudice: Combat Fatalities, Anti-Muslim Bias, and Work Behavior of Arabs and Muslims
FinLit Talks | November 2020
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Trading Stocks Increases Financial Literacy and Compresses the Confidence Gender Gap
FinLit Talks | Spring 2019
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Financial Fragility during the COVID-19 Pandemic
American Economic Association Annual Meeting | January 2021
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Stereotypes in Financial Literacy: Evidence from PISA
Forthcoming in the Journal of Corporate Finance
Abstract: We examine gender differences in financial literacy among high school students in Italy using data from the 2012 Programme for International Student Assessment (PISA). Gender differences in financial literacy are large among the young in Italy. They are present in all regions and are particularly severe in the South and the Islands. Combining the rich PISA data with a variety of other indicators, we provide a thorough analysis of the potential determinants of the gender gap in financial literacy. We find that parental background, in particular the role of mothers, matters for the financial knowledge of girls. Moreover, we show that the social and cultural environment in which girls and boys live plays a crucial role in explaining gender differences. We also show that history matters: Medieval commercial hubs and the nuclear family structure created conditions favorable to the transformation of the role of women in society, and shaped gender differences in financial literacy as well. We discuss the changes that are needed to close the gap in financial knowledge among the young.
Access the paper here.
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The P-Fin Index: Four Years of Data to Understand Personal Finance in America
Behavioral Sciences and Investor Education Conference | December 2020
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Financial Fragility and Resilience in Europe and the US amid COVID-19
The Sim Kee Boon Institute and GFLEC Conference: "COVID-19, Financial Fragility & Resilience" | December 2020
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The Importance of Financial Literacy: Evidence and Recommendations
EFAMA E-Seminar: Investor Education Initiatives | November 2020
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Financial Literacy and Financial Fragility: Evidence to Understand the COVID-19 Crisis
University of Innsbruck | November 2020
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Attitudes Toward Debt and Debt Behavior
Forthcoming in the Scandinavian Journal of Economics
Abstract: We introduce a novel survey measure of attitude toward debt. Matching our survey results with panel data on Swedish household balance sheets from registry data, we show that our debt attitude measure helps explain individual variation in indebtedness as well as debt build-up and spending behavior in the period 2004–2007. As an explanatory variable, debt attitude compares well to a number of other determinants of debt, including education, risk-taking, and financial literacy. We also provide evidence that suggests that debt attitude is passed down along family lines and has a cultural element.
Access the paper here.
Click here to see the July 2019 version of this working paper.
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Financial Literacy and Wellness Among U.S. Women: Insights on Underrepresented Minority Women
November 2020
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) provides an annual measure of overall financial literacy among the U.S. adult population, plus a nuanced analysis of personal finance knowledge across eight functional areas. The 2020 P-Fin Index survey was fielded in January 2020 and included an oversample of women. This enables examining the state of financial literacy and financial wellness among U.S. women immediately before the onset of COVID-19. A more refined understanding of financial literacy among women, including areas of strength and weakness and variations among subgroups, can inform initiatives to improve financial wellness, particularly as the United States moves forward from the pandemic and its economic consequences.
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How To Solve Income Inequality
The WealthAbility Show | August 19, 2020
Summary: The podcast talks about why income and wealth inequality is growing and why it’s a problem for the poor, middle class and wealthy, including offering solutions to address the issue.
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Remaking Retirement: Debt in an Aging Economy
Oxford University Press | November 2020
Summary: Around the world, people nearing and entering retirement are holding ever-greater levels of debt than in the past. This is not a benign situation, as many pre-retirees and retirees are stressed about their indebtedness. Moreover, this growth in debt among the older population may render retirees vulnerable to financial shocks, medical care bills, and changes in interest rates. Contributors to this volume explore key aspects of the rise in debt across older cohorts, drill down into the types of debt and reasons for debt incurred by the older population, and review policies to remedy some of the financial problems facing older persons, in the US and elsewhere. The authors explore which groups are most affected by debt and identify the factors producing this important increase in leverage at older ages.
It is clear that the economic and market environment is influential when it comes to saving and debt. Access to easy borrowing, low interest rates, and the rising cost of education have had significant impacts on how much people borrow, and how much debt they carry at older ages. In this environment, the capacity to manage debt is ever more important as older workers lack the opportunity to recover from mistakes.
Click here for more information and to purchase the book.
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Household Financial Fragility during COVID-19: Rising Inequality and Unemployment Insurance Benefit Reductions
December 2020
Abstract: We draw on new high-frequency survey data collected from repeated cross-sections of Americans between June and November 2020. These data capture rich measures of household financial fragility and employment status. We find evidence of a building “second wave” of negative shocks to household finances and of growing inequality in financial fragility by household income, educational attainment, and gender from August to November of 2020. Finally, using difference-in-difference models, we estimate that the expiration of the CARES Act’s Pandemic Unemployment Compensation benefits, which augmented unemployment insurance by $600 a week, significantly increased the financial fragility of unemployed workers in America.
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Understanding Debt in the Older Population
December 2020
Abstract: Poor financial capability can erode well-being in later life. To explore debt and debt management among older Americans, age 51-61, we designed and analyzed a new module in the 2018 Health and Retirement Study along with information from the 2018 National Financial Capability Study. Even though this group should be at the peak of their retirement savings, it nevertheless carries debt due to student loans and unpaid medical bills; having children also contributes to carrying debt close to retirement. By contrast, the financially literate have more positive financial perceptions and behaviors. Specifically, being able to answer one additional financial literacy question correctly is associated with a higher probability of reporting an above average credit record and planning for retirement. Higher financial literacy is also linked to being less likely to carry excessive debt, being contacted by debt collectors, and carrying medical debt or student loans, even after accounting for a large range of demographics and other characteristics. Evidently, financial knowledge can help limit debt exposure at older ages.
Click here for the Centre for Economic Policy Research working paper.
Click here for the NBER working paper.
Click here to see the January 2020 version of this working paper.
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Stereotypes in Financial Literacy: Evidence from PISA
November 2020
Abstract: We examine gender differences in financial literacy among high school students in Italy using data from the 2012 Programme for International Student Assessment (PISA). Gender differences in financial literacy are large among the young in Italy. They are present in all regions and are particularly severe in the South and the Islands. Combining the rich PISA data with a variety of other indicators, we provide a thorough analysis of the potential determinants of the gender gap in financial literacy. We find that parental background, in particular the role of mothers, matters for the financial knowledge of girls. Moreover, we show that the social and cultural environment in which girls and boys live plays a crucial role in explaining gender differences. We also show that history matters: Medieval commercial hubs and the nuclear family structure created conditions favorable to the transformation of the role of women in society, and shaped gender differences in financial literacy as well. We discuss the changes that are needed to close the gap in financial knowledge among the young.
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The Stability and Predictive Power of Financial Literacy: Evidence from Longitudinal Data
November 2020
Abstract: We administered the FINRA Foundation’s National Financial Capability Study questionnaire to members of the RAND American Life Panel (ALP) in 2012 and 2018. Using this unique, longitudinal data set, we investigate the evolution of financial literacy over time and shed light on the causal effect of financial knowledge on financial outcomes. Over a six-year observation period, financial literacy appears to be rather stable, with a slight tendency to decline at older ages. Moreover and importantly, financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline outcomes and a wide set of demographics and individual characteristics that influence financial decision making. This estimated relationship is significantly stronger for older individuals, for women, and for those with lower income than for their counterparts in the study. Altogether, our findings suggest that differences in the stock of financial knowledge may lead to increasing inequality over the life course.
Click here for the Centre for Economic Policy Research working paper.
Click here for the NBER working paper.
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Financial Fragility during the COVID-19 Pandemic
November 2020
Abstract: Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus’ spread, and several emergency interventions were implemented. Our analysis of older (45-75) respondents fielded in April-May of 2020 indicates that about one in five respondents was financially fragile and would have difficulty facing a mid-size emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and the low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic.
This paper was published by the American Economic Association in May 2021, Volume 111. Click here to access the published paper.
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The P-Fin Index: Four Years of Data to Understand Personal Finance in America
CPA Canada’s Financial Literacy Virtual World Tour | November 2020
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Are Americans financially resilient to weather COVID-19?
TIAA Institute | July 2020
Introduction: Financial wellness depends, at least in part, on such knowledge, as demonstrated by four years of findings from the TIAA Institute/GFLEC Personal Finance Index (P-Fin Index). In times that are anything but normal—times like today with the COVID-19 pandemic and its severe economic consequences—the ability to make appropriate financial decisions matters greatly.
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Financial Literacy, Wellness and Resilience Among African Americans
September 2020
Summary: The financial situation of African Americans lags that of the U.S. population as a whole, and of whites in particular. Simple economic indicators illustrate the gap. While 66% of African Americans report that they are doing at least OK financially, the comparable figure among whites is 78%.1 Median household income among African Americans was $35,400 in 2016; median household income of whites was $61,200. African American household net worth was $17,600 in 2016, and 19% had zero or negative net worth; the analogous figures for white households were $171,000 and 9%, respectively. The gap is evident in more nuanced indicators, as well.
This report uses data from the third wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to examine the current state of financial literacy among African American adults and the link between financial literacy and financial wellness. Financial literacy is knowledge and understanding that enable sound financial decision making and effective management of personal finances. As such, greater financial literacy contributes to greater financial well-being.
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Assessing the impact of financial education programs: A quantitative model
Economics of Education Review | Volume 78 | October 2020
Abstract: Prior studies disagree regarding the effectiveness of financial education programs, especially those offered in the workplace. To explain such measurement differences in evaluation and outcomes, we employ a stochastic life cycle model with endogenous financial knowledge accumulation and investigate how financial education programs optimally shape key economic outcomes. This approach permits us to measure how such programs shape wealth accumulation, financial knowledge, and participation in sophisticated assets (e.g. stocks) across heterogeneous consumers. We apply conventional program evaluation econometric techniques to simulated data, distinguishing selection and treatment effects. We show that the more effective programs provide follow-up in order to sustain the knowledge acquired by employees via the program; in such an instance, financial education delivered to employees around the age of 40 can raise savings at retirement by close to 10%. By contrast, one-time education programs do produce short-term but few long-term effects. We also measure how accounting for selection affects estimates of program effectiveness for those who participate. Comparisons of participants and non-participants can be misleading, even using a difference-in-difference strategy when the common-trend assumption is unlikely to hold. Random program assignment is needed to evaluate program effects on those who participate.
Access the published paper here.
Click here for the working paper.
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P-Fin Index Insights: Improving financial resilience
TIAA Institute and GFLEC | May 2020
The TIAA Institute-GFLEC Personal Finance (P-Fin) Index demonstrates the precarious position of many U.S. adults just before the coronavirus pandemic.
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The Financial Fragility of European Households During COVID-19 and The Role of Financial Education and Literacy
Presentation to the European Banking Authority | September 2020
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The Milestones of the Integral Ecology for a Human Economy
International Conference Fondazione Centesimus Annus Pro Pontefice | Vatican City, Rome | October 2020
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The Stability and Predictive Power of Financial Literacy: Evidence From Longitudinal Data
FINRA Investor Education Foundation | October 2020
Summary: We administered the FINRA Investor Education Foundation’s National Financial Capability Study (NFCS) questionnaire to members of the RAND American Life Panel (ALP) in 2012 and 2018. Using this longitudinal data set, we investigate the evolution of financial literacy over time and shed light on the causal effect of financial knowledge on financial outcomes. Over a six-year observation period, financial literacy appears to be rather stable, with a slight tendency to decline at older ages. We find that financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline financial characteristics and a wide set of demographic and individual characteristics that influence financial decision making.
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Building Up Financial Literacy and Financial Resilience
Mind & Society | July 2020
Abstract: This article uses data from the 2020 TIAA Institute-GFLEC Personal Finance (P-Fin) Index to show that many American families were financially fragile well before the COVID-19 pandemic hit the U.S. economy. Financial fragility is particularly severe among specific demographic groups, such as African-Americans and those with low income. The article also shows that financial fragility is strongly linked to financial literacy and that many Americans are ill-equipped to deal with the financial decisions needed to navigate through a financial crisis. Suggestions are provided to deal with personal finance decisions in times of emergency.
In January 2020, the unemployment rate in the United States was as low as 3.6 percent, and the stock market was reaching record highs. Mild concerns about cases of an unknown virus notwithstanding, the economy was firing on all cylinders. It was amidst this backdrop that the Global Financial Literacy Excellence Center (GFLEC) and the TIAA Institute conducted the 2020 Personal Finance (P-Fin) Index, an annual survey to assess knowledge and understanding which enable sound financial decision making and effective management of personal finances. A long term project that started in 2017, the P-Fin Index measures financial literacy with 28 questions covering eight functional areas, from earning, consuming, saving, investing, and borrowing/managing debt, to insuring, comprehending risk, and go-to information sources. The survey also collects demographic data, as well as indicators of financial wellness, providing insights into the state of Americans’ personal finances. The results of the survey offer several suggestions to assess the potential effects of the current economic crisis. In the next section, we describe those findings and how they can be used to help families become more financially resilient.
Access the paper here.
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Three Threats to Retirement Security in Times of Crisis
IDB-PLAC Network Webinar Series | September 2020
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Financial Capability Assessment for Church Pension Group Members
Church Pension Group's Workplace Financial Capability Assessment Webinar | May 2020
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How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness
Quarterly Journal of Finance | Volume 7 | Issue 3 | September 2017
This paper explores who is financially literate, whether people accurately perceive their own economic decision-making skills, and where these skills come from. Self-assessed and objective measures of financial literacy can be linked to consumers’ efforts to plan for retirement in the American Life Panel, and causal relationships with retirement planning examined by exploiting information about respondent financial knowledge acquired in school. Results show that those with more advanced financial knowledge are those more likely to be retirement-ready.
Access the paper here.
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Financial literacy and financial resilience: Evidence from around the world
Financial Management | Volume 49 | September 2020
Abstract: We measure financial literacy using questions assessing basic knowledge of four fundamental concepts in financial decision making: knowledge of interest rates, interest compounding, inflation, and risk diversification. Worldwide, just one in three adults are financially literate—that is, they know at least three out of the four financial concepts. Women, poor adults, and lower educated respondents are more likely to suffer from gaps in financial knowledge. This is true not only in developing countries but also in countries with well‐developed financial markets. Relatively low financial literacy levels exacerbate consumer and financial market risks as increasingly complex financial instruments enter the market. Credit products, many of which carry high interest rates and complex terms and conditions, are becoming more readily available. Yet only around half of adults in major emerging countries who use a credit card or borrow from a financial institution are financially literate. We discuss policies to protect borrowers against risks and encourage account holders to save.
Access the paper here.
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Debt and Financial Vulnerability on the Verge of Retirement
Journal of Money, Credit, and Banking | Volume 52 | No. 5 | August 2020
Abstract : We analyze older individuals’ debt and financial vulnerability using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). In the HRS, we compare three groups of people age 56-61 in 1992, 2004, and 2010, to assess cross-cohort changes in debt over time. Two waves of the NFCS (2012 and 2015) are employed to gain additional insights into debt management and older individuals’ capacity to shield themselves against shocks. We conclude that recent cohorts hold more debt and face more financial insecurity in retirement than in the past. This will render them particularly vulnerable to forecasted interest rate increases.
Access the paper here.
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Financial Capability Assessment for Church Pension Group Members
May 2020
Abstract: In today’s economy, individuals are required to make important and complex financial decisions, many of them carrying long-lasting consequences. Yet significant numbers of people lack the basic knowledge needed to handle this responsibility and execute informed choices, underscoring the crucial and urgent need for financial education. In this study, we evaluate the financial capability and knowledge of the members of the Church Pension Group (CPG). Further, we contrast their money-management behavior with that of a comparison group from the 2015 National Financial Capability Study (NFCS). The main goal is to identify areas of strength and weakness among the members of the CPG. The results can be used to tailor personal finance education programs that match these consumers’ financial needs and expectations. CPG members do relatively well in answering the Big Three questions that measure financial literacy. They also engage less in expensive short-term money management practices and do more retirement planning than the NFCS subgroup. Despite the clergy members’ good performance against the comparison group, there is significant room for improvement. Tailored financial education can help prepare these people for the many financial decisions they face, which positively affects their financial security over the life cycle.
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Financial Literacy and Wellness among African-Americans: New Insights from the Personal Finance (P-Fin) Index
Journal of Retirement | Issue 8 | No. 1 | Summer 2020
The nation’s 44 million African-Americans account for 13% of the U.S. population and have a significant impact on the economy, with $1.2 trillion in purchases annually. Yet the financial well-being of African-Americans lags that of the U.S. population as a whole, and whites in particular. The reasons for these gaps are complex, but one area of importance in addressing them is increased financial literacy.
Access the paper here.
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Best Practices for Teaching in an Online Environment
American Bankers Association Foundation's Teach Children to Save in a Virtual Environment Webinar | April 2020
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Defined Contribution Plans and the Challenge of Financial Illiteracy
Cornell Law Review | Volume 105 | Issue 3 & Issue 4 | May 2020
Abstract: Retirement investing in the United States has changed dramatically. The classic defined-benefit (DB) plan has largely been replaced by the defined-contribution (DC) plan. With the latter, individual employees’ decisions about how much to save for retirement and how to invest those savings determine the benefits available upon retirement. We analyze data from the 2015 National Financial Capability Study to show that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) plan are poorly equipped to make sound investment decisions. Specifically, they suffer from higher levels of financial illiteracy than other investors. This lack of financial literacy is critical both because of the financial consequences of poor financial decisions and because of a legal structure that relies on participant choice to limit the fiduciary obligations of the employer with respect to the structure and options provided by the retirement plan. In response to this concern, we propose mandated employer-provided financial education to address limited employee financial literacy. We identify and discuss three requirements that a financial education program should incorporate – a self-assessment, minimum substantive components, and timing. Formalizing the employer role in evaluating and increasing financial literacy among plan participants is a key step in providing retirement plan participants with the resources necessary to manage important decisions regarding retirement planning and, ultimately, for enhancing the financial security of American workers.
Click here to access the publication.
Click here to see the summary of the paper at the Harvard Law School Forum on Corporate Governance and Financial Regulation.
Click here to read the Portuguese translation of this publication.
Click here to read the Spanish translation of this publication.
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Millennials and money: Financial preparedness and money management practices before COVID-19
August 2020
Abstract: Millennials (individuals age 18–37 in 2018) are the largest, most highly educated, and most diverse generation in U.S. history, and they are already playing a pivotal role in society by making up the largest share of the work force. Consequently, their financial decisions promise to greatly affect the future of the U.S. economy. Millennials were deeply affected by the Great Recession of 2008 and have been disproportionately affected by the steadily rising costs of higher education and the ensuing student loan debt crisis. This generation now faces an additional economic crisis, resulting from the shutdowns due to the COVID-19 pandemic. In light of this, we assess in this paper the financial situation, money management practices, and financial literacy of millennials to understand both how their financial behavior changed over the ten years following the Great Recession and the situation they were in on the cusp of the current economic crisis (in 2018). Findings from the National Financial Capability Study (NFCS) show that millennials tend to rely heavily on debt, engage frequently in expensive short- and long-term money management, and display shockingly low levels of financial literacy. Moreover, student loan burden and expensive financial decision making increased significantly from 2009 to 2018 among young adults. Given these findings, we suggest that financial education programs tailored to the needs of young workers could play a crucial role in supporting financial decision making and helping them build financial resilience. Thus, we provide recommendations to employers who want to implement financial wellness programs targeted to their millennial employees. Effective workplace financial wellness programs include financial checkups, accessible and customized content, and cover a broad range of personal finance topics. A financially strong and healthy workforce provides the foundation for empowered and resilient communities.
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Financial Education Affects Financial Knowledge and Downstream Behaviors
April 2020
Abstract: We study the rapidly growing literature on the causal effects of financial education programs in a meta-analysis of 76 randomized experiments with a total sample size of over 160,000 individuals. The evidence shows that financial education programs have, on average, positive causal treatment effects on financial knowledge and downstream financial behaviors. Treatment effects are economically meaningful in size, similar to those realized by educational interventions in other domains and are at least three times as large as the average effect documented in earlier work. These results are robust to the method used, restricting the sample to papers published in top economics journals, including only studies with adequate power, and accounting for publication selection bias in the literature. We conclude with a discussion of the cost-effectiveness of financial education interventions.
Click here for the NBER working paper.
Click here for the Centre for Economic Policy Research working paper.
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The financial fragility of European households in the time of COVID-19
Bruegel | Policy Contribution Issue n ̊15 | July 2020
Introduction: One of the first consequences of COVID-19 lock downs has been an immediate fall in household incomes. In a March 2020 survey for the G7 countries, 31 percent of households reported that the coronavirus had already impacted their incomes. Workers throughout the European Union have seen over time a reduction in weekly hours worked, temporary suspensions and even redundancies. Many self-employed workers and small businesses have been particularly impacted, and some might cease to operate altogether (Anderson, 2020). Governments have tried to compensate for this shock to income through direct support or deferral of tax and loan payments. The European Central Bank and other EU institutions have also put measures in place to provide governments with funds that will support health systems, businesses and households. In other words, a raft of measures has been introduced to supplement household incomes and mitigate these shocks.
But how well-prepared were households to handle shocks, a concept associated with financial fragility? As we show, two years before the pandemic hit, a substantial share of EU households reported that they would be unable to handle unexpected expenses. In some EU countries, many households had savings equivalent to just a few weeks of basic consumption. We also find that there are big differences in different countries and, thus, a need for more targeted policies to help families….
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Attitudes Toward Debt and Debt Behavior
March 2020
Abstract: We introduce a novel survey measure of attitude toward debt. Matching our survey results with panel data on Swedish household balance sheets from registry data, we show that our debt attitude measure helps explain individual variation in indebtedness as well as debt build-up and spending behavior in the period 2004–2007. As an explanatory variable, debt attitude compares well to a number of other determinants of debt, including education, risk-taking, and financial literacy. We also provide evidence that suggests that debt attitude is passed down along family lines and has a cultural element.
Forthcoming in The Scandinavian Journal of Economics.
Click here to see the July 2019 version of this working paper.
Click here to see the July 2018 version of this working paper. -
The P-Fin Index: Four Years of Data to Understand Personal Finance in America
Swedish House of Finance's Consumer Behavior in Financial Markets Conference | August 2020
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Building Financial Resilience
European Banking Federation's Building Financial Resilience in Turbulent Times Online Seminar | March 2020
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Financial Education Affects Financial Knowledge and Downstream Behaviors
OECD-GFLEC Webinar | May 2020
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Financial Fragility in America
In January 2020, about one-in-four Americans were financially fragile. Financial fragility is the inability to cope with a mid-size shock in a short period of time. It is a self-assessed measure of capacity to deal with financial shocks, regardless of whether the source of funds is the respondent’s own assets, capacity to borrow, a network of family and friends, or something else.
Click here to see the March 2020 version of this fact sheet.
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The 2020 TIAA Institute-GFLEC Personal Finance Index: Many Do Not Know What They Do and Do Not Know
April 2020
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an annual barometer of knowledge and understanding which enable sound financial decision making and effective management of personal finances among U.S. adults. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function. The 2020 data represents the fourth wave of the P-Fin Index.
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Financial Education Works
Morningstar | February 19, 2020
Summary: This podcast talks about the state of financial literacy in the United States, income inequality across communities, and the impact of financial education.
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Millennials and money: The state of their financial management and how workplaces can help them
February 2020
Summary: Millennials (individuals age 18–37 in 2018) are the largest, most highly educated, and most diverse generation in U.S. history. Millennials are making financial decisions that will likely shape the future of the U.S. economy for the next 30 years, and they are doing so in an increasingly complex financial landscape.
In this study, we analyze data from the 2018 National Financial Capability Study (NFCS) to obtain an in-depth picture of millennials’ current financial situation, behaviors, and knowledge, and we compare the state of their personal finances to that of older working-age adults (individuals age 38-64). Further, we compare the personal finances, money management behavior, and financial literacy of millennials to young adults in the same age range (18-37) in 2009, 2012 and 2015 by using data from previous waves of the NFCS.
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Millennial mobile payment Users: A look into their personal finances and financial behavior
Asian Development Bank Institute | January 2020
Abstract
The financial technology (fintech) sector is revolutionizing traditional financial practices, yet little information exists on the users of these services. In this study, we examine untapped information from the 2015 National Financial Capability Study and the 2016 GFLEC Mobile Payment Survey to provide insights on the financial capability of American millennials who use mobile payments. Using data from both surveys, we find striking differences in financial capability between users and non-users. In particular, we reveal that users of mobile payments are more likely to overdraw their checking accounts, use credit cards expensively, borrow through alternative financial services, and withdraw from their retirement accounts. Even after controlling for socio-demographic factors, the results indicate that mobile payment users are more inclined to engage in behaviors that do not seem to follow good financial management practices.
Please see the publication by the Asia Development Bank Institute (ADBI) here.
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Mind the Gap: Women, Men, and Investment Knowledge
When surveyed about their investment knowledge, female investors performed poorly compared to male investors. Out of ten questions designed to assess knowledge, on average, male investors correctly answered 5.2 questions while female investors correctly answered 4.1 questions. Moreover, 40% of female investors answered fewer than three questions correctly thus demonstrating low investment knowledge, while only 8% of female investors correctly answered at least eight questions, demonstrating high financial knowledge.
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Boosting Financial Literacy to Improve Livelihoods and Economic Prosperity
World Bank | Washington D.C. | October 2019
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Financial Literacy and Wellness among African-Americans: New Insights from the Personal Finance (P-Fin) Index
November 2019
Forthcoming in the Journal of Retirement
The nation’s 44 million African-Americans account for 13% of the U.S. population and have a significant impact on the economy, with $1.2 trillion in purchases annually. Yet the financial well-being of African-Americans lags that of the U.S. population as a whole, and whites in particular. The reasons for these gaps are complex, but one area of importance in addressing them is increased financial literacy.
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Financial Well-Being of the Millennial Generation: An In-Depth Analysis of Its Drivers and Implications
CFPB Financial Well-Being Research Conference | November 2019
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Working Longer: Motivation, Challenges, and Phased Retirement Programs
April 2019
Introduction: The tendency of U.S. workers to stay in the labor force longer, including beyond the traditional retirement age of 65, has grown over the past two decades. Recent research has shown that the expected annual growth rate of workers between age 65 and 74 is 4.5 percent and for those past 75 is 6.4 percent until 2024. Additionally, the percentage of workers in the labor force past age 55 rose to 22 percent in 2015, up from 13 percent in the year 2000—a trend that is expected to continue at a steady pace well beyond 2020.
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Presentation to the 2019 Annual Commonwealth Central Bank Governors Meeting
International Monetary Fund | Washington, D.C. | October 2019
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Financial Well-Being of the Millennial Generation: An In-Depth Analysis of its Drivers and Implications
November 2019
Abstract: This research highlights the importance of designing and offering financial education programs that will optimally meet the needs and address the concerns of this diverse population. To improve financial well-being, programs should be tailored to the financial situation of their participants.
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The FinTech Opportunity in Personal Finance
Singapore FinTech Festival | Singapore | November 2019
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Do NFL Players with Short-Lived Income Spikes Smooth Consumption?
The George Washington University School of Business | April 2015
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Income Growth and the Distributional Effects of Urban Spatial Sorting
FinLit Talks | April 2019
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Pooling (Data) Assets to Learn about Debts and Debt Collection
FinLit Talks | December 2018
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Complexity, Financial Decision Making, and Consequence Messaging
FinLit Talks | November 2018
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Fully Closed: Individual Responses to Realized Capital Gains and Losses
FinLit Talks | November 2018
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New Evidence on the Financial Knowledge and Characteristics of Investors
October 2019
Abstract: Increased individual responsibility for retirement saving and investing, together with the growing complexity of financial products, require that investors have financial knowledge and awareness. This report provides evidence of substantial differences across investor types. Workplace-only investors, whose exposure to investment decisions comes solely through participation in an employer-sponsored retirement plan, are much less equipped to manage their investments and are more likely to be women compared to active investors who have made investment decisions outside of an employer-sponsored retirement plan. Workplace financial wellness programs can provide an impactful way to reach a large share of the adult population and help them prepare to make sound financial decisions.
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The Impact of School-Based Financial Education on High School Students and their Teachers: Experimental Evidence from Peru
FinLit Talks | September 2018
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Attitudes Toward Debt and Debt Behavior
July 2019
Abstract: We introduce a novel survey measure of attitude toward debt. Matching our survey results with panel data on Swedish household balance sheets from registry data, we show that our debt attitude measure helps explain individual variation in indebtedness as well as debt build-up and consumption behavior in the period 2004–2007. As an explanatory variable, debt attitude compares well to a number of other determinants of debt, including education, risk-taking, and financial literacy. We also provide evidence that debt attitude is passed down along family lines and has a cultural element.
Click here to see the July 2018 version of this working paper.
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Debt Close to Retirement and Its Implications for Retirement Well-being
June 2019
Abstract: We analyze debt and debt management of Americans nearing retirement age, and we show that older people have numerous financial obligations that can lead to financial distress. Drawing on the 2015 National Financial Capability Study and an extensive literature review, we find that lack of financial literacy, lack of information, and behavioral biases help explain the prevalence of debt later in life. Our evidence also indicates that debt at older ages can negatively influence retirement well-being.
Click here to see the report.
Click here to see the November 2020 published version of this paper.
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Debt Close to Retirement and Its Implications for Retirement Well-being
June 2019
We analyze debt and debt management of Americans nearing retirement age, and we show that older people have numerous financial obligations that can lead to financial distress. Drawing on the 2015 National Financial Capability Study and an extensive literature review, we find that lack of financial literacy, lack of information, and behavioral biases help explain the prevalence of debt later in life. Our evidence also indicates that debt at older ages can negatively influence retirement well-being.
Click here to see the working paper.
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Financial Fragility in America
The 16th Overview Course of Financial Sector Issues | Washington, D.C. | June 2019
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Defined Contribution Plans and the Challenge of Financial Illiteracy
June 2019
Abstract: Retirement investing in the United States has changed dramatically. The classic defined-benefit (DB) plan has largely been replaced by the defined-contribution (DC) plan. With the latter, individual employees’ decisions about how much to save for retirement and how to invest those savings determine the benefits available upon retirement. We analyze data from the 2015 National Financial Capability Study to show that people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) plan are poorly equipped to make sound investment decisions. Specifically, they suffer from higher levels of financial illiteracy than other investors. This lack of financial literacy is critical both because of the financial consequences of poor financial decisions and because of a legal structure that relies on participant choice to limit the fiduciary obligations of the employer with respect to the structure and options provided by the retirement plan. In response to this concern, we propose mandated employer-provided financial education to address limited employee financial literacy. We identify and discuss three requirements that a financial education program should incorporate – a self-assessment, minimum substantive components, and timing. Formalizing the employer role in evaluating and increasing financial literacy among plan participants is a key step in providing retirement plan participants with the resources necessary to manage important decisions regarding retirement planning and, ultimately, for enhancing the financial security of American workers.
This paper was published by the Cornell Law Review in May 2020, Volume 105 , Issue 3 & Issue 4. Click here to access the published paper.
Click here to see the summary of the paper at the Harvard Law School Forum on Corporate Governance and Financial Regulation.
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Raising Awareness of the Importance of Personal Finance in School: New Insights
May 2019
We investigate teachers’ awareness of the importance of financial education, along with their motivation and confidence in teaching personal finance. We aim to identify strategies to advance school based financial education and further support educators. We survey a sample of teachers and non-teachers. Findings reveal that professional development is the factor that most motivates educators and enhances their confidence in teaching personal finance. Recommendations include that state and district-level policymakers take steps to broaden financial education opportunities in school by expanding training support to teachers across the nation.
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Millennials’ Engagement with Online Financial Education Resources and Tools: New Survey Insights and Recommendations
May 2019
In today’s economy, individuals—sometimes at an early age—are required to make important and complex financial decisions, many of them with long-lasting consequences. In executing these decisions, people may tap into many resources, including ones online. For those aiming to expand Millennials’ engagement with online financial education resources, it is crucial to understand why, when, and how young people seek out information on personal finance. We launched a survey to understand what motivates Millennials’ engagement and influences them to build their levels of financial knowledge. We complement our results with those of two other surveys representative of the U.S. population, the National Financial Capability Study (NFCS) and the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index). Millennials are aware of and use online financial education resources, however, those who do not engage with online resources said they do not do so because there is no immediate need, they have trouble finding helpful information, they fear the information would be too complicated, or they do not trust the information.
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Financial Fragility Among Middle-Income Households: Evidence Beyond Asset Building
March 2019
Abstract: Several years after the financial crisis, financial fragility is not only pervasive in the U.S economy but also prevalent among middle-income households. This highlights the need to consider more than asset levels in order to understand household financial resilience. In this paper, we explore the determinants of financial fragility for American households in the middle-income bracket (earning $50–$75K annually) using data from the 2015 National Financial Capability Study. We analyze the socioeconomic characteristics and balance sheets of these households with focus on their debt management and expenses. According to our empirical analysis, three main factors impact financial fragility of middle-income households: family size, debt burden, and financial literacy. First, because a portion of household financial resources are committed to children, family size plays an important role in financial fragility. Second, middle-income households have a lot of debt, and the data shows that debt increases with income. While middle-income households do own assets, they are highly leveraged. In addition, they are using high-cost borrowing methods to cope with emergency expenses. Third, financial literacy is very low among financially fragile middle-income households, which is potentially problematic when there are assets and debt to manage. Moreover, we find that financial fragility has long-term consequences, as financially fragile households are much less likely to plan for retirement.
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Financial Fragility in America
Peter G. Peterson Foundation and Ford Foundation's US 2050 Spring Conference | Washington, D.C. | March 2019
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Financial Literacy in the United States and Its Link to Financial Wellness: The 2019 TIAA Institute-GFLEC Personal Finance Index
April 2019
The 2019 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) represents the third wave of a long-term project to annually assess financial literacy among the U.S. adult population. The P-Fin Index is unique in its capacity to produce a robust measure of overall personal finance knowledge and a nuanced analysis of knowledge across eight areas of personal finance in which individuals routinely function.
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Working Longer: Implications for a Heterogeneous Workforce
April 2019
Abstract: Working past the general retirement age is becoming a must for many in the baby boomer cohort and the cohorts that follow, and flexible work arrangements such as phased retirement programs can help meet the needs of employers and employees considering alternatives to traditional retirement patterns. Employers offering phased retirement programs are improving their workforce-planning strategies and are able to overcome labor shortages, benefit from retaining expert knowledge, and help employees boost financial security after retirement and stay socially and cognitively engaged. We evaluated phased retirement programs and their adequacy for those working beyond the general retirement age. Our qualitative research—in-depth interviews with employers and retirement experts—offers insight and perspectives on the challenges and benefits that employers and employees face and ways to design formal programs that enable those who would like to work longer to gradually reduce their hours as they reach retirement.
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Making the World a Better Place: Innovations in Financial Inclusion, Literacy, and Development
2019 American Finance Association Annual Meeting | Atlanta, Georgia | January 2019
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Retirement Savings for All – The Importance of Financial Literacy and FinTech Solutions
Singapore FinTech Festival | Singapore | November 2018
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The Demand for and Supply of Phased Retirement Programs: Opportunities and Barriers
September 2018
Abstract: Phased retirement offers many benefits to employees who wish to maintain a steady income stream later in life and to employers who want to retain their experienced workforce, yet few employers
offer formal programs as a variety of barriers hinder widespread implementation. These barriers include regulatory complexities and ambiguities involving federal tax and age discrimination laws. Thus, employers are tasked with overcoming significant barriers to facilitating a phased transition into retirement for their workers. In this report, we addresses the various challenges related to phased retirement from the employee, employer, and legal perspective. Further, we discuss employee interest in working past the traditional retirement age by using 2014 Health and Retirement Study (HRS) data. -
Financial Literacy and the Need for Financial Education: Evidence and Implications
Swiss Journal of Economics and Statistics | Volume 155 | Issue 1 | January 2019
Introduction
Throughout their lifetime, individuals today are more responsible for their personal finances than ever before. With life expectancies rising, pension and social welfare systems are being strained. In many countries, employer-sponsored defined benefit (DB) pension plans are swiftly giving way to private defined contribution (DC) plans, shifting the responsibility for retirement saving and investing from employers to employees. Individuals have also experienced changes in labor markets. Skills are becoming more critical, leading to divergence in wages between those with a college education, or higher, and those with lower levels of education. Simultaneously, financial markets are rapidly changing, with developments in technology and new and more complex financial products. From student loans to mortgages, credit cards, mutual funds and annuities, the range of financial products people have to choose from is very different from what it was in the past, and decisions relating to these financial products have implications for individual well-being. Moreover, the exponential growth in financial technology (fintech) is revolutionizing the way people make payments, decide about their financial investments, and seek financial advice. In this context, it is important to understand how financially knowledgeable people are and to what extent their knowledge of finance affects their financial decision-making.
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Financial Fraud among Older Americans: Evidence and Implications
The Journals of Gerontology: Series B | December 2018
Abstract:
Objectives: The consequences of poor financial capability at older ages are serious and include making mistakes with credit, spending retirement assets too quickly, and being defrauded by financial predators. Because older persons are at or past the peak of their wealth accumulation, they are often the targets of fraud.
Methods: Our project analyzes a module we developed and fielded on persons age 50+ in the 2016 Health and Retirement Study (HRS). Using this dataset, we evaluated the incidence and prospective risk factors (measured in 2010) for investment fraud and prize/lottery fraud using logistic regression (N=1,220).
Results: Relatively few HRS respondents mentioned any single form of fraud over the prior five years, but 5.0% reported at least one form of investment fraud and 4.4% recounted prize/lottery fraud. Greater wealth (non-housing) was associated with investment fraud, whereas lower housing wealth and symptoms of depression were associated with prize/lottery fraud. Hispanics were significantly less likely to report either type of fraud. Other suspected risk factors—low social integration and financial literacy—were not significant.
Discussion: Fraud is a complex phenomenon and no single factor uniquely predicts victimization across different types, even within the category of investment fraud. Prevention programs should educate consumers about various types of fraud and increase awareness among financial services professionals.
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Financial Literacy in the U.S.: Students
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Financial Literacy in the U.S.: Students and Parents
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Financial Education: Young People in the Digital Age
OECD-Russia Symposium on Financial Literacy | Moscow, Russia | October 2018
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Millennial Financial Literacy and Fin-tech Use: Who Knows What in the Digital Era
September 2018
Summary: Using an oversample of Gen Y in the 2018 wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), this report examines the financial literacy of millennials and how they engage with fin-tech, i.e., use smartphones for financial purposes.
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Private Paternalism, the Commitment Puzzle, and Model-Free Equilibrium
FinLit Talks | June 2018
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An Analysis of Financial Literacy Among Italian Students
May 2018
Summary: Youth today confront an economic climate that imposes individual financial responsibility at levels greater than in the past. The financial literacy assessment within the Programme for International Student Assessment (PISA) provides an international measure of students’ preparedness for the financial decisions they will face on a daily basis. This assessment was launched in 2012 with 18 participating countries and economies. The most recent wave, in 2015, covers 15 countries and provides an unprecedented opportunity to explore changes in and influences on the financial literacy of young people. The data reveal a persistent lack of financial literacy among 15-year-olds in most of the participating countries and economies. Italy is the only OECD country to show a marked improvement in financial literacy performance between the 2012 assessment and the 2015 wave. Many factors influence students’ financial skills and knowledge, among them financial access, family background, the support and participation of parents, and the educational environment of schools. Actions taken by parents, schools, and teachers can help improve the financial literacy of the student population in Italy, equipping the next generation with the knowledge and skills it needs to independently navigate the financial landscape toward a financially sound future.
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Methodological Challenges and Advances in Evaluating Financial Literacy Interventions
FinLit Talks | May 2018
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Knowledge, Fear and Beliefs: Household Demand for Socially Responsible Investments
FinLit Talks | May 2018
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Household Financial Behavior: What Banking Data Can Tell Us, If We Ask
FinLit Talks | April 2018
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Financial Literacy in Italy: Student Characteristics
The Global Thinking Foundation | May 2018
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Financial Literacy in Italy: Teacher and School Influence
The Global Thinking Foundation | May 2018
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Color and Credit: Race, Regulation, and the Quality of Financial Services
FinLit Talks | February 2018
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What Do Hand-Washing and Financial Illiteracy Have in Common?
Freakonomics Radio | July 17, 2018
Summary: This podcast explores the idea that most problems are solved by more education — except when they’re not. Director Lusardi explains that financial education is the path forward to a more financially literate world.
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Director’s Cut: Making Europe financially literate
The Sound of Economics | Bruegel | June 19, 2018
Summary: Bruegel, the think tank, asks Director Lusardi about the state of financial literacy in Europe and its consequences.
Annamaria Lusardi previously made a presentation at the Bruegel event, ‘The Importance of Being Financially Literate,’ on May 15, 2018. Click here to learn more and watch her presentation.
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Financial Fraud among Older Americans: Evidence and Implications
July 2018
Abstract: The consequences of poor financial capability at older ages are serious and include making mistakes with credit, spending retirement assets too quickly, and being defrauded by financial predators. Because older persons are at or past the peak of their wealth accumulation, they are often the targets of fraud. Our project analyzes a module we developed and fielded in the 2016 Health and Retirement Study (HRS). Using this dataset, we evaluate the incidence and risk factors for investment fraud, prize/lottery scams, and account misuse, using regression analysis. Relatively few HRS respondents mentioned any single form of fraud over the prior five years, but nearly 5% reported at least one form of investment fraud, 4 % recounted prize/lottery fraud, and 30% indicated that others had used/attempted to use their accounts without permission. There were few risk factors consistently associated with such victimization in the older population. Fraud is a complex phenomenon and no single factor uniquely predicts victimization. The incidence of fraud could be reduced by educating consumers about various types of fraud and by increasing awareness among financial service professionals.
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The Changing Face of Debt and Financial Fragility at Older Ages
American Economic Association | Papers and Proceedings | Volume 108 | May 2018
Abstract: U.S. consumer credit and mortgage borrowing expanded rapidly prior to the 2008-9 financial crisis, allowing relatively unsophisticated consumers to decide how much they could afford to borrow. As a consequence, Americans today are more likely to enter retirement in debt than ever before, which poses some concerns. For one, higher debt levels make older households quite sensitive to rising interest rates. For another, retirees may need to devote a growing fraction of their incomes to servicing the rising debt.
Various explanations have been offered for the rapid increase in debt among the population at large, including the rise in house prices during the 2000’s and the growth of easier mortgages (e.g., Dynan and Kohn, 2007; Mian and Sufi, 2011). Another is that technological change in the lending market induced risk-based pricing and made it easier for households to borrow (Edelberg, 2006; Dynan, 2009). Moreover, uninformative sales tactics have “shrouded” customers’ understanding of financial contracts and boosted total amounts borrowed (e.g., Gabaix and Laibson, 2006).
Though this literature offers reasons for the overall rise in debt, much less is known about the consequences of higher debt for older Americans. To evaluate whether borrowing practices of people close to retirement make them increasingly financially vulnerable at older ages, we compare debt patterns for three cohorts of older persons age 56–61 in the Health and Retirement Study (HRS) and discuss the implications of our findings.
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How Mobile Payments Drain Our Financial Literacy
WSJ Your Money Briefing | June 10, 2018
Summary: Does the convenience of mobile payments diminish consumers’ financial literacy? George Washington University School of Business’s Annamaria Lusardi discusses how a significant level of financial awareness is removed when making payments via devices.
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Should Americans Really Be Worried About Retirement?
Gallup | June 4, 2018
Summary: Many Americans don’t think about retirement until it looms in their immediate future. So how confident are Americans that they will have enough money when they retire? And how much are they relying on Social Security and 401(k)s? When is the ideal time to withdraw from Social Security? And what can we do to increase Americans’ financial literacy? Annamaria Lusardi, Denit Trust Chair of Economics & Accountancy at the George Washington University School of Business, joins the podcast to discuss these questions and others.
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Everything You Always Wanted to Know About Money (But Were Afraid to Ask)
Freakonomics | August 2, 2017
Summary: The bad news: roughly 70 percent of Americans are financially illiterate. The good news: all the important stuff can fit on one index card. Here’s how to become your own financial superhero.
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Financial Literacy and Financial Fragility among Millennials
38th NAEE Professional Development Conference | Los Angeles, CA, US | March 2018
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Financial Literacy – How It Affects Us All
The MoneyZen Podcast | December 21, 2016
Summary: Manisha Thakor talks with Director Lusardi about financially fragile groups and how low financial literacy affects the economy.
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Financial Literacy Skills for the 21st Century: Evidence from PISA
RISE Webinar Series at American Institutes of Research | May 2018
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Financial Literacy: Interview with Dr. Annamaria Lusardi
The Motley Fool | October 5, 2016
Summary: David Allen interviews Director Lusardi to discuss why financial literacy is such an important subject.
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Causes and Consequences of Financial Mismanagement at Older Ages
April 2018
Summary: The consequences of poor financial capability at older ages are potentially serious, particularly when people make mistakes with credit, draw down retirement assets too quickly, or are defrauded by financial predators. Because older persons are close to or past the peak of their wealth accumulation, they are often the targets of fraud. This project evaluated older Americans’ exposure to fraud and financial exploitation, the risk factors associated with financial victimization, and the consequences of these vulnerabilities for financial security in old age.
We find that relatively few experienced any single form of investment fraud over the prior five years, but 8% did report at least one form of fraud. Moreover, one-third indicated that others had used or attempted to use one of the respondent’s accounts without permission. Nevertheless, we discovered few readily-identifiable factors associated with financial victimization in the older population.
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Should Kids Pay Back Their Parents for Raising Them?
Freakonomics | October 8, 2015
Summary: When one athlete turned pro, his mom asked him for $1 million. Our modern sensibilities tell us she doesn’t have a case. But should she?
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Annamaria Lusardi on Financial Literacy
Podomatic | October 21, 2012
Summary: Dr. Annamaria Lusardi is all about encouraging young and not so young people to become financially literate and take the hope out of retirement planning and turn it into that certainty you deserve.
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Exploring the Prevalence, Risk Factors, and Financial Consequences of Fraud: Evidence from the Health and Retirement Study
April 2018
Summary: The consequences of poor financial capability at older ages are serious and include making mistakes with credit, drawing down retirement assets too quickly, and being defrauded by financial predators. Because older persons are close to or past the peak of their wealth accumulation, they are often the targets of fraud. Our project analyzes a module we developed and fielded in the 2016 Health and Retirement Study (HRS). Using this dataset, we evaluate the determinants of financial mismanagement and fraud, the incidence and risk factors for different types of financial fraud, and the consequences of financial mismanagement for older persons’ financial security. We find that relatively few HRS respondents experienced any single form of investment fraud over the prior five years, but 8% did report at least one form of fraud. Moreover, one-third of respondents indicated that others had used or attempted to use one of the respondent’s accounts without permission. Nevertheless, we found few readily identifiable factors associated with financial victimization in the older population.
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Financial Fragility: Evidence and Implications
National Endowment for Financial Education | April 2018
To read the National Endowment for Financial Education’s Summer 2018 Digest, which features GFLEC’s research on financial fragility as its covers story, click here. This research was supported by NEFE.
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Gender Differences in Financial Literacy: Evidence and Implications
Keynote Address | Canadian Women Economists Committee, 52nd Annual Conference of the Canadian Economic Association | Montréal, Québec, Canada | June 2018
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Financial Fragility in the U.S.: Evidence and Implications
April 2018
Abstract: This project examines financial fragility in the United States, which is measured as individuals’ ability to cope with unexpected expenses. Using data from the 2015 National Financial Capability Study and the 2015 Survey of Household Economics and Decisionmaking, we identify subgroups of the U.S. population that are most financially fragile. We observe widespread fragility across the entire population – more than one third of Americans are financially fragile. Several years after the financial crisis, financial fragility is not only pervasive, but many middle-income households also suffer from the inability to deal with shocks. Our measure captures several factors that contribute to financial fragility, including lack of assets and indebtedness. The quantitative findings are also supported by qualitative data from focus group interviews. We explore the long-term implications of being financially fragile and its effects on retirement planning – individuals who are fragile in the short term may end up being financially insecure in the long term as well. Our findings point to the need to incentivize short-term savings in a way that is complementary to the institutionalized mechanisms of saving for retirement and other long-term goals. Focus groups also complement our empirical findings regarding the need and benefits of improving
financial literacy to make individuals less financially fragile. -
Financial Fragility in the U.S.: Evidence and Implications
National Endowment for Financial Education | April 2018
Summary: The capacity to cope with unexpected expenses is a crucial component of financial wellbeing. The lack of such preparedness is like balancing on a beam—a shock or unexpected financial adversity can immediately shake one off and it is hard to regain footing. Lusardi et al. (2011) introduced an innovative measure of the capacity to cope with shocks, which they termed financial fragility, by assessing U.S. households’ capacity to come up with $2,000 in 30 days. In the aftermath of the financial crisis of 2007–09, they found that almost 50% of the U.S. population could be classified as financially fragile. Using the same measure to analyze data collected in 2015, we find that financial fragility still affects more than one-third of the population. Such high incidence of fragility is concerning when we juxtapose the crisis,which occurred nearly ten years ago, with an economy that has been recovering steadily.
To read the National Endowment for Financial Education’s Summer 2018 Digest, which features GFLEC’s research on financial fragility as its covers story, click here. This research was supported by NEFE.
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The 2018 TIAA Institute-GFLEC Personal Finance Index: The State of Financial Literacy Among U.S. Adults
April 2018
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) is an annual barometer of knowledge and understanding which enable sound financial decision making and effective management of personal finances among U.S. adults. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function. The 2018 data represents the second wave of the P-Fin Index.
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Relationship Contracts and Reputation: Evidence from Residential Appraisers
FinLit Talks | October 2017
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2018 Survey of the States Panel Discussion
2018 Survey of the States Release | Washington, DC, US | February 2018
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A New Personal Finance Index: Evidence and Implications
OECD-CVM Regional Seminar on Financial Education | Rio de Janeiro, Brazil | December 2017
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A Method for Evaluating the Quality of Financial Decision Making, with an Application to Financial Education
November 2017
Abstract: We introduce a method for measuring the quality of financial decisions built around a notion of financial competence, which gauges the alignment between consumers choices and those they would make if they properly understood their opportunities. We prove our measure admits a formal welfare interpretation even when consumers suffer from additional decision-making flaws, known and unknown, outside the scope of analysis. An application illuminates the pitfalls of the types of brief rhetoric-laden interventions commonly used for adult financial education: they affect behavior through unintended mechanisms, and hence may not improve decisions even when they perform well according to conventional metrics.
Click here to see the August 2016 version of this working paper.
Click here to see the June 2015 version of this working paper.
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Debt and Financial Vulnerability on the Verge of Retirement
June 2017
Abstract: We analyze older individuals’ debt and financial vulnerability using data from the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS). Specifically, in the HRS we examine three different cohorts (individuals age 56–61) in 1992, 2004, and 2010 to evaluate cross-cohort changes in debt over time. We also use two waves of the NFCS (2012 and 2015) to gain additional insights into debt management and older individuals’ capacity to shield themselves against shocks. We show that recent cohorts have taken on more debt and face more financial insecurity, mostly due to having purchased more expensive homes with smaller down payments.
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Financial Literacy Among U.S. Hispanics: New Insights from the Personal Finance (P-Fin) Index
October 2017
Summary: This report uses the inaugural wave of the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) to examine financial literacy among Hispanics. A more refined understanding of Hispanic financial literacy could accelerate initiatives to improve their financial well-being.Personal finance knowledge among Hispanics is lower than that of the U.S. adult population as a whole. But beyond the gap with the general population, there is a notable difference in financial literacy within the Hispanic population between those born in the U.S. and those foreign born. The difference in the percentage of P-Fin Index questions answered correctly among U.S.-born Hispanics and foreign-born Hispanics (8 percentage points) is close to the difference between whites and U.S.-born Hispanics (11 percentage points).The difference in financial literacy between U.S.-born and foreign-born Hispanics cannot simply be attributed to differences in underlying demographics. Greater financial literacy among U.S.-born Hispanics relative to their foreign-born peers is consistent with education and income differences between the two groups. However, it is inconsistent with age differences between the two.
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Financial Literacy Around the World and Among the Youth
International Federation of Finance Museums 5th Annual Meeting | Vienna, Austria | October 2017
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Financial Education, Financial Competence, and Consumer Welfare
December 2017
Summary: Employers routinely attempt to address deficiencies in financial decision making among their employees by deploying educational interventions that are brief and laden with motivational rhetoric. The object of the rhetorical elements is to compensate for brevity by making the material engaging, memorable, and actionable. Prior studies of these interventions evaluate their benefits using criteria that suffer from serious conceptual and practical limitations. In contrast, our research employs a novel method for assessing the quality of decision making that respects each consumer’s underlying tastes and focuses instead on mistakes arising from misconceptions about opportunities. We deploy this method to evaluate a pair of educational interventions targeting two critical topics in personal finance: compound interest and portfolio allocation. Both interventions appear to be effective based on conventional outcome measures….
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The Gender Gap in Financial Literacy: A Global Perspective
Global Thinking Foundation | July 2017
Summary: With data on financial literacy from a survey of more than 150,000 people in 140 economies worldwide, the 2014 Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) represents the most comprehensive global measure of financial literacy to date. Using this survey, which we have helped design, we provide the first analysis of the gender gap in financial literacy from a global perspective…
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Financial Literacy and Financial Education Can Change Lives
Finansinspektionen Seminar | Stockholm, Sweden | November 2017
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The Gender Gap in Financial Literacy: A Global Perspective
Global Thinking Foundation | July 2017
Summary: Financial literacy is a skill that is essential if one is to participate in today’s economy. Wide-ranging developments in the financial marketplace have contributed to growing concerns about the level of financial literacy of citizens of many countries. Through analysis of the S&P Global FinLit Survey, the most comprehensive global data set on financial literacy to date, we find that financial illiteracy is widespread, but it is particularly pronounced among women. Worldwide, just one in three adults show an understanding of basic financial concepts, making it clear that billions of people are unprepared to deal with rapid changes in the financial landscape…
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Financial Literacy and Long-Term Financial Security
House of Finance Open Seminar and Skandia Award Ceremony | Stockholm, Sweden | November 2017
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Millennials and Financial Literacy: A Global Perspective
Global Thinking Foundation | May 2017
Summary: Financial literacy is of utmost importance for Millennials, as they face financial decisions that can have consequences for the rest of their life. However, in a rapidly changing economic landscape, Millennials do not seem to be prepared to deal with the financial challenges they will encounter, as they lack the knowledge needed to make savvy decisions…
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Does Financial Education Impact Financial Literacy and Financial Behavior?
National Conference on Financial Literacy | Montréal, Canada | November 2017
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Millennials and Financial Literacy: A Global Perspective
Global Thinking Foundation | May 2017
Summary: Worldwide, just one in three adults show an understanding of basic financial concepts, making it clear that billions of people are unprepared to deal with rapid changes in the financial landscape. Credit products, many of which carry high interest rates and complex terms, are becoming more readily available. Governments are pushing to increase financial inclusion by boosting access to bank accounts and other financial services, but unless people have the necessary financial skills, these opportunities can easily lead to high debt, mortgage defaults, or insolvency. This is especially true for young people who suffer from low financial literacy…
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The Gender Gap in Financial Literacy
International Federation of Finance Museums 5th Annual Meeting | Vienna, Austria | October 2017
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The Knowledge Gap in Workplace Retirement Investing and the Role of Professional Advisors
FinLit Talks | May 2017
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Three Central Investment Mistakes (And How to Mitigate their Prevalence)
FinLit Talks | May 2017
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Financial Literacy: A Vision for the Future
4th National Financial Education Week | São Paulo, Brazil | May 2017
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Americans’ Financial Capability
Behavioural Sciences and Investor Education Conference | Rio de Janeiro, Brazil | December 2016
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The Social Security Statement: Its History and Impact on Knowledge and Behavior
FinLit Talks | April 2017
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2018, 2015 and 2012 Programme for International Student Assessment (PISA) Financial Literacy
Financial literacy data from the 2018, 2015 and 2012 Programme for International Student Assessment (PISA) are available for download. The financial literacy assessment administered through the Organisation for Economic Co-operation and Development (OECD) measures 15-year-olds’ financial knowledge and experience pertaining to money. The data provides an overall picture of students’ abilities to apply their accumulated knowledge and skills to real-life situations involving financial issues and decisions across participating countries.
Download the 2018 Financial Literacy PISA data here.Download the 2015 Financial Literacy PISA data here.
Download the 2012 Financial Literacy PISA data here.
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The TIAA Institute-GFLEC Personal Finance (P-Fin) Index
This interactive visualization examines financial literacy across eight areas of personal finance in which individuals routinely function: Earning, Consuming, Borrowing, Saving, Investing, Insuring, Managing Risk, Go-to Info Sources. For more details, please refer to our study “The TIAA Institute-GFLEC Personal Finance Index: A New Measure of Financial Literacy.”
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How financially literate are women? An overview and new insights
Journal of Consumer Affairs | Volume 51 | Issue 2 | July 2017
Abstract: We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. In addition, women give themselves lower scores on financial literacy self-assessments than men. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important—for example widows or single women—also know little about concepts relevant for day-to-day financial decisions. Even women in favorable economic conditions are less financially knowledgeable than men. The gender differences are present for very basic as well as more advanced measures of financial literacy and financial sophistication. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. As a result, improving women’s financial literacy is key to helping them prepare for retirement and promoting their financial security.
Click here to see the working paper.
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Financial literacy and retirement planning in the United States
Journal of Pension Economics & Finance | Volume 10 | Issue 4 | October 2011
Abstract: We examine financial literacy in the US using the new National Financial Capability Study, wherein we demonstrate that financial literacy is particularly low among the young, women, and the less-educated. Moreover, Hispanics and African-Americans score the least well on financial literacy concepts. Interestingly, all groups rate themselves as rather well-informed about financial matters, notwithstanding their actual performance on the key literacy questions. Finally, we show that people who score higher on the financial literacy questions are much more likely to plan for retirement, which is likely to leave them better positioned for old age. Our results will inform those seeking to target financial literacy programmes to those in most need.
Access the paper here.
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Financial literacy and stock market participation
Journal of Financial Economics | Volume 101 | Issue 2 | August 2011
Abstract: We have devised two special modules for De Nederlandsche Bank (DNB) Household Survey to measure financial literacy and study its relationship to stock market participation. We find that the majority of respondents display basic financial knowledge and have some grasp of concepts such as interest compounding, inflation, and the time value of money. However, very few go beyond these basic concepts; many respondents do not know the difference between bonds and stocks, the relationship between bond prices and interest rates, and the basics of risk diversification. Most importantly, we find that financial literacy affects financial decision-making: Those with low literacy are much less likely to invest in stocks.
Access the paper here.
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Financially Fragile Households: Evidence and Implications
Brookings Papers on Economic Activity | Spring 2011
Abstract: We examine households’ financial fragility by looking at their capacity to come up with $2,000 in 30 days. Using data from the 2009 TNS Global Economic Crisis Study, we document that approximately one-quarter of U.S. respondents are certain they could not come up with that sum. If we include respondents who report being probably unable to do so, nearly half of respondents are financially fragile. Although financial fragility is more severe among low-income households, a sizable fraction of seemingly middle-class Americans are also at risk. Respondents with low educational attainment and no financial education, families with children, those who have suffered large wealth losses, and the unemployed are also more likely than others to report being unable to cope with a financial shock. Households’ own savings are the resource used most often to deal with shocks, but resources of family and friends, formal and alternative credit, increased work hours, and sale of possessions are also used frequently, especially among some subgroups. These results indicate the need to look beyond precautionary savings to understand how families cope. We also find evidence suggestive of a “pecking order” of coping methods, with savings first in line. Comparing financial fragility and methods of coping among the United States and seven other industrialized countries, we find differences in coping ability but also general evidence of a consistent ordering of methods.
Access the paper here.
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FINANCIAL KNOWLEDGE AND 401(K) INVESTMENT PERFORMANCE: A CASE STUDY
Journal of Pension Economics and Finance | Volume 16 | Special Issue 3 | July 2017
Abstract: We explore whether investors who are more financially knowledgeable earn more on their retirement plan investments compared to their less sophisticated counterparts, using a unique new dataset linking administrative data on investment performance and financial knowledge. Results show that the most financially knowledgeable investors: (a) held 18 percentage points more stock than their least knowledgeable counterparts; (b) could anticipate earning 8 basis points per month more in excess returns; (c) had 40% higher portfolio volatility; and (d) held portfolios with about 38% less idiosyncratic risk, as compared to their least savvy counterparts. Our results are qualitatively similar after controlling on observables as well as modeling sample selection. We also examine portfolio changes to assess the potential impact of the financial literacy intervention. Controlling on other factors, those who elected to take the Financial Literacy survey boosted their equity allocations by 66 basis points and their monthly expected excess returns rose by 2.3 basis points; no significant difference in volatility or nonsystematic risk was detected before versus after the survey. While these findings relate to only one firm, we anticipate that they may spur other efforts to enhance financial knowledge in the workplace.
Included in the Virtual Special Issue on Developments in Financial Literacy 2021 of the Cambridge University Press, edited by Olivia S. Mitchell. Click here to access the special issue.
Click here to see the working paper.
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Visual Tools and Narratives: New Ways to Improve Financial Literacy
Journal of Pension Economics and Finance | Volume 16 | Special Issue 3 | July 2017
Abstract: We developed and experimentally evaluated four novel educational programs delivered
online: an informational brochure, a visual interactive tool, a written narrative, and a
video narrative. The programs were designed to inform people about risk diversification,
an essential concept for financial decision-making. The effectiveness of these programs
was evaluated using the American Life Panel. Participants were exposed to one of the
programs, and then asked to answer questions measuring financial literacy—in particular,
risk literacy—and self-efficacy. All of the programs were found to be effective at
increasing self-efficacy, and several improved financial literacy, providing new evidence
for the value of programs designed to improve financial decision-making.Click here to see the working paper.
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Optimal Financial Knowledge and Wealth Inequality
Journal of Political Economy | Volume 125 | Issue 2 | April 2017
Abstract: We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge.
Click here to see the working paper.
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Remarks of Annamaria Lusardi to the SEC Investor Advisory Committee
U.S. Securities and Exchange Commission | Washington, D.C., USA | March 9, 2017
Click here to view Director Lusardi’s presentation from the SEC IAC meeting.
View the agenda of the meeting by clicking here.
Watch the meeting webcast by clicking here (Director Lusardi begins speaking at 48:09).
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Financial Capability and Financial Literacy among Working Women: New Insights
March 2017
Summary: The following report provides a comprehensive analysis of the personal finances of working women. Using data from the National Financial Capability Study conducted in 2015, we examined the financial capability of working women and how it changed since 2012.
The study showed as the economy steadily recovered, working women’s personal finances also improved. In particular, working women now find it easier to make ends meet, and are using alternative financial services less often. Further, women are less likely to carry credit card debt or engage in expensive credit card behaviors. However, several subgroups—those who are early in their careers, those with children, and those who have experienced marital disruption—still show signs of financial distress. In 2015, financial fragility decreased among working women, but one-third still state they would not be able to cover an unexpected expense of $2,000 in a month’s time….
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The TIAA Institute-GFLEC Personal Finance Index: A New Measure of Financial Literacy
March 2017
Summary: The TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) measures knowledge and understanding which enable sound financial decision-making and effective management of personal finances. It is unique in its capacity to examine financial literacy across eight areas of personal finance in which individuals routinely function, as well as providing a robust indicator of overall personal finance knowledge and understanding. U.S. adults are split 50/50 between those who could and those who could not answer over one-half of the P-Fin Index questions correctly. Sixteen percent of Americans demonstrated a relatively high level of personal finance knowledge and understanding, i.e., they answered over 75% of the index questions correctly. Twenty percent have a relatively low level of knowledge and understanding, answering 25% or less of the questions correctly.
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Entrepreneurship among Baby Boomers
What's the Big Idea in Financial Literacy? | February 2017
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Financial Capability of American Adults: Insights from the American Life Panel
FINRA Investor Education Foundation | January 2017
Summary: While providing a wide range of financial capability indicators, the National Financial Capability Study (NFCS) lacks information about important determinants of financial outcomes, such as individuals’ health and cognition, and does not offer a precise, quantitative assessment of critical variables, such as household income, the value of financial and real estate assets and the level of debt exposure. In 2012, the FINRA Investor Education Foundation funded the administration of the NFCS survey to a representative sample of 2,000 individuals selected from within the RAND American Life Panel (ALP), an online panel providing detailed information on American’s personal finances not available in the NFCS. This allowed us to obtain a richer set of socioeconomic variables for each respondent and, therefore, to more comprehensively document financial capability across U.S. households and its heterogeneity. This Brief describes the insights afforded by this unique data set. The NFCS assesses financial capability by looking at four key components: making ends meet, planning ahead, managing financial products and financial knowledge. We examine each of these components exploiting the wealth of household- and individual-level information available in the ALP.
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Student Loan Repayments
This interactive visualization provides a breakdown of statistics on student loan debt repayment using data from the 2015 National Financial Capability Study. For more details, please refer to our study “Student Loan Debt in The US: An Analysis of The 2015 NFCS Data.”
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Entrepreneurship among Baby Boomers: Recent evidence from the Health and Retirement Study
Ewing Marion Kauffman Foundation | November 2016
Summary: The evolution of entrepreneurship among Baby Boomers (i.e., those born between 1946 and 1964) is an important topic in economic research and public policy, as Boomers have proven to be prolific entrepreneurs. More generally, self-employment among older individuals is becoming more prevalent and economically relevant because it provides flexibility not found in salaried jobs, as well as a more gradual path toward retirement or continued work later in life. Our analysis aims to highlight factors that affect Boomers’ entrepreneurship to help policy makers and other organizations who work with entrepreneurs promote better and more informed policies.
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STUDENT LOAN DEBT IN THE US: AN ANALYSIS OF THE 2015 NFCS DATA
FINRA Investor Education Foundation | November 2016
Summary: According to the study, 54 percent of student loan holders did not try to figure out what their monthly payments would be before taking out loans. And 53 percent said that if they could go back and redo the process of taking out loans, they would do things differently. The center used data from the FINRA Investor Education Foundation’s 2015 National Financial Capability Study (NFCS), one of the largest and most comprehensive assessments of financial capability in the country. In the 2015 wave, the study included key questions on student loan debt and its implications for the borrowers and for the economy as a whole. The study finds that Americans are clearly struggling with their student loan debt. Strikingly, we find that some 37 percent of respondents with payments due reported having been late with a student loan payment at least once in the last 12 months.
To view data visualization, click here.
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The National Financial Capability Study: Empirical Findings from the American Life Panel Survey
November 2016
Summary: The National Financial Capability Study (NFCS) is an ongoing study first conducted in 2009. It is commissioned and supported by the FINRA Investor Education Foundation, in consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy. Its main objectives are the elicitation of key measures of financial capability among American adults, an assessment of how such measures evolve over time and with the business cycle and an evaluation of how they vary with demographic and attitudinal characteristics as well as with the level of financial literacy possessed by individuals….
This report provides a descriptive analysis of the financial capability of American adults based on a unique data set constructed by merging individual answers to the NFCS questionnaire with and extensive range of socio-economic status variables available, for each respondent, through other ALP surveys….
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How Trends in Disability Affect Income Inequality and Financial & Retirement Security
FinLit Talks | September 2016
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Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers
FinLit Talks | October 2016
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Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers
Financial Literacy Seminar Series | October 2016
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When will the penny drop? Money, financial literacy and risk in the digital age
January 2017
Summary: In November 2016, Allianz, in collaboration with Director Annamaria Lusardi, surveyed a total of 10,000 (approximately 1,000 people in each country) in the western European countries of Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland, and the United Kingdom to better understand their financial and risk literacy and financial decision making. The relationship between financial literacy and relevant financial outcomes (borrowing and investing behavior and planning and saving for retirement) is well documented in the academic literature. This current study goes further by adding questions relating to risk concepts. It also examines the extent to which people who have a good understanding of financial and risk concepts are also better at recognizing the right financial product for a specific financial need in real-life situations…
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Entrepreneurship Among Baby Boomers: Recent evidence from the Health and Retirement Study
GFLEC Entrepreneurship among Baby Boomers Conference | Washington, D.C., USA | November 2016
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Women and Retirement Security
September 2016
Summary: Our research investigates whether and how older women’s current and anticipated future labor force patterns has changed over time, to evaluate the factors associated with longer work lives and plans to continue working at older ages. For our empirical investigation, we use data from two sources: the Health and Retirement Study (HRS), and the National Financial Capability Study (NFCS). Our analysis finds that older women’s current and intended future labor force attachment patterns have changed markedly over time. Compared to the HRS baseline cohort (first interviewed in 1992), recent cohorts of women in their 50’s and 60’s work more, and they are also more likely to say they will continue to be working at age 65….
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Bankruptcy among NFL Players
What's the Big Idea in Financial Literacy? | September 2016
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FINANCIAL LITERACY AROUND THE WORLD: EVIDENCE, THEORY, AND IMPLICATIONS
University of Cambridge Academic Seminar | Cambridge, England | September 2016
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ENTREPRENEURSHIP AMONG BABY BOOMERS: RECENT EVIDENCE FROM THE HEALTH AND RETIREMENT STUDY
September 2016
Abstract: We study entrepreneurship among Baby Boomers using data from the US Health and Retirement Study (HRS). Using two different definitions of entrepreneurship (being self-employed and being a business owner), we compare entrepreneurs to non-entrepreneurs and entrepreneurs who were age 52–65 in the 2012 HRS to their counterparts (i.e., those age 52–65) in the 1998 HRS. We find that entrepreneurs are systematically different from the rest of the population; specifically, they are more highly educated, healthier, wealthier, and more likely to be white and male. When we compare the cohort of Baby Boomer entrepreneurs surveyed in 2012 to entrepreneurs in the same age range in 1998, we find that Baby Boomer entrepreneurs are older, are less likely to be white, have a higher level of education, have fewer children and grandchildren, and are in poorer physical health. Finally, using partial identification methods, we find some evidence for a positive causal impact of wealth on business ownership, but only for the highest levels of wealth.
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GENDER DIFFERENCES IN FINANCIAL LITERACY AROUND THE WORLD
International Federation of Finance Museums Annual Meeting 2016 | Mexico City, Mexico | September 2016
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HOUSEHOLD FINANCIAL FRAGILITY: EVIDENCE AND IMPLICATIONS
Dartmouth College Nelson A. Rockefeller Center Macrofinancial Symposium | Hanover, NH, USA | September 2016
Macrofinancial Symposium: Links between Financial Markets and the American Economy
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THE FINANCIAL LITERACY MANIFESTO
International Federation of Finance Museums Annual Meeting 2016 | Mexico City, Mexico | September 2016
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Financial Literacy: A Vision for the Future
Keynote Address | Mexican Pension Funds Association National Convention | Mexico City, Mexico | August 2016
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Older Women’s Labor Market Attachment, Retirement Planning, and Household Debt
August 2016
Abstract: The goal of this paper is to ascertain whether older women’s current and anticipated future labor force patterns have changed over time, and if so, to evaluate the factors associated with longer work lives and plans to continue work at older ages. Using data from both the Health and Retirement Study (HRS) and the National Financial Capability Study (NFCS), we show that older women’s current and intended future labor force attachment patterns are changing over time. Specifically, compared to our 1992 HRS baseline, more recent cohorts of women in their 50’s and 60’s are more likely to plan to work longer. When we explore the reasons for delayed retirement among older women, factors include education, more marital disruption, and fewer children than prior cohorts. But household finances also play a key role, in that older women today have more debt than previously and are more financially fragile than in the past. The NFCS data show that factors associated with retirement planning include having more education and greater financial literacy. Those who report excessive amounts of debt and are financially fragile are the least financially literate, had more dependent children, and experienced income shocks. Thus shocks do play a role in older women’s debt status, but it is not enough to have resources: people also need the capacity to manage those resources if they are to stay out of debt as they head into retirement.
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The Effect of Financial Education on the Quality of Decision Making
August 2016
Abstract: We introduce a method for measuring the quality of financial decision making built around a notion of financial competence, which gauges the alignment between individuals’ choices and those they would make if they properly understood their opportunities. We use it to document the potential pitfalls of the types of brief rhetoric-laden interventions commonly used for adult financial education. Motivational rhetoric can render the effects of such interventions indiscriminate even when people appear to understand and internalize the targeted concepts. Conventional methods of evaluation involving financial literacy, self-reported decision strategies, and directional effects on choices do not reliably detect these deficiencies.
Click here to see the original version of this working paper.
Click here to see the online appendix.
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2018, 2015, 2012, and 2009 National Financial Capability Study
Available for download are reports, results tables, questionnaires, methodology, and datasets for the 2018, 2015, 2012, and 2009 National Financial Capability Study. The study is conducted by the FINRA Investor Education Foundation.
Click here for the data.
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Financial Capability in the United States 2016
July 2016
Summary: Financial capability is a multi-dimensional concept that encompasses a combination of knowledge, resources, access, and habits. The NFCS is designed to understand and measure a rich, connected set of perceptions, attitudes, experiences, and behaviors across a large, diverse sample in order to provide a comprehensive analysis. As with previous waves, the 2015 NFCS has been updated to include questions on additional topics that are relevant today, such as student loans and medical costs, while maintaining key measures to enable tracking comparisons over time.
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Americans’ Troubling Financial Capabilities: A Profile of Pre-Retirees
The Gerontological Society of America | 2016
Summary: Many people envision a life of work that builds to comfortable and enjoyable retirement years. For previous generations, the financial security that marked that post–labor-force chapter hinged on how generous employers were with pensions or how well employers invested and managed retirement accounts. In recent years, however, fast-paced changes to workforce dynamics, a dramatic shift from employer-provided retirement accounts to worker-managed retirement plans, and lengthening life expectancies have altered that safety net, making retirement security much more challenging to achieve….
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Employee Financial Literacy and Retirement Plan Behavior: A Case Study
Economic Inquiry | Volume 55 | Issue 1 | January 2017
Abstract: This paper uses administrative data on all active employees of the Federal Reserve System to examine participation in and contributions to the Thrift Saving Plan, the System’s defined contribution (DC) plan. We link to administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, Federal Reserve employees are substantially more financially literate than the population at large. Most importantly, financially savvy employees are also most likely to participate in their DC plan. Sophisticated workers contribute three percentage points more of their earnings to the DC plan than do the less knowledgeable, and they hold more equity in their pension accounts. We examine changes in employee plan behavior one year after employees completed a Learning Module about retirement planning, and we compare it to baseline patterns. We find that those employees who completed the Learning Module were more likely to start contributing and less likely to have stopped contributing to the DC plan post-survey. In sum, employer-provided learning programs are shown to significantly impact employee retirement saving decisions and consistent with a lot of other research, higher levels of financial literacy is found to have a beneficial impact on retirement saving patterns.
Click here to view the working paper.
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Financial Literacy Seminar Series with Abigail Sussman: Anchors, Target Values, and Credit Card Payments
Financial Literacy Seminar Series | May 2016
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Financial Literacy Seminar Series with Ben Castleman: Behavioral Insights for Scalable Solutions in Education
Financial Literacy Seminar Series | March 2016
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Financial Literacy Seminar with Annamaria Lusardi, Financial Literacy Around the World: Insights from S&P Global FinLit Survey
Financial Literacy Seminar Series | March 2016
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The Display of Information and Household Investment Behavior
FinLit Talks | April 2016
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Closing Remarks by Annamaria Lusardi at PISA Data Release 2014
PISA Data Release 2014 | July 2014
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Household Financial Fragility: Evidence and Implications
Keynote Address | Netherlands - OECD Global Symposium on Financial Resilience throughout Life | Amsterdam, The Netherlands | April 2016
Netherlands – OECD Global Symposium on Financial Resilience throughout Life
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Conversation with Secretary Arne Duncan and John W. Rogers, Jr.
PISA Data Release 2014 | July 2014
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Employees’ Financial Wellness: New Strategies
Office of Personnel Management Research Summit | Washington, D.C., USA | March 2016
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Financial Education from a Behavioral Perspective
Global Financial Literacy Summit | November 2013
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Financial Education in Schools: Lessons from Australia
Global Financial Literacy Summit | November 2013
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Financial Education in Schools: Lessons from Australia
Global Financial Literacy Summit | November 2013
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Financial Education in Schools: Lessons from Germany
Global Financial Literacy Summit | November 2013
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Financial Literacy Amongst the Educated
Global Financial Literacy Summit | November 2013
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HOW FINANCIALLY LITERATE ARE WOMEN? AN OVERVIEW AND NEW INSIGHTS
February 2016
Abstract: We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. In addition, women give themselves lower scores on financial literacy self-assessments than men. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important—for example widows or single women—also know little about concepts relevant for day-to-day financial decisions. Even women in favorable economic conditions are less financially knowledgeable than men. The gender differences are present for very basic as well as more advanced measures of financial literacy and financial sophistication. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. As a result, improving women’s financial literacy is key to helping them prepare for retirement and promoting their financial security.
Click here for the version to be published in the Journal of Consumer Affairs.
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Pension Reforms and Financial Literacy
Global Financial Literacy Summit | November 2013
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Pensions and the Importance of Financial Literacy Education for Women
Global Financial Literacy Summit | November 2013
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PISA’s Key Findings with Andreas Schleicher, Introduction by Carrie Schwab-Pomerantz
PISA Data Release 2014 | July 2014
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PISA’s Key Findings with Carrie Schwab-Pomerantz, Introduction by Annamaria Lusardi
PISA Data Release 2014 | July 2014
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Policy Perspectives: Mary John Miller, U.S. Department of the Treasury
PISA Data Release 2014 | July 2014
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Policy Perspectives: Richard Cordray, CFPB Chair
PISA Data Release 2014 | July 2014
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Q&A Billy Hensley on Stepping up the Effort: Educating Teachers
Global Financial Literacy Summit | November 2013
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Q&A Elsa Fornero on Pension Reforms and Financial Literacy
Global Financial Literacy Summit | November 2013
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Q&A for Investor Education: Regulators’ Perspectives
Global Financial Literacy Summit | November 2013
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Shifting Paradigms to Improve Retirement Security
Global Financial Literacy Summit | November 2013
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Stepping Up the Effort: Educating Teachers
Global Financial Literacy Summit | November 2013
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Stepping Up the Effort: Educating Teachers
Global Financial Literacy Summit | November 2013
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Stepping Up the Effort: Educating Teachers
Global Financial Literacy Summit | November 2013
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The Effect of Financial Education on the Quality of Decision Making
FinLit Talks | November 2015
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Using a Life Cycle Model to Evaluate Financial Literacy Program Effectiveness
Allied Social Science Associations (ASSA) Annual Meeting | San Francisco, CA, USA | January 2016
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AN OVERVIEW OF THE PISA FINANCIAL LITERACY ASSESSMENT
Allied Social Science Associations (ASSA) Annual Meeting | San Francisco, CA, USA | January 2016
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Financial Literacy Around the World: Insights from the Standard & Poor’s Ratings Services Global Financial Literacy Survey
S&P Global FinLit Survey | November 2015
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Financial Literacy: A Global Perspective
Keynote Address | Securities Exchange Commission of Brazil Seminar on Child & Youth Financial Education | Rio de Janeiro, Brazil | December 2015
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Financial Literacy: A Global Perspective
Insper International Seminar: Financial Education in Brazil and in the World | São Paulo, Brazil | December 2015
International Seminar: Financial Education in Brazil and in the World (in Portuguese)
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The Importance of Financial Literacy and the Effectiveness of Financial Education
Keynote Address | Securities Exchange Commission of Brazil Financial Education and Investor Behavior Conference | Rio de Janeiro, Brazil | December 2015
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Risk Literacy
Filene Research Institute: big. bright. minds. | Cambridge, MA, USA | December 2015
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Hispanic Personal Finances: Financial Literacy and Decision-making Among College-Educated Hispanics
TIAA-CREF 2015 Fellows Symposium: Advancing Financial Literacy, Capability and Well-Being Among Hispanics | Austin, TX, USA | November 2015
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INTERNATIONAL DIVERSIFICATION & 296 401(K) PLANS
Financial Literacy Seminar Series | October 2015
Watch the video.
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The Global Findex Database 2014: Measuring Financial Inclusion Around the World
Financial Literacy Seminar Series | September 2015
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THE GLOBAL FINDEX DATABASE 2014: MEASURING FINANCIAL INCLUSION AROUND THE WORLD
FinLit Talks | September 2015
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Financial Literacy and Retirement Planning in Canada
Journal of Pension Economics and Finance | Volume 16 | Special Issue 3 | July 2017
Abstract: In this paper, we draw on internationally comparable survey evidence on financial literacy and retirement planning in Canada to investigate how financially literate Canadians are and how financial literacy is linked to retirement planning. We find that 42 percent of respondents are able to correctly answer three simple questions measuring knowledge of interest compounding, inflation, and risk diversification. This is consistent with evidence from other countries, and Canadians perform relatively well in comparison to Americans but worse than individuals in other countries, such as Germany. Among Canadian respondents, the young and the old, women, minorities, and those with lower educational attainment do worse, a pattern that has been consistently found in other countries as well. Retirement planning is strongly associated with financial literacy; those who responded correctly to all three financial literacy questions are 10 percentage points more likely to have retirement savings.
Included in the Virtual Special Issue on Developments in Financial Literacy 2021 of the Cambridge University Press, edited by Olivia S. Mitchell. Click here to access the special issue.
Click here to see the working paper.
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Financial Literacy Skills for the 21st Century: Evidence from PISA
Journal of Consumer Affairs | Volume 49 | No. 3 | Fall 2015
Foreward: I am delighted to be asked to give the Colston Warne Lecture at the American Council on Consumer Interests annual conference. What I want to cover in this lecture is what I consider to be one of the most important topics for consumers: financial literacy. This topic is particularly important for the young and, in this lecture, I will describe the findings from the first international survey on financial literacy among high school students: the Programme for International Student Assessment (PISA). I am honored to chair the financial literacy expert group that designed the financial literacy assessment in PISA. Our journey to design that assessment included meetings in many countries and lasted for several years. It is one of the works I have enjoyed the most. I hope the findings from PISA will be a catalyst for changes in education policies, including adding financial literacy to school curricula.
Click here to see the working paper.
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A Complex Portrait: An Examination of Small-Dollar Credit Consumers
Financial Literacy Seminar Series | November 2012
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A GLOBAL PERSPECTIVE ON FINANCIAL LITERACY
2015 IOSCO STP - Investor Education and Protection: The Major Challenges Ahead | Madrid, Spain | October 2015
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A GLOBAL PERSPECTIVE ON FINANCIAL LITERACY
Global Financial Museum Expo | Beijing, China | October 2015
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Enhanced active choice: A new method to motivate behavior change
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FINANCIAL LITERACY AROUND THE WORLD: INSIGHTS FROM THE STANDARD & POOR’S RATINGS SERVICES GLOBAL FINANCIAL LITERACY SURVEY
Standard & Poor's Ratings Services | November 2015
Summary: Given the many ways financial literacy affects financial behavior (Lusardi and Mitchell, 2014), it is important to understand the extent of people’s understanding of basic financial concepts as well as the degree to which financial skills fall short among groups like women and the poor. The Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) provides this information across a wide array of countries. It builds on early initiatives by the International Network on Financial Education (INFE) of the Organization for Economic Co-operation and Development (OECD), the World Bank’s Financial Capability and Household Surveys, the Financial Literacy around the World (FLAT World) project, and numerous national survey initiatives that collect information on financial literacy. The survey complements these efforts by delivering the first and most comprehensive global gauge of financial literacy to date.
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LOOKING FORWARD – RESEARCHER VIEWS
Malaysia-OECD Global Symposium on Financial Well-Being | September 2015
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Financial Literacy Skills for the 21st Century: Evidence from PISA
Colston Warne Lecture | September 2015
Foreward: I am delighted to be asked to give the Colston Warne Lecture at the American Council on Consumer Interests annual conference. What I want to cover in this lecture is what I consider to be one of the most important topics for consumers: financial literacy. This topic is particularly important for the young and, in this lecture, I will describe the findings from the first international survey on financial literacy among high school students: the Programme for International Student Assessment (PISA). I am honored to chair the financial literacy expert group that designed the financial literacy assessment in PISA. Our journey to design that assessment included meetings in many countries and lasted for several years. It is one of the works I have enjoyed the most. I hope the findings from PISA will be a catalyst for changes in education policies, including adding financial literacy to school curricula.
Click here for the version published in the Journal of Consumer Affairs.
Click here to see the PowerPoint presentation that accompanied this lecture.
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THE ECONOMIC IMPORTANCE OF FINANCIAL LITERACY
MIDE Economic and Financial Education Symposium | Mexico City, Mexico | September 2015
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Effectiveness of Financial Education in High Schools
What's the Big Idea in Financial Literacy? | May 2015
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Effects of the Affordable Health Care Act Young Adult Provision
Financial Literacy Seminar Series | November 2014
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Individual Investors’ Numerical Skills
Financial Literacy Seminar Series | October 2014
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Financial Illiteracy Meets Conflicted Advice: The Case of Thrift Savings Plan Rollovers
FinLit Talks | April 2015
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It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans
Financial Literacy Seminar Series | December 2014
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Financial Illiteracy Meets Conflicted Advice: The Case of Thrift Savings Plan Rollovers
Financial Literacy Seminar Series | April 2015
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Loan Contracting in the Presence of Usury Limits
Financial Literacy Seminar Series | March 2015
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Minimum Payments and Debt Paydown in Consumer Credit Cards
Financial Literacy Seminar Series | May 2015
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PISA Financial Literacy Assessment
What's the Big Idea in Financial Literacy? | May 2015
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State Mandated Financial Education and the Credit Behavior of Young Adults
Financial Literacy Seminar Series | May 2015
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The Impact of Bank Account Ownership on Adolescents’ Financial Literacy
FinLit Talks | March 2015
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The Impact of Bank Account Ownership on Adolescents’ Financial Literacy
Financial Literacy Seminar Series | March 2015
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EMPLOYEE FINANCIAL LITERACY AND RETIREMENT BEHAVIOR: A CASE STUDY
August 2015
Abstract: This paper uses administrative data on all active employees of the Federal Reserve System to examine participation in and contributions to the Thrift Saving Plan, the system’s defined contribution (DC) plan. We have appended to the administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, Federal Reserve employees are more financially literate than the general population; furthermore, the most financially savvy are also most likely to participate in and contribute the most to their plan. Sophisticated workers contribute three percentage points more of their earnings to the DC plan than do the less knowledgeable, and they hold more equity in their pension accounts. Finally, we examine changes in employee plan behavior a year after the financial literacy survey and compare it to the baseline. We find that employees who completed an educational module were more likely to start contributing and less likely to have stopped contributing to the DC plan post-survey.
Click here for the version to be published in Economic Inquiry.
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‘There is an important role for women in finance’, expert says
EurActiv.com | March 2015
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A Complex Portrait: An Examination of Small-Dollar Credit Consumers
FinLit Talks | November 2012
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Active vs Passive Decisions and Crowd-Out in Retirement Savings Accounts
FinLit Talks | April 2013
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An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program
Financial Literacy Seminar Series | May 2014
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Annamaria Lusardi introduces Elsa Fornero at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Best Practice Cases for Improving Financial Literacy
Global Financial Literacy Summit | November 2012
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Beyond Our Means: Why America Spends While the World Saves
Financial Literacy Seminar Series | September 2012
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Beyond Our Means: Why America Spends While the World Saves
FinLit Talks | September 2012
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Building Financial Literacy: For K-8 Pre-Service Teachers and Adult Learners
Financial Literacy Conference | June 2012
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Can Commitment Savings Help Americans be Better Prepared for Retirement?
Financial Literacy Conference | June 2012
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Changing the Financial Futures of Young Adults
Financial Literacy Conference | June 2012
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Demonstrating the Returns to Work for Children after SSI
Financial Literacy Conference | June 2012
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Distinguished Speaker: Elsa Fornero Closing Speech Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Do Consumers Know How to Value Annuities? Complexity as a Barrier to Annuitization
Financial Literacy Seminar Series | March 2013
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Do Financial “Health” Checkups Prompt Behavioral Changes
Financial Literacy Conference | June 2012
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Early Withdrawals from Retirement Accounts During the Great Recession
Financial Literacy Seminar Series | November 2012
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Evaluating Workforce Financial Education and Encouraging New Hires to Save for Retirement
Financial Literacy Conference | June 2012
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Experimental Evidence of the Efficacy of Financial Education for Adults: A Cross Experiment Comparison
Financial Literacy Seminar Series | December 2012
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Financial Education and Account Access among Elementary Students: Findings from the Assessing Financial Capability Outcomes Pilot
Financial Literacy Seminar Series | March 2014
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Financial Education and Saving for Retirement
Global Financial Literacy Summit | November 2012
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Financial Education and Saving for Retirement
Global Financial Literacy Summit | November 2012
Watch the video.
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Financial Education in Action: New Initiatives
Global Financial Literacy Summit | November 2012
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Financial Education in Schools: Lessons from Australia
Global Financial Literacy Summit | November 2013
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Financial Literacy Among Graduate Students: A Case Study from the Indiana University System
Financial Literacy Seminar Series | April 2014
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Financial Literacy Among Investors
Financial Literacy Seminar Series | October 2012
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Financial Literacy among the Middle Aged Discussion
Financial Literacy Conference | June 2012
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Financial Literacy among the Middle Aged Discussion: Part II
Financial Literacy Conference | June 2012
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Financial Literacy among Young People Discussion
Financial Literacy Conference | June 2012
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Financial Literacy and Pension Awareness in the Netherlands: A platform approach
Global Financial Literacy Summit | November 2012
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Financial Literacy Around the World: The Big Picture
Global Financial Literacy Summit | November 2012
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Financial Literacy Close to and After Retirement
Financial Literacy Conference | June 2012
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Financial Literacy Close to and After Retirement
Financial Literacy Conference | June 2012
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Financial Literacy: Illuminated! Annamaria Lusardi at TEDxFoggyBottom
TEDxFoggyBottom | May 2014
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Financial literacy: Is there a gender issue?
Global Financial Literacy Summit | November 2012
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From Literacy to Financial Planning: Global Retirement Income Adequacy
Global Financial Literacy Summit | November 2012
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Harry Smorenberg introduces Annamaria Lusardi at the Global Financial Literacy Summit
Global Financial Literacy Summit | November 2012
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Heleen Buijs introduces Keynote Speaker Andrea Beltratti Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Household Financial Literacy, Financial Innovation, and Product Regulation
Global Financial Literacy Summit | November 2012
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How America Pays for College 2012
Financial Literacy Seminar Series | November 2012
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How Borrowers Choose and Repay Payday Loans
Financial Literacy Seminar Series | May 2013
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How Financial Advisors Influence Social Security Claiming
Financial Literacy Conference | June 2012
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Improving Legal Immigrant’s Access to Financial Services
Financial Literacy Conference | June 2012
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Improving Understanding of Retirement Health Care Expenditures
Financial Literacy Conference | June 2012
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Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market
Financial Literacy Seminar Series | March 2014
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Introduction to Financial Education in the Workplace
Financial Literacy Conference | June 2012
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Key Challenges & Opportunities: Regional Reports
Global Financial Literacy Summit | November 2012
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Inflation Expectations and Behavior: Do Survey Respondents Act on Their Belief?
FinLit Talks | October 2014
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Inflation Expectations and Behavior: Do Survey Respondents Act on Their Belief?
Financial Literacy Seminar Series | October 2014
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Raising Awareness of Tax-Time Saving Options (for the low-income population) and Encouraging Better Financial Decision Making Among Low-Income and Minority Groups
Financial Literacy Conference | June 2012
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Marco Trombetta introduces Session 5 and its speakers at the Global Financial Literacy Summit 2012
Global Financial Literacy Excellence Center | November 2012
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State of Financial Literacy in China
Global Financial Literacy Summit | November 2012
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Internet Panel Survey Data on Financial Capability and Behavior: RAND American Life Panel
Financial Literacy Conference | June 2012
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Relevance of Financial Literacy in the New Financial Landscape
Global Financial Literacy Summit | November 2012
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Opening at Global Financial Literacy Summit 2013
Global Financial Literacy Summit | November 2013
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Stepping Up the Effort: Educating Teachers
Global Financial Literacy Summit | November 2013
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Opening Remarks: Overview of the Financial Literacy Conference 2012
Financial Literacy Conference | June 2012
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Retiree Out-of-Pocket Healthcare Spending: A Study of Consumer Expectations and Policy Implications
Financial Literacy Seminar Series | March 2013
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School Sense Video from within the CFED Presentation
Financial Literacy Seminar Series | March 2014
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Study Regarding Financial Literacy Among Investors
Financial Literacy Seminar Series | October 2012
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Panel Discussion: Directions for Further Research on Financial Literacy
Financial Literacy Conference | June 2012
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Sue Lewis introduces Dusan Hradil at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Social Networks and The Decision To Insure
Financial Literacy Seminar Series | May 2012
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Sue Lewis introduces Flore-Anne Messy at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Predictable Surprise: The Unraveling of the U.S. Retirement System
Financial Literacy Seminar Series | April 2013
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Sue Lewis introduces Olaf Simonse at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Social Security and Retirement Decisions: The Impact of Knowledge and Framing
Financial Literacy Seminar Series | October 2012
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Tammo Bijmolt introduces Keyong Dong at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Tammo Bijmolt introduces Michael Haliassos at the Global Financial Literacy Summit 2012
Global Financial Literacy Summit | November 2012
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Technology and Entertainment: A New Approach to Financial Education
Global Financial Literacy Summit | November 2012
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The Persistence of Defaults: When, Why and for Whom?
Financial Literacy Conference | June 2012
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The Role of the Private Sector in Financial Education: A View from the Teller’s Desk
Global Financial Literacy Summit | November 2012
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The Storm to Come: A Conversation about Annuities
Financial Literacy Conference | June 2012
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Trying the Impossible–Financing 30-Year Retirements with 40-Year Careers: A Discussion of Social Security and Retirement Policy
FinLit Talks | September 2014
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Trying the Impossible–Financing 30-Year Retirements with 40-Year Careers: A Discussion of Social Security and Retirement Policy
Financial Literacy Seminar Series | September 2014
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Understanding and Measuring Financial Literacy
Financial Literacy Conference | June 2012
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Understanding the Geography of Financial Literacy in the U.S.
Financial Literacy Conference | June 2012
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USING A LIFE CYCLE MODEL TO EVALUATE FINANCIAL LITERACY PROGRAM EFFECTIVENESS
July 2015
Abstract: Prior studies disagree regarding the effectiveness of financial literacy programs, especially those offered in the workplace. To explain such measurement differences in evaluation and outcomes, we employ a stochastic life cycle model with endogenous financial knowledge accumulation to investigate how financial education programs optimally shape key economic outcomes. This approach permits us to measure how such programs shape wealth accumulation, financial knowledge, and participation in sophisticated assets (e.g. stocks) across heterogeneous consumers. We then apply conventional program evaluation econometric techniques to simulated data, distinguishing selection and treatment effects. We show that the more effective programs provide follow-up in order to sustain the knowledge acquired by employees via the program; in such an instance, financial education delivered to employees around the age of 40 can raise savings at retirement by close to 10%. By contrast, one-time education programs do produce short-term but few long-term effects. We also measure how accounting for selection affects estimates of program effectiveness on those who participate. Comparisons of participants and non-participants can be misleading, even using a difference-in-difference strategy. Random program assignment is needed to evaluate program effects on those who participate.
Click here for the version published in the October 2020 issue of the Economics of Education Review.
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The Effect of Financial Education on the Quality of Decision Making
June 2015
Abstract: We introduce the concept of financial competence, a measure of how closely individuals’ choices align with those they would make if they properly understood their opportunity sets. The concept is firmly rooted in the principles of choice-based behavioral welfare analysis and avoids the types of paternalistic judgments that pervade policy discussions. We document the importance of assessing financial competence by demonstrating experimentally that an educational intervention can appear highly successful according to conventional outcome measures while failing to improve the quality of financial decision making. We trace the mechanisms behind these seemingly divergent findings.
Click here to see the updated version of this working paper.
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What are the Real-World Framing Influences on Retirement Claiming Behavior?
Financial Literacy Conference | June 2012
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Interview from 8th ANBIMA Investment Funds Congress
ANBIMA Investment Funds Congress | São Paulo, Brazil | May 19, 2015
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Financial Knowledge and 401(k) Investment Performance: A Case Study
June 2015
Abstract: We explore whether investors who are more financially knowledgeable earn more on their retirement plan investments compared to their less sophisticated counterparts, using a unique new dataset linking administrative data on investment performance and financial knowledge. Results show that the most financially knowledgeable investors: (a) held 18 percentage points more stock than their least knowledgeable counterparts; (b) could anticipate earning 8 basis points per month more in excess returns; (c) had 40% higher portfolio volatility; and (d) held portfolios with about 38% less idiosyncratic risk, as compared to their least savvy counterparts. Our results are qualitatively similar after controlling on observables as well as modeling sample selection. We also examine portfolio changes to assess the potential impact of the financial literacy intervention. Controlling on other factors, those who elected to take the Financial Literacy survey boosted their equity allocations by 66 basis points and their monthly expected excess returns rose by 2.3 basis points; no significant difference in volatility or nonsystematic risk was detected before versus after the survey. While these findings relate to only one firm, we anticipate that they may spur other efforts to enhance financial knowledge in the workplace.
Click here for the version published in the Journal of Pension Economics and Finance.
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Teaching Students Financial Literacy: Why is it Necessary?
American Federation of Teachers TEACH Conference 2015 | Washington, D.C., USA | July 2015
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Do NFL Players with Short-Lived Income Spikes Smooth Consumption?
The George Washington School of Business | April 2015
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FINANCIAL LITERACY AND THE COST OF IGNORANCE
RAND Policy Forum | Santa Monica, CA | June 2015
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Debt Literacy, Financial Experiences, and Overindebtedness
Journal of Pension Economics and Finance | Volume 14 | Issue 4 | October 2015
Abstract: We analyze a national sample of Americans with respect to their debt literacy, financial experiences, and their judgments about the extent of their indebtedness. Debt literacy is a component of broader financial understanding that measures knowledge about debt and self-assessed financial knowledge. Financial experiences are the participants’ reported experiences with traditional borrowing, alternative borrowing, and investing. Overindebtedness is a self-reported measure. Debt literacy is low, with only about one-third of the population grasping the basics of interest compounding. Even after controlling for demographics, we find a relationship between debt literacy and both financial experiences and debt loads. Individuals with lower levels of debt literacy tend to transact in high-cost manners, incurring higher fees and using high-cost borrowing. We provide a rough estimate of the national implications of debt ignorance on credit card costs by consumers. Less knowledgeable individuals also report that their debt loads are excessive or that they are unable to judge their debt position.
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Financial Literacy and Economic Outcomes: Evidence and Policy Implications
Journal of Retirement | Volume 3 | No. 1 | Summer 2015
Abstract: This paper reviews what we have learned over the past decade about financial literacy and its relationship to financial decision-making around the world. Using three questions, we have surveyed people in several countries to determine whether they have the fundamental knowledge of economics and finance needed to function as effective decision-makers. We find that levels of financial literacy are low not only in the United States but also in many other countries including those with well-developed financial markets. Moreover, financial illiteracy is particularly acute for some demographic groups, especially women and the less-educated. These findings are important since financial literacy is linked to borrowing, saving, and spending patterns. We also offer new evidence on financial literacy among high school students drawing on the 2012 Programme for International Student Assessment implemented in 18 countries. Last, we discuss the implications of this research for policy.
Click here to see the working paper.
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Testimony of Annamaria Lusardi Before the ERISA Advisory Council
U.S. Department of Labor | May 28, 2015
Summary: The transfer of risk from defined benefit plan sponsors to plan participants when offering lump sum distributions of pensions was the topic of Annamaria Lusardi’s testimony. In her testimony, she discussed the information that participants need to make informed decisions in pension risk-transfer transactions.
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Hispanic Personal Finances: Financial Literacy and Decisionmaking Among College-Educated Hispanics
TIAA-CREF Institute | May 2015
Summary: This report examines the personal finances—assets, liabilities, planning behaviors, financial vulnerability and financial literacy—of college-educated Hispanics, i.e., those with high school degrees who report at least “some college” as their highest level of educational attainment. Many college-educated Hispanics are, in various ways, in a tenuous financial state characterized by financial fragility and broad use of expensive credit card behaviors or alternative financial services. Moreover, their financial literacy is consistently low, despite high confidence about their decision-making abilities. These low levels of financial literacy are associated with the other financial challenges faced by college-educated Hispanics that are outlined in this report.
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Hispanic Personal Finances: Financial Literacy and Decisionmaking Among College-Educated Hispanics
TIAA-CREF Institute | May 2015
Summary: This report examines the personal finances—assets, liabilities, planning behaviors, financial vulnerability and financial literacy—of college-educated Hispanics, i.e., those with high school degrees who report at least “some college” as their highest level of educational attainment. Many college-educated Hispanics are, in various ways, in a tenuous financial state characterized by financial fragility and broad use of expensive credit card behaviors or alternative financial services. Moreover, their financial literacy is consistently low, despite high confidence about their decision-making abilities. These low levels of financial literacy are associated with the other financial challenges faced by college-educated Hispanics that are outlined in this report.
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The Economic Importance of Financial Literacy
Keynote Address | 2015 Personal Finance Seminar for Professionals | Annapolis, MD, USA | May 2015
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HARNESSING FINANCIAL EDUCATION TO SPUR ENTREPRENEURSHIP AND INNOVATION
3rd OECD/GFLEC Global Policy Research Symposium to Advance Financial Literacy | Paris, France | May 2015
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BANKRUPTCY RATES AMONG NFL PLAYERS WITH SHORT-LIVED INCOME SPIKES
April 2015
Abstract: One of the central predictions of the life-cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high, in order to provide for when income is likely to be low, such as after retirement. We test this prediction in a group of people—players in the National Football League (NFL)—whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. We collected data on all players drafted by NFL teams from 1996 to 2003. Given the difficulty of directly measuring consumption of NFL players, we test whether they have adequate savings by counting how many retired NFL players file for bankruptcy. Contrary to the lifecycle model predictions, we find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement. Moreover, bankruptcy rates are not affected by a players total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.
Click here for the version published in the American Economic Review.
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BANKRUPTCY RATES AMONG NFL PLAYERS WITH SHORT-LIVED INCOME SPIKES
American Economic Review | Volume 105 | No. 5 | May 2015
Abstract: One of the central predictions of the life-cycle hypothesis is that individuals smooth consumption over their economic life cycle; thus, they save when income is high, in order to provide for when income is likely to be low, such as after retirement. We test this prediction in a group of people—players in the National Football League (NFL)—whose income profile does not just gradually rise then fall, as it does for most workers, but rather has a very large spike lasting only a few years. We collected data on all players drafted by NFL teams from 1996 to 2003. Given the difficulty of directly measuring consumption of NFL players, we test whether they have adequate savings by counting how many retired NFL players file for bankruptcy. Contrary to the lifecycle model predictions, we find that initial bankruptcy filings begin very soon after retirement and continue at a substantial rate through at least the first 12 years of retirement. Moreover, bankruptcy rates are not affected by a players total earnings or career length. Having played for a long time and been well-paid does not provide much protection against the risk of going bankrupt.
Click here to see the working paper.
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How Can Financial Literacy Improve Retirement Planning?
Keynote Address | ICI Retirement Summit | Washington, D.C., USA | April 8, 2015
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Retirement Security
2015 White House Conference on Aging | Cleveland, OH, USA | April 2015
2015 White House Conference on Aging
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Financial Literacy and Economic Outcomes: Evidence and Policy Implications
Keynote Address | European Money Week | Brussels, Belgium | March 2015
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Working Women’s Financial Capability: An Analysis Across Family Status and Career Stages
American Retirement Initiative Winter 2015 Summit | U.S. Securities and Exchange Commission | Washington, D.C., USA | February 2015
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State of Affairs: FINRA Financial Capability Study Results
PwC-KWHS Seminar for NonProfit Leaders on Business and Financial Responsibility | Wharton School | Philadelphia, USA | December 2014
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TOWARDS A MORE INCLUSIVE SOCIETY
Opening Remarks | OECD/GFLEC Global Policy Research Symposium to Advance Financial Literacy | Paris, France | November 2014
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Investor Protection and Education Going Forward – What does it take to change behavior?
International Organization of Securities Commissions | Rio de Janeiro, Brazil | October 2014
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FINANCIAL LITERACY: DO PEOPLE KNOW THE ABCs OF FINANCE?
Public Understanding of Science | Volume 24 | No. 3 | 2015
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 looks at financial literacy, which is defined as the ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions. 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. Financial literacy impacts financial decision-making, with implications that apply to individuals, communities, countries, and society as a whole. Given the lack of financial literacy among the population, it may be important to remedy it by adding financial literacy to the school curriculum.
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The Economic Crisis and Medical Care Use: Comparative Evidence from Five High-Income Countries
Social Science Quarterly | Volume 96 | Issue 1 | March 2015
Abstract: Objective. We examine how the economic crisis has affected individuals’ use of
routine medical care and assess the extent to which the impact varies depending on
national context. Methods. Data from a new cross-national survey fielded in the
United States, Great Britain, Canada, France, and Germany are used to estimate the
effects of employment and wealth shocks and financial fragility on the use of routine
care. Results. We document reductions in individuals’ use of routine nonemergency
medical care in the midst of the economic crisis. Americans reduced care more than
individuals in Great Britain, Canada, France, and Germany. At the national level,
reductions in care are related to the degree to which individuals must pay for it, and
within countries, reductions are linked to shocks to wealth and employment and to
financial fragility. Conclusions. The economic crisis has led to reductions in the use
of routine medical care, and systems of national insurance provide some protection
against these effects. -
RISK LITERACY
Italian Economic Journal | Volume 1 | No. 1 | March 2015
Abstract: I examine financial literacy—specifically knowledge of risk—using data
from surveys in the United States and other countries. I show that risk literacy is very
low; the majority of individuals lack knowledge of concepts such as risk diversification
and do not understand the relationship between risk and return. Findings are strikingly
similar across countries; a third of survey respondents in most countries report that they
do not know the answer to risk literacy questions. I also show that risk literacy matters
for financial decisions; those who are more knowledgeable about risk are more likely
to have precautionary savings and to plan for retirement. Given that individuals have
much greater responsibility for their financial well-being before and after retirement
than in the past, addressing lack of financial literacy, including risk literacy, may
provide new ways to promote saving and financial security. -
FIVE STEPS TO PLANNING SUCCESS: EXPERIMENTAL EVIDENCE FROM U.S. HOUSEHOLDS
Oxford Review of Economic Policy | Volume 30 | No. 4 | Winter 2014
Abstract: While financial knowledge has been linked to improved financial behaviour, there is little consensus on the value of financial education, in part because rigorous evaluation of various programmes has yielded mixed results. However, given the heterogeneity of financial education programmes in the literature, focusing on ‘generic’ financial education can be inappropriate and even misleading. Lusardi (2009) and others argue that pedagogy and delivery matter significantly. In this paper, we design and field a low-cost, easily-replicable financial education programme called ‘Five Steps’, covering five basic financial planning concepts that relate to retirement. We conduct a field experiment to evaluate the overall impact of Five Steps on a probability sample of the American population. In different treatment arms, we quantify the relative impact of delivering the programme through video and narrative formats. Our results show that short videos and narratives (each takes about 3 minutes) have sizeable short-run effects on objective measures of respondent knowledge. Moreover, keeping informational content relatively constant, format has significant effects on other psychological levers of behavioural change: effects on self-efficacy are significantly higher when videos are used, which ultimately influences knowledge acquisition. Follow-up tests of respondents’ knowledge approximately 8 months after the interventions suggest that between one-quarter and one-third of the knowledge gain and about one-fifth of the self-efficacy gain persist. Thus, this simple programme has effects both in the short run and medium run.
Click here to see the working paper.
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Financial Literacy and Economic Outcomes: Evidence and Policy Implications
January 2015
Abstract: This paper reviews what we have learned about financial literacy and its relationship to financial decision-making around the world. Using three simple questions, we have surveyed people in many countries to determine whether they have the fundamental knowledge of finance needed to function as effective economic decision makers. We show that levels of financial literacy are low not only in the United States but also in many other countries, including those with well-developed financial markets. Moreover, financial illiteracy is particularly acute for some demographic groups, especially women and the less-educated. These findings are important
since financial literacy is linked to borrowing, saving, and spending patterns. We also offer new evidence on financial literacy among high school students drawing on the newly-released Programme for International Student Assessment implemented in 18 countries. Last, we discuss the implications of this research for policy.Click here for the version published in the Journal of Retirement.
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FINANCIAL SOPHISTICATION IN THE OLDER POPULATION
Journal of Pension Economics and Finance | Volume 13 | No. 4 | October 2014
Abstract: This paper examines data on financial sophistication among the U.S. older population, using a special-purpose module implemented in the Health and Retirement Study. We show that financial sophistication is deficient for older respondents (aged 55+). Specifically, many in this group lack a basic grasp of asset pricing, risk diversification, portfolio choice, and investment fees. Subpopulations with particular deficits include women, the least educated, persons over the age of 75, and non-Whites. In view of the fact that people are increasingly being asked to take on responsibility for their own retirement security, such lack of knowledge can have serious implications.
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HOW FINANCIALLY LITERATE ARE WOMEN? AN OVERVIEW AND NEW INSIGHTS
December 2014
Abstract: We document strikingly similar gender differences in financial literacy across countries.
When asked to answer questions that measure knowledge of basic financial concepts, women
are less likely than men to answer correctly and more likely to indicate that they do not know
the answer. In addition, women give themselves lower scores on financial literacy self-assessments
than men. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important—for example widows or single women—know little about concepts relevant for day-to-day financial decisions. Even women in favorable economic conditions are less financially knowledgeable than men. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. As a result, improving women’s financial literacy is key to helping them prepare for retirement and promoting their financial security.Click here to see the updated version of this working paper.
Click here for the version to be published in the Journal of Consumer Affairs.
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THE ECONOMIC IMPORTANCE OF FINANCIAL LITERACY: THEORY AND EVIDENCE
Journal of Economic Literature | Volume 52 | No. 1 | March 2014
This paper undertakes an assessment of a rapidly growing body of economic research on financial literacy. We start with an overview of theoretical research, which casts financial knowledge as a form of investment in human capital. Endogenizing financial knowledge has important implications for welfare, as well as policies intended to enhance levels of financial knowledge in the larger population. Next, we draw on recent surveys to establish how much (or how little) people know and identify the least financially savvy population subgroups. This is followed by an examination of the impact of financial literacy on economic decision making in the United States and elsewhere. While the literature is still young, conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps. A final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy.
In the book “21st Century Economics – Economic Ideas You Should Read and Remember” (Springer, 2019), this paper is recommended by Dr. Monika Bütler as significantly contributing to economics in the 21st century. Click here to learn more. -
FINANCIAL EDUCATION, FINANCIAL COMPETENCE, AND CONSUMER WELFARE
October 2014
Abstract: We introduce the concept of financial competence, a measure of the extent to which individuals’ financial choices align with those they would make if they properly understood their opportunity sets. Unlike existing measures of the quality of financial decision making, the concept is firmly rooted in the principles of choice-based behavioral welfare analysis; it also avoids the types of paternalistic judgments that are common in policy discussions. We document the importance of assessing financial competence by demonstrating, through an example, that an educational intervention can appear highly successful according to conventional outcome measures while failing to improve the quality of financial decision making. Specifically, we study a simple intervention concerning compound interest that significantly improves performance on a test of conceptual knowledge (which subjects report operationalizing in their decisions), and appears to counteract exponential growth bias. However, financial competence (welfare) does not improve. We trace the mechanisms that account for these seemingly divergent findings.
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Planning and Saving for Retirement
In Sarah Harper and Kate Hamblin (eds), International Handbook on Ageing and Public Policy | Edward Elgar Publishing | 2014
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FINANCIAL LITERACY AND QUANTITATIVE REASONING IN THE HIGH SCHOOL AND COLLEGE CLASSROOM
Numeracy | Volume 6 | Issue 2 | July 2013
Abstract: This overview frames the eight articles devoted to financial literacy in this issue of Numeracy. The survey questions used to assess financial literacy in the United States, Romania, France, Switzerland, Australia, and elsewhere include mathematics that is routinely covered in mathematics and quantitative reasoning courses. Financial literacy, wherever it is received, appears to benefit people throughout their lives. The close tie between quantitative and financial literacy may be exploited to introduce more of both into the high school and undergraduate curriculum.
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OPTIMAL FINANCIAL KNOWLEDGE AND WEALTH INEQUALITY
October 2014
Abstract: Using a stochastic life cycle model with endogenous financial knowledge accumulation, we show that financial knowledge is a key determinant of wealth inequality. The mechanism we posit is that financial knowledge enables individuals to better allocate resources over their lifetimes in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have the most to gain from investing in financial knowledge. As a result, making financial knowledge accumulation endogeneous amplifies differences in accumulated retirement wealth over the life cycle. According to our estimates, from 30 to 40 percent of wealth inequality can be accounted for by financial knowledge.
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Financial Literacy and Financial Behavior among Young Adults: Evidence and Implications
Numeracy | Volume 6 | Issue 2 | July 2013
Abstract: This paper uses data from the 2009 National Financial Capability Study to examine financial literacy and financial behavior in a sample of approximately 4,500 young adults age 25 to 34. The paper finds that most young adults lack basic financial knowledge. Financial literacy is especially low among certain demographic groups, such as women, minorities, and lower-income or less-educated people. A high level of education, however, is not a guarantee of financial literacy. Only 49% of young respondents with a college education and 60% of young respondents with postgraduate education could correctly answer three simple questions designed to assess financial literacy. Results show that respondents who display higher financial literacy or higher confidence in their math or personal finance knowledge have better financial outcomes: they are less likely to use high-cost borrowing methods, and they are more likely to plan for retirement or have set aside savings for emergencies.
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FINANCIAL LITERACY AROUND THE WORLD: AN OVERVIEW
Journal of Pension Economics and Finance | Volume 10 | Issue 4 | October 2011
Abstract: In an increasingly risky and globalized marketplace, people must be able to make well informed financial decisions. New international research demonstrates that financial illiteracy is widespread in both well-developed and rapidly changing markets. Women are less financially literate than men, the young and the old are less financially literate than the middle-aged, and more educated people are more financially knowledgeable. Most importantly, the financially literate are more likely to plan for retirement. Instrumental variables estimates show that the effects of financial literacy on retirement planning tend to be underestimated. In sum, around the world, financial literacy is critical to retirement security.
If you want to look at all of the articles in the special issue, click here.
Included in the Virtual Special Issue on Developments in Financial Literacy 2021 of the Cambridge University Press, edited by Olivia S. Mitchell. Click here to access the special issue.
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Financial Literacy and Retirement Planning in the United States
Journal of Pension Economics & Finance | Volume 10 | October 2011
Abstract: We examine financial literacy in the US using the new National Financial Capability Study, wherein we demonstrate that financial literacy is particularly low among the young, women, and the less-educated. Moreover, Hispanics and African-Americans score the least well on financial literacy concepts. Interestingly, all groups rate themselves as rather well-informed about financial matters, notwithstanding their actual performance on the key literacy questions. Finally, we show that people who score higher on the financial literacy questions are much more likely to plan for retirement, which is likely to leave them better positioned for old age. Our results will inform those seeking to target financial literacy programmes to those in most need.
Access the paper here.
Included in the Virtual Special Issue on Developments in Financial Literacy 2021 of the Cambridge University Press, edited by Olivia S. Mitchell. Click here to access the special issue.
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THE ECONOMIC IMPORTANCE OF FINANCIAL LITERACY
Insper Institute | São Paulo, Brazil | October 2014
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FINANCIAL CAPABILITY AMONG YOUNG ADULTS
Millennial Webcast, Lincoln Financial Group | October 2014
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APEC Guidebook on Financial and Economic Literacy in Basic Education
APEC | November 2014
Summary: This is a joint initiative, that means, it is based on the efforts, knowledge and wisdom of experts from all the APEC economies and at the same time it is hoped to benefit all the economies in the APEC region in the long run. By distilling lessons from the APEC region and sharing best practices, we hope to make a contribution to laying a solid foundation for employability and productivity of the workforce in economies in the APEC region through education in economic and financial literacy, especially for developing economies, in the changing economic circumstances.
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FINANCIAL LITERACY AND RETIREMENT PLANNING IN CANADA
June 2014
Abstract: Financial literacy and Canadians’ capacity to plan for retirement is of primary importance for the policy debate over pension system reform in Canada. In this paper, we draw on internationally comparable survey evidence on financial literacy and retirement planning in Canada to investigate how financially literate Canadians are and who does plan for retirement. We find that 42 percent of respondents are able to correctly answer three simple questions measuring knowledge of interest compounding, inflation, and risk diversification. This is consistent with evidence from other countries, and Canadians perform relatively well in comparison to Americans but worse than individuals in other countries, such as Germany. Among Canadian respondents, the young and the old, women, minorities, and those with lower educational attainment do worse, a pattern that has been consistently found in other countries as well. Retirement planning is strongly associated with financial literacy; those who responded correctly to all three financial literacy questions are 10 percentage points more likely to have retirement savings.
Click here for the version to be published in the Journal of Pension Economics and Finance.
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VISUAL TOOLS AND NARRATIVES: NEW WAYS TO IMPROVE FINANCIAL LITERACY
June 2014
Abstract: In this paper, we developed and experimentally evaluated four novel educational programs delivered online: an informational brochure, a visual interactive tool, a written narrative, and a video narrative. The programs were designed to inform people about risk diversification, an essential concept for financial decision making. The effectiveness of these programs was evaluated using the RAND American Life Panel. Participants were exposed to one of the programs, and then asked to answer questions measuring financial literacy and self-efficacy. All of the programs were found to be effective at increasing self-efficacy, and several improved financial literacy, providing new evidence for the value of programs designed to help individuals make financial decisions. The video was more effective at improving financial literacy scores than the written narrative, highlighting the power of online media in financial education.
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FIVE STEPS TO PLANNING SUCCESS: EXPERIMENTAL EVIDENCE FROM U.S. HOUSEHOLDS
May 2014
Abstract: In this paper, we design and field a low-cost, easily-replicable financial education program called “Five Steps,” covering five basic financial planning concepts that relate to retirement. We conduct a field experiment to evaluate the overall impact of “Five Steps” on a probability sample of the American population. In different treatment arms, we quantify the relative impact of delivering the program through video and narrative formats. Our results show that short videos and narratives (each takes about three minutes) have sizable short-run effects on objective measures of respondent knowledge. Moreover, keeping informational content relatively constant, format has significant effects on other psychological levers of behavioral change: effects on motivation and self-efficacy are significantly higher when videos are used, which ultimately influences knowledge acquisition. Follow-up tests of respondents’ knowledge approximately eight months after the interventions suggest that between one-quarter and one-third of the knowledge gain and about one-fifth of the self-efficacy gains persist. Thus, this simple program has effects both in the short run and medium run.
Click here for the version published in the Oxford Review of Economic Policy.
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FINANCIAL KNOWLEDGE AND 401(K) INVESTMENT PERFORMANCE
May 2014
Abstract: Using a unique new data set linking administrative data on investment performance and financial knowledge, we examine whether investors who are more financially knowledgeable earn more on their retirement plan investments, compared to their less sophisticated counterparts. We find that risk-adjusted annual expected returns are 130 basis points higher for the most financially knowledgeable employees, and those scoring higher on our Financial Knowledge Index have slightly more volatile portfolios while they do no better diversifying their portfolios than their peers. Overall, financial knowledge does appear to help people invest more profitably; this may provide a rationale for efforts to enhance financial knowledge in the population at large.
Click here to see the updated version of this working paper.
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DEBT AND DEBT MANAGEMENT AMONG OLDER ADULTS
September 2013
Abstract: Many individuals lack the financial know-how to manage the complex new financial products increasingly available in the financial marketplace. How people borrow and manage debt has become of increasing policy maker concern, given recent evidence on Americans’ over-indebtedness. As a consequence, some have suggested that older persons today are much more likely to enter retirement age in debt compared to decades past. Our new paper seeks to empirically evaluate the factors associated with older individuals’ debt and debt management practices, and whether (and how) these patterns have changed significantly over time.
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FINANCIAL LITERACY AND HIGH-COST BORROWING IN THE UNITED STATES
January 2013
Abstract: In this paper, we examine high-cost methods of borrowing in the United States, such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops, and offer a portrait of borrowers who use these methods. Considering a representative sample of more than 26,000 respondents, we find that about one in four Americans has used one of these methods in the past five years. Moreover, many young adults engage in high-cost borrowing: 34 percent of young respondents (age 18–34) and 43 percent of young respondents with a high school degree have used one of these methods. Using well-tested questions to measure financial literacy, we document that most high-cost borrowers display very low levels of financial literacy, i.e., they lack numeracy and do not possess knowledge of basic financial concepts. Most important, we find that those who are more financially literate are much less likely to have engaged in high-cost borrowing. Our empirical work shows that it is not only the shocks inflicted by the financial crisis or the structure of the financial system that explains why so many individuals have made use of high-cost borrowing methods; the level of financial literacy also plays a role.
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FINANCIAL CAPABILITY NEAR RETIREMENT: A PROFILE OF PRE-RETIREES
Filene Research Institute | October 2014
Summary: This report shows how pre-retirees—those between 51 and 61 years of age—face a number of financial challenges. Authors Carlo de Bassa Scheresberg and Annamaria Lusardi use financial capability data from the 2012 National Financial Capability Study to highlight the troubling prevalence of long-term debt among individuals who are close to retirement. In addition, the data show that many pre-retirees use expensive credit card borrowing, lack both short-term and long-term financial management and planning, and use financial advice only sparingly
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Working Women’s Financial Capability: An Analysis across Family Status and Career Stages
TIAA-CREF Institute | May 2014
Summary: This study increases our understanding of the unique financial needs of working women by examining key factors associated with their personal finances and identifying issues that are critical to their financial future. The study provides an overview of working women’s financial capability and documents how personal financial needs and financial behaviors vary by family status and career stage. The study concludes with a list of actions that would help to better serve working women’s financial needs.
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GEN Y PERSONAL FINANCES: A CRISIS OF CONFIDENCE AND CAPABILITY
Filene Research Institute | May 2014
Summary: Generation Y will leave a lasting imprint on American history. The largest, most diverse generation America has seen, Generation Y comprises millions who were born between the late 1970s and the mid-1990s. While this generation is confident, they face financial pressures that will jeopardize and limit their economic opportunities. A fragile economy, student debt, and an unstable job market are a few of the hurdles they face. Looking at the data from the most recent National Financial Capability Study (NFCS), we are concerned about their unprecedented levels of student debt and their overconfidence in financial matters. Despite encouraging signs in terms of their assets, the analysis reveals that Millennials are deeply indebted and struggle to meet payments on both short- and long-term obligations. Even though most Gen Yers feel good about their financial knowledge, data show that they lack the basic skills needed to make savvy financial decisions.
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WORKING WOMEN’S FINANCIAL CAPABILITY
TIAA-CREF Institute | August 2014
Summary: Women today make up 47% of the workforce and contribute more to the U.S. economy than ever before. Yet compared to men, women still face steep financial challenges. Analysis by the TIAA-CREF Institute describes working women’s financial needs and capabilities by examining key aspects of their personal finances. The study also identifies how working women’s financial needs vary according to family status and career stage.
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HELPING GEN Y ACHIEVE LONG-TERM FINANCIAL SECURITY
TIAA-CREF Institute | February 2014
Summary: They are young, tech savvy, and confident; diverse, connected, and idealistic. And, they face a host of financial challenges. We’re talking, of course, about Gen Y, represented by the 2,124 college-educated respondents age 23 to 35 who took part in the 2012 National Financial Capability Study. To understand this group’s personal finances and financial-management practices, Annamaria Lusardi and Carlo de Bassa Scheresberg of the Global Financial Literacy Excellence Center, The George Washington University, and Paul Yakoboski, senior economist at the TIAA-CREF Institute, took a close look at the study’s data set. They found a generation confident in its financial prowess, but burdened by debt and engaged in potentially costly behavior.
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THE FINANCIAL FRAGILITY OF AMERICAN FAMILIES
FINRA Investor Education Foundation | September 2013
Summary: The economic crisis that began in 2007 started a wide-ranging spiral that not only weakened the U.S. economy but also eroded the financial stability of households—exposing the fragility of American families. Stock values dropped, real estate prices plummeted, household wealth shrank, unemployment rates shot up, and the tenuous positions of an alarming percentage of U.S. households became all too apparent. Even after the peak of the crisis, the recovery was very slow. This Brief describes how American families are positioned to confront economic shocks and the resources they may—or may not—have available to help them weather such crises.
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The Effectiveness of Financial Literacy Programs
The Future of Financial Wellness | Stanford Center on Longevity | Stanford, CA, USA | September 2014
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FINANCIAL LITERACY AROUND THE WORLD (FLAT WORLD)
FINRA Investor Education Foundation | April 2013
Summary: Across the world, people are being asked to assume more responsibility for their financial well-being. Because of changes in the pension landscape, notably a shift from defined benefit to defined contribution type pensions, individuals must determine not only how much to save for retirement but also how to allocate that retirement wealth. This responsibility is paired with financial instruments that are increasingly complex. Rules and terms for credit cards, mortgages, lines of credit and other vehicles for borrowing have changed substantially, often providing more exposure to risk. This brief describes key findings about financial literacy in eight countries.
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TESTIMONY OF ANNAMARIA LUSARDI BEFORE THE U.S. SENATE
Subcommittee on Children and Families of the U.S. Senate Committee on Health, Education, Labor, and Pension | April 24, 2013
Summary: Annamaria Lusardi testifies about the lack of financial capability and literacy among the American people and why financial education in high school is important.
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HOW EMPLOYERS CAN HELP NEW HIRES SAVE FOR RETIREMENT: BEST PRACTICES THAT BUILD LONG-TERM FINANCIAL SECURITY
FINRA Investor Education Foundation | September 2012
Summary: Not all employer-sponsored defined contribution retirement savings plans are created equal—some employer practices and plan designs are more successful than others in helping new hires accumulate a robust retirement nest egg. We reviewed numerous studies conducted by researchers affiliated with the Financial Literacy Center, and have identified ten powerful—and often relatively easy ways to increase financial literacy among newly hired employees, enhance their ability and willingness to participate in and contribute to retirement plan accounts, and improve their overall financial well-being. The guidance offered in this report is based on information derived from studies of real people in real situations and examination of how their behavior is affected by workplace policies and practices.
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GENDER, CONFIDENCE, AND FINANCIAL LITERACY
Invited Session | European Economic Association | Toulouse, France | August 2014
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The Economic Importance of Financial Literacy
Keynote Address | Rand Behavioral Finance Forum Annual Public Policy Roundtable | Washington, D.C., USA | May 2014
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DEBT AND FINANCIAL FRAGILITY: FINDINGS FROM THE 2012 NATIONAL FINANCIAL CAPABILITY STUDY
U.S. Department of the Treasury | Washington, D.C., USA | May 2014
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PISA FINANCIAL LITERACY ASSESSMENT
Jump$tart Coalition for Personal Financial Literacy | Washington, D.C., USA | April 2014
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COLLEGE-EDUCATED MILLENNIALS: AN OVERVIEW OF THEIR PERSONAL FINANCES
TIAA-CREF Institute | February 2014
Summary: This study has used new data from the NFCS to analyze salient issues related to college-educated Millennials’ financial capability, practices, and status, and in the process identify key financial challenges they face. The results suggest that the promotion of financial literacy—through financial education—is needed. In particular, there is a need for improved knowledge and understanding regarding debt and debt management. Policies aimed at improving financial literacy could help Gen Y minimize the costs incurred in managing debt, improve personal financial safety nets, and fortify both short-term and long-term financial stability and security. The gap between the financial responsibilities of Gen Y and their ability to manage financial decisions and take advantage of financial opportunities has both individual and societal implications if it remains unaddressed.
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PROCEEDINGS OF THE OECD/INFE/GFLEC GLOBAL POLICY RESEARCH SYMPOSIUM TO ADVANCE FINANCIAL LITERACY
OECD | October 31, 2013
Summary: This document collects the contributions of the four main speakers of the OECD/INFE/GFLEC Global Policy Research Symposium to Advance Financial Literacy, held in Paris on 31 October 2013. The conference was co-organised with the Global Financial Literacy Excellence Center (GFLEC) at the George Washington School of Business, Washington, DC. These proceedings benefited from the support of VISA Europe.
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Financial Literacy, Illuminated: It’s a FLAT World
TEDx Foggy Bottom | Washington, D.C., USA | February 2014
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eJOURNAL
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