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.
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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.
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Click here to see the November 2020 version of this working paper.
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.
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.
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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.
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Click here to see the July 2019 version of this working paper.
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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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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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.
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.
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.
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.
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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.
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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.
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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.
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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.
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.
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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.
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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.
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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.
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.
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.
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.
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.
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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.
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.
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.
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.
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.
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.
In Sarah Harper and Kate Hamblin (eds), International Handbook on Ageing and Public Policy | Edward Elgar Publishing | 2014
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.
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.
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.
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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.
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.
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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.
Visit Dr. Annamaria Lusardi's website to see additional research ➤