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Financial Literacy and Quantitative Reasoning in the High School and College Classroom

DOI:10.5038/1936-4660.6.2.1
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Annamaria Lusardi
Annamaria Lusardi
Annamaria Lusardi
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Dorothy I. Wallace at Dartmouth College
Dorothy I. Wallace
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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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Numeracy
Advancing Education in Quantitative Literacy
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Financial Literacy and Quantitative Reasoning in
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Annamaria Lusardi
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Dorothy Wallace
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Introduction
Suppose you have $100 in a savings account and the interest rate is 2% per year. After
five years, would you have $102 in the account? More? Less?
Is this a quantitative reasoning question? Yes. Is it being used to measure
quantitative literacy in colleges? Not exactly. This question is one of those being used by
the Financial Industry Regulatory Authority (FINRA) National Financial Capability
Study (NFCS) to assess the financial literacy of Americans. In a sample of over 28,000
respondents age 18 and up, over 20% answered this question incorrectly (Lusardi and
Mitchell 2011a).
This question is the simplest of three benchmark financial literacy assessment
questions designed by Lusardi and Mitchell (2011b) and now used worldwide. This issue
of Numeracy features a theme collection of papers discussing findings resulting from the
use of these questions to measure the financial literacy of the Swiss (Brown and Graf
2013), the French (Arrondel et al. 2013), the Romanians (Beckmann 2013), and the
Australians (Agnew et al. 2013). In these papers you will find comparable research
results spanning populations worldwide and telling the same story over and over again.
Furthermore, you will read about financial literacy in the United States (Bumcrot et al.
2013; Allgood and Walstad 2013; Mottola 2013; de Bassa Scheresberg 2013): about
which states’ populations know the most and which know the least, which population
subgroups display the lowest financial literacy, and how financial literacy is linked to
financial behavior—from planning for retirement to holding precautionary savings to
borrowing using credit cards and other methods. Taken together, the research presented
in this theme collection provides solid evidence of the need for quantitative reasoning
skills for all people, the importance of emphasizing practical quantitative reasoning in the
curriculum, and the economic and personal consequences for failing to do so.
Financial Literacy Depends on Quantitative Literacy
Survey questions such as the financial literacy questions examined in the research
documented in the theme collection are overtly mathematical tests of the understanding
of interest rates and interest compounding. These are routine subjects of mathematics and
quantitative reasoning courses. To students without an understanding of the role that
interest compounding plays in building wealth, it is impossible to explain why making a
high-return investment is better than using a low-interest savings account. To students
without an understanding of the actual mathematics underlying interest compounding, it
is very difficult to explain the importance of starting to save early or how quickly debt
grows when borrowing at the interest rates charged by credit card companies or by
payday lenders or other purveyors of high-cost methods of borrowing, topics covered in
three of the papers discussing the NFCS data in the theme collection.
Is it better to use your money to buy a single stock or to invest in a fund containing
many different stocks? The second strategy is designed to reduce the risk of having that
one stock suddenly plunge in value. Despite the age-old adage recommending not putting
all of one’s eggs in a single basket, most survey respondents do not, in fact, grasp the
concept of risk diversification. It is, however, possible to use quantitative reasoning to
1
Lusardi and Wallace: Financial Literacy and Quantitative Reasoning in the Classroom
Published by Scholar Commons, 2013
arrive at a good answer to the question of choosing a single stock versus a stock mutual
fund. A good answer could be based on the analysis of publicly available growth records
of stocks versus funds, generally expressed graphically. The ability to read and interpret
graphs is fundamental to quantitative literacy. A more complex approach could involve
spreadsheets simulating multiple stocks and a Monte Carlo algorithm of some sort. In
either case, understanding why the “correct” answer is a good one demands quantitative
reasoning on some level.
Financial Literacy Is Correlated with Good Financial
Practices
It is astoundingly hard to demonstrate that any particular educational intervention will
have consequences for the well-being of learners throughout their entire lives. The theme
collection provides multiple studies demonstrating that an understanding of these few
mathematical and financial principles is significantly correlated with good financial
behaviors. In short, financial literacy is a case in which education (wherever it was
received) is likely to bring benefits in the short, medium, and long run to those who have
it. People are more likely to plan for retirement, to avoid longstanding credit card bills,
late payments, payday loans, and other risky financial behaviors if they understand some
basic mathematical principles underlying financial literacy. The NFCS data, as discussed
in four of the eight papers, provides an opportunity to do an unprecedented analysis of
both financial literacy and its links to financial behavior. As more and more individuals
become responsible for contributing to their retirement funds and then judiciously
managing them after retirement, the need for basic financial understanding among the
entire population is increased dramatically. And as young people take up larger amounts
of debt to finance their education, it seems essential that they understand the basics of
interest compounding. The president of your college or university should care about this
matter, as it affects nearly every student. The most promising career, for which the
college may meticulously have prepared a student, can be ruined by bad financial
decisions, made perhaps not of necessity but of ignorance.
Financial Literacy Is Low among the Young
Not just in the United States but in other countries as well, the young display low levels
of financial literacy and are often the subgroup with the lowest level of financial literacy.
These are people who will be paying off student loans, who will be buying their first car
to get to work, who will be buying their first home. More and more, young people’s
earliest financial decisions are related to debt, and it is worrisome to see that in the
United States, 35% of young adults (age 25–34) have used high-cost methods of
borrowing such as payday loans, pawn shops, tax refunds loans, auto title loans, and rent
to own shops (de Bassa Scheresberg 2013). When looking at both financial literacy and
financial behavior, the young emerge as one of the most vulnerable groups in the
population. Many of these young adults are the people we have taught in our two- and
four-year institutions of higher education. Taken collectively, the papers in this theme
collection may lead you to the conclusion that it is irresponsible not to require financial
2
Numeracy, Vol. 6 [2013], Iss. 2, Art. 1
http://scholarcommons.usf.edu/numeracy/vol6/iss2/art1
DOI: http://dx.doi.org/10.5038/1936-4660.6.2.1
literacy of students and that, furthermore, such a requirement must have an explicit,
heavily emphasized, practical quantitative component.
Financial Literacy Is Low among Women
The financial literacy papers discuss data that indicate a large gender gap in financial
literacy. Women are not only less likely to answer financial literacy questions correctly;
they are also more likely to state they “do not know” the answer to the questions. The
pattern is remarkably similar in countries as different as the United States, Australia,
France, and Romania. As the findings from the paper discussing financial literacy in
Switzerland (Brown and Graf 2013) show, this disparity in literacy level does not seem to
be driven by lack of interest in financial matters. Gender differences exist not only in
financial literacy but also in financial behavior, and they are the particular focus of one of
the papers (Mottola 2013). As teachers of quantitative and financial literacy, we have to
remember that there are differences in our student population and that women and men
are very different when dealing with the concepts underlying financial knowledge. These
findings also call for programs targeted specifically to women.
Money Is Power; Money Is Number
We live in a capitalist democracy. Functionally, this means that citizens have two sources
of power: their vote and their dollar. The design team of Mathematics and Democracy
(National Council on Education and the Disciplines 2001) framed quantitative literacy as
a skill required for full participation in citizenship, and this participation requires more
decisions about money now than ever before. A citizen who cannot manage his or her
finances, who lives from hand to mouth, and who arrives destitute at retirement age
expecting a long, comfortable, and healthy old age on Social Security payments has
surrendered most of his or her power over life in the short, medium, and long run. Put
enough such citizens together and you have a national crisis. It is notable that the
Organisation for Economic Co-operation and Development’s (OECD) Programme for
International Student Assessment (PISA) has added financial literacy to the topics it
evaluates every three years among 15-year-old students. PISA explains what it measures
as follows:
Are students well prepared for future challenges? Can they analyze, reason, and communicate
effectively? Do they have the capacity to continue learning throughout life? The OECD Program
for International Student Assessment (PISA) answers these questions and more through its surveys
of 15-year-olds in the principal industrialized countries. Every three years, it assesses how far
students near the end of compulsory education have progressed in acquiring some of the
knowledge and skills essential for full participation in society.
1
Thus, financial literacy has been recognized as a necessary skill to successfully navigate
today’s society. It is time to add it not only to high school curricula but also to colleges
both across the nation and around the world.
1
See http://www.oecd.org/pisa/.
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Lusardi and Wallace: Financial Literacy and Quantitative Reasoning in the Classroom
Published by Scholar Commons, 2013
What Colleges and Universities Can Do
Colleges and universities are beginning to recognize the need for both financial and
quantitative skills. In a preliminary study of a random sample of four-year undergraduate
institutions, we find that 65% offer either a quantitative reasoning or personal finance
course. These provide some leverage for the kind of education that leads to financial
literacy. Many quantitative reasoning courses may not have sufficient emphasis on
financial topics in a practical context. Many personal finance courses may not have
sufficient emphasis on the quantitative aspects of financial decisions that lead to real,
actionable understanding. Many of the courses we found are not actually required. But
their presence in the curriculum reflects an understanding of the need they fill for
students and provides a basis for further growth.
2
Textbooks designed for personal finance courses often do not emphasize the
mathematical understanding needed to make thoughtful financial decisions and plans.
Texts meant for quantitative reasoning courses may give only modest attention to
financial decisions. Such texts may be supplemented by more in-depth modules such as
those created by the Dartmouth College Financial Literacy Initiative, available on the
Internet.
3
In short, the resources are available to promote financial literacy through the
education we provide to our college-level students. Those who teach quantitative
reasoning would do well to remember that, as Lynn Steen once wrote, numeracy is about
“applying elementary tools in sophisticated settings” (Steen 2001, p. 108). Financial
literacy presents a spectacular collection of sophisticated settings useful for improving
both financial and quantitative reasoning.
References
Agnew, J. R., H. Bateman, and S. Tharp. 2013. Financial literacy and retirement
planning in Australia. Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.7
Allgood, S. and W. Walstad. 2013. Financial literacy and credit card behaviors: A cross-
sectional analysis by age. Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.3
Arrondel, L., M. Debbich, and F. Savignac. 2013. Financial literacy and financial
planning in France. Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.8
Beckmann, E. 2013. Financial literacy and household savings in Romania. Numeracy
6(2). http://dx.doi.org/10.5038/1936-4660.6.2.9
Brown. M. and R. Graf. 2013. Financial literacy and retirement planning in Switzerland.
Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.6
Bumcrot, C, J. Lin, and A. Lusardi. 2013. The geography of financial literacy.
Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.2
de Bassa Scheresberg, C. 2013. Financial literacy and financial behavior among young
adults: Evidence and implications. Numeracy 6(2). http://dx.doi.org/10.5038/1936-
4660.6.2.5
2
Lusardi taught a graduate course on this topic at the George Washington School of Business. A syllabus is
available upon request.
3
Dartmouth College Financial Literacy Initiative curriculum materials at
http://www.math.dartmouth.edu/~mqed/FinancialLiteracyProject/
4
Numeracy, Vol. 6 [2013], Iss. 2, Art. 1
http://scholarcommons.usf.edu/numeracy/vol6/iss2/art1
DOI: http://dx.doi.org/10.5038/1936-4660.6.2.1
National Council on Education and the Disciplines. 2001. Mathematics and democracy:
The case for quantitative literacy, ed. L. A. Steen. Princeton, NJ: Woodrow Wilson
National Fellowship Foundation.
Lusardi, A., and O. S. Mitchell. 2011a. Financial literacy and retirement planning in the
United States. Journal of Pension Economics and Finance 10(4): 509–525.
http://dx.doi.org/10.1017/S147474721100045X
Lusardi, A., and O. S. Mitchell. 2011b. Financial literacy and planning: Implications for
retirement wellbeing. In Financial literacy: Implications for retirement security and
the financial marketplace, ed. O. S. Mitchell and A. Lusardi, 17–39. Oxford, UK:
Oxford University Press.
http://dx.doi.org/10.1093/acprof:oso/9780199696819.003.0002
Mottola, G. R. 2013. In our best interest: Women, financial literacy, and credit card
behavior. Numeracy 6(2). http://dx.doi.org/10.5038/1936-4660.6.2.4
Steen, L. A. 2001. Embracing numeracy, in Mathematics and democracy: The case for
quantitative literacy, ed. L. A. Steen, 107–116. Princeton, NJ: National Council on
Education and the Disciplines.
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Lusardi and Wallace: Financial Literacy and Quantitative Reasoning in the Classroom
Published by Scholar Commons, 2013
... Em relação ao gênero, os homens são detentores de maior educação financeira do que as mulheres, tanto na educação financeira total, quanto na básica e avançada, apresentando médias 2,08; 0,71 e 1,36, respectivamente, enquanto que as mulheres obtiveram médias de 1,79; 0,63 e 1,15. Tal fato também foi verificado por diversos autores ao encontrarem que as mulheres geralmente apresentam menores níveis de educação financeira do que os homens VOLPE, 1998;MITCHELL, 2006;AGARWAL et al., 2009;121 MITCHELL, 2011;ATKINSON;MESSY, 2012;WALLACE, 2013;BROWN;GRAF, 2013;MOTTOLA, 2013). ...
... Em uma pesquisa realizada nos Estados Unidos, Lusardi e Mitchell (2011) constataram que as mulheres são significativamente menos propensas a responder às perguntas corretamente e mais propensas a dizer que não sabem a resposta. Este fato é notavelmente semelhante em países financeiramente diferentes como a Austrália, a França e a Romênia WALLACE, 2013). Por outro lado, as mulheres também avaliam seu próprio nível de educação financeira de forma mais conservadora. ...
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A educação financeira é uma ferramenta que auxilia os indivíduos em tomadas de decisões mais assertivas e eficientes no contexto monetário de suas vidas, diante dessa importância tem-se como objetivo principal deste trabalho investigar o nível de educação financeira dos habitantes do Rio Grande do Sul e identificar se existem diferenças nos níveis de educação segundo as variáveis socioeconômicas e demográficas. Para isso realizou-se uma pesquisa com 1.067 indivíduos e a análise dos dados foi através da estatística descritiva e multivariada. Os principais resultados revelam maiores níveis de educação financeira entre os homens, solteiros, que não possuem dependentes, estudantes e/ou bolsistas, com um maior nível de escolaridade, tanto seu, quanto dos seus pais, com maiores faixas de renda própria e familiar e residentes na região centro ocidental rio-grandense. Todavia, o nível de educação financeira na amostra de rio-grandenses avaliada atingiu patamares preocupantes, ao acertaram 67% das questões de educação básica e 62,34% das questões de educação avançada, revelando um nível médio de educação financeira, porém muito próximo ao nível baixo (abaixo de 60%). Esses resultados geram uma conscientização sobre a necessidade de novos investimentos por parte do governo ou de instituições privadas em programas de educação financeira, voltados principalmente aos grupos que se mostraram com menor conhecimento
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... As the world is becoming increasingly complex, young adults have greater financial responsibilities, which means financial literacy (FL) is necessary to successfully navigate their future (Lusardi and Wallace, 2013;OECD, 2017b). Because young adults (15-24 years old) are more malleable than adults, school-based financial education (FE) interventions are cost-efficient and a valuable approach to fostering youth FL (Frisancho, 2020;Kaiser et al., 2021). ...
... However, university FL education has generally been insufficient. For example, Fernandes et al. (2014) found that just-in-time FE was needed to avoid unreasonable financial decisions and ensure better individual choices (Thaler, 2018), the OECD (2017b) claimed that there was "an urgent need" for governments to improve all students' FL, and Lusardi and Wallace (2013) suggested that FE curricula should be part of all college and university education. ...
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Full-text available
  • Apr 2022
As starting university is a critical independence milestone for many young people, it would also be the best time to provide them with some financial education (FE). Although there have been many initiatives aimed at enhancing individual financial literacy (FL) and/or financial decision-making, meta-analyses have shown that the effectiveness of FE has been mixed. This study examined the driving forces behind the decision by college students to enroll in a targeted financial literacy curriculum (FLC) and the impact of this attendance on their FL. An endogenous switching model (ESM) was employed to account for the heterogeneity in the decision to attend or not attend the FLC and to counteract any unobservable characteristics. It was found that students with higher self-perceived FL did not prefer to attend the FLC; however, for others, FLC attendance was found to significantly boost their FL in areas such as financial knowledge (FK), financial attitude (FA), and financial behavior (FB), especially for the non-attendees under the counterfactual framework. These “non-attendees” were observed to have some characteristics (e.g., prior knowledge) that made them more financially literate regardless of attendance; however, if they had attended the FLC, they would have gained a greater FL than the attendees. As the FL of the attendees would have been much lower if they had not attended, the FLC appeared to be particularly important for the attendees, which strengthened the case for making the FLC a compulsory part of a general college education.
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... Particularly, one's level of financial literacy has the propensity to greatly influence his/her capacity to critically evaluate investment choices and deploy financial resources wisely. Financial literacy is therefore indispensable for one's business, the economy, and the nation in this era of globalization (Lusardi & Wallace, 2013). Individuals with the ability to appropriately manage a bank account, prepare a financial plan, make investments for the future, and acquire strategies to minimize or evade debt are known to be financially literate. ...
Is there a link between financial literacy and financial behaviour?
Article
  • Apr 2023
In this paper, we are motivated by the growing complexity of financial service products amidst an unending wave of Ponzi schemes as well as the low levels of financial literacy reported by prior studies. Particularly, while the extant literature has focused on various determinants of financial literacy, limited insights exist on the implications of financial literacy on financial behaviour. Consequently, we focus our empirical test on identifying the link between financial literacy and financial behaviour. We formulated our hypotheses from the family resource management theory which postulates that individual behaviour is a function of their knowledge. Thus, relative to financial literacy and financial behaviour, we argue that financially literate individuals are more likely to exhibit sound financial behaviour than those who are financially illiterate. We tested our hypothesis by using the logistic regression technique on a cross-sectional sample of 3,932 students pursuing various undergraduate and postgraduate programs in Ghanaian public and private universities. Notably, we selected our respondents from six (6) public and six (6) private universities. Consistent with our theoretical predictions, our results show that financially literate students are more likely to exhibit sound financial behaviour. Specifically, the results demonstrate that financial literacy is a major input for financial behaviour. Additionally, we observe that variables such as family characteristics particularly the father’s educational background, and discussion of financial matters at home are significant predictors of sound financial behaviour. Generally, our results have implications for various stakeholders including governments, academic institutions, and families.
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... There is a growing consensus that effective learning and citizenship in the 21st century requires college graduates to be 'quantitatively literate', that is, to be able to think and reason quantitatively when the situation demands it (Shavelson, 2008;Ball, 2003;Madison, 2009;NRC, 2012). Universities are beginning to recognize the need for such quantitative competencies and consider them essential student learning outcomes (SLOs) (Lusardi & Wallace, 2013). For instance, in a study among the member institutions of the American Association of Colleges and Universities (AAC&U), 71% of the colleges and universities identified the acquisition of quantitative reasoning as a central aim of learning in higher education (Hart Research Associates, 2009). ...
Modeling and Measuring Domain-Specific Quantitative Reasoning in Higher Education Business and Economics
Article
  • Mar 2023
Quantitative reasoning is considered a crucial prerequisite for acquiring domain-specific expertise in higher education. To ascertain whether students are developing quantitative reasoning, validly assessing its development over the course of their studies is required. However, when measuring quantitative reasoning in an academic study program, it is often confounded with other skills. Following a situated approach, we focus on quantitative reasoning in the domain of business and economics and define domain-specific quantitative reasoning primarily as a skill and capacity that allows for reasoned thinking regarding numbers, arithmetic operations, graph analyses, and patterns in real-world business and economics tasks, leading to problem solving. As many studies demonstrate, well-established instruments for assessing business and economics knowledge like the Test of Understanding College Economics (TUCE) and the Examen General para el Egreso de la Licenciatura (EGEL) contain items that require domain-specific quantitative reasoning skills. In this study, we follow a new approach and assume that assessing business and economics knowledge offers the opportunity to extract domain-specific quantitative reasoning as the skill for handling quantitative data in domain-specific tasks. We present an approach where quantitative reasoning – embedded in existing measurements from TUCE and EGEL tasks – will be empirically extracted. Hereby, we reveal that items tapping domain-specific quantitative reasoning constitute an empirically separable factor within a Confirmatory Factor Analysis and that this factor (domain-specific quantitative reasoning) can be validly and reliably measured using existing knowledge assessments. This novel methodological approach, which is based on obtaining information on students’ quantitative reasoning skills using existing domain-specific tests, offers a practical alternative to broad test batteries for assessing students’ learning outcomes in higher education.
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... Several studies in the USA and other places of the world show that youth have a low level of financial literacy. Regarding financial literacy and conduct, youth become one of the most minor protected groups in the population (Lusardi and Wallace, 2013;Kozubik, 2019;Zheng et al., 2020, Andriichuk, 2021. The younger generation faces not only the growing complexity of financial products, services, and markets but, in the course of growing up, they need to assume increasing financial risks compared to their parents (OECD, 2013; Kuzma et al., 2022). ...
Financial literacy of secondary school leavers: a case of Latgale region in Latvia
Article
Full-text available
  • Dec 2022
Financial literacy, as a totality of knowledge and skills, provides an opportunity for a person to manage finances successfully, and take rational decisions concerning the choice of various financial services, thus facilitating both individual and public welfare and sustainability. The financial markets have changed along with the financial consumers' awareness. Financial services have become a mass and freely accessible product group, whereas financial institutions have become a part of everyday life for all social groups. Over time, the age of the persons involved in financial processes and evolving consumers of financial services becomes younger and younger. Hence, the need for knowledge and awareness of finances, financial product diversity and related risks is growing more acute for improving financial decision-making. For this reason, financial literacy is acknowledged as a vital life skill globally. The research aims to study, assess, and analyse the financial literacy of secondary school leavers in Latgale.
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... Several studies give clear evidence that gender significantly affects financial literacy. Results are shown by Atkinson & Messy, (2012) ;Calamato, (2011);Cheronoh, (2019); Hung et al., (2012); Ibrahim et al., (2009) ;Lusardi & Mitchell, (2011);Lusardi & Wallace, (2013);Taylor, (2011) found that male is more financially literate as compared to female. Higher digital financial literacy levels are expected to be found in persons with a higher level of education and, thereby, superior access to financial products and services. ...
Relationship between Demographic Factors and Digital Financial Literacy
Article
Full-text available
  • Dec 2022
Digital financial literacy has recently piqued the interest of researchers and policymakers worldwide, especially in India. Financial inclusion could be effectively achieved by promoting digital financial literacy. Digitalization and faster internet technologies lead to a greater rural and urban digital divide due to their digital incompetency and illiteracy. Much literature shows that demographic variables namely age, gender, marital status, level of education, social groups, religion, profession, size of the family, APL/BPL, and the size of the landholding has a significant relation with digital financial literacy. Therefore, all these factors should be taken into account when developing financial training programmes to improve digital financial literacy. This paper tries to identify the relationship between digital financial literacy and demographic factors in rural areas of India. A multi-stage sampling technique has been used for choosing the 500 respondents from the rural areas of the Aligarh district of Uttar Pradesh for the study.
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... Furthermore, the finding supports the statement by Lusardi and Wallace (2013), who concluded that there was a positive correlation between financial literacy and financial practices among high school and college students. To some extent, financial literacy can also indicate people's awareness of personal financial management. ...
Do Financial Literacy and Technology Affect Intention to Invest in the Capital Market in the Early Pandemic Period?
Article
Full-text available
  • Dec 2021
Research aims: This paper discusses the effect of financial literacy and automatic investment technology on intention to invest in the capital market during the early pandemic. Design/Methodology/Approach: The research population was students studying economics and finance in institutions located in Yogyakarta Special Region Province. The sample of 384 respondents was obtained through questionnaires distributed online. To test the impact of financial literacy and automatic investment technology on intention to participate in the capital market, multiple linear regression was used. Research findings: The researchers found that financial literacy and automatic investment technology affected students’ intention to invest in the capital market. The number of students with a moderate level of financial literacy score dominated, followed by the students with low and high literacy scores. Besides, students’ background in economic and finance appeared inadequate to solely determine the financial literacy score. Theoretical contribution/Originality: This paper contributes to the investment area, especially related to the automatic investment technology “Robo advisor,” that is still rarely studied yet, which will be a significant issue in the future. It also provides empirical results, which explain the investment intention through financial literacy. Moreover, this study was conducted during the massive growth of investors in Indonesia during the pandemic. Practitioner/Policy implication: This study provides a useful reference to the financial sector, especially the capital market. Inclusive programs regarding financial literacy should be expanded for wider society to enhance their knowledge and dismiss lack of confidence in capital market participation. Private sectors providing automatic investment technology are suggested to continue developing a more convenient application to be accessible by a broader range of society. Research limitation/Implication: The research included only students as the sample; hence, further research may use a larger area of the sample with various backgrounds and ages. Other determinants, such as norms, environment, risk, and more advanced financial literacy measurement, can also be added to enrich future studies and literature.
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The association between intelligence and financial literacy: A conceptual and meta-analytic review
Article
Financial literacy is positively associated with intelligence, with typically moderate to large effect sizes across studies. The magnitude of the effect, however, has not yet been estimated meta-analytically. Such results suggest financial literacy may be conceptualised as a possible cognitive ability within the Cattel-Horn-Carroll (CHC) model of cognitive abilities. Consequently, we present a psychometric meta-analysis that estimated the true score correlation between cognitive ability and financial literacy. We identified a large, positive correlation with general intelligence (r’ = .62; k = 64, N = 62,194). We also found that financial literacy shared a substantial amount of variance with quantitative knowledge (Gq; via numeracy; r’ = .69; k = 42, N = 35,611), comprehension knowledge (crystallised intelligence; Gc; r’ = .48; k = 14, N = 10,835), and fluid reasoning (fluid intelligence; Gf; r’ = .48; k =20, N = 15,101). Furthermore, meta-analytic structural equation modelling revealed Gq partially mediated the association between cognitive ability (excluding Gq) and financial literacy. Additionally, both Gc and Gq had significant direct effects on financial literacy, whereas the total effect of Gf on financial literacy was fully mediated by a combination of Gc and Gq. While the meta-analyses provide preliminary support for the potential inclusion of financial literacy as primarily a Gc or Gq ability within the CHC taxonomy (rather than Gf), the review revealed that very few studies employed comprehensive cognitive ability measures and/or psychometrically robust financial literacy tests. Consequently, the review highlighted the need for future factor analytic research to evaluate financial literacy as a candidate for inclusion in the CHC taxonomy.
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Determinants of Financial Literacy Gender Gap in Zimbabwe
Article
Full-text available
  • Jan 2022
This research reports on the findings from a study which was conducted to explore the determinants of financial literacy gender gap in Mashonaland Central Province, Bindura. Therefore, the researcher sought to measure the financial literacy levels of women and men in Zimbabwe in a bid to reveal the factors affecting the gender gap. Women play a pivotal role in economic development and constitute the majority (55%) of the population (ZIMSTATS, 2012). A quantitative research method was used where data was collected among a randomly selected sample of 385 adults in Bindura, using a self-administered questionnaire. Data was analysed using Chi-square tests generated from SPSS version 20 and a financial knowledge index constructed using Microsoft Excel. Findings of the research revealed that age, marital status, education, occupation, income and socialisation explained the financial literacy gap. The study recommended instituting financial education programs targeting women especially those who have lower education, lower income levels, old aged, and unemployed, divorced and widowed to reduce the gender gap.
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Alfabetización financiera: Un Desafío Pendiente en la Educación Técnica Superior
Article
Full-text available
  • Nov 2021
This paper analyzes the financial literacy of working students in professional technical careers, using a sample from the Los Lagos region. An instrument was designed and applied considering different dimensions of the phenomenon: economic-financial and product knowledge, as well as financial behavior. Using aggregate indexes and Ordinary Least Squares estimations in two stages, we proceeded to explore variables that explain financial literacy. The results indicate low levels of literacy, especially in economic-financial knowledge. In addition, financial literacy is positively associated with older people, men, students in the regional capital, and those trained in the area of administration.
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Financial Literacy and Financial Behavior among Young Adults: Evidence and Implications
Article
Full-text available
  • Jul 2013
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 and Financial Planning in France
Article
Full-text available
  • Jun 2013
We study financial literacy in France using the PATER survey and following the Lusardi and Mitchell (2011c) approach. We find that some subpopulations are less financially literate than others: women, young and old people as well as less-educated people are more likely to face difficulties when dealing with fundamental financial concepts such as risk diversification and inflation and interest compounding. We also find some differences in financial knowledge depending on the political opinion of the respondents. Finally we show that these differences in financial knowledge are correlated with differences in the propensity to plan: people who score higher on the financial literacy questions are more likely to be engaged in the preparation of a clearly defined financial plan.
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In Our Best Interest: Women, Financial Literacy, and Credit Card Behavior
Article
Full-text available
  • Jul 2013
Data from the FINRA Foundation National Financial Capability Study revealed that women with low levels of financial literacy were more likely to engage in costly credit card behaviors—like incurring late and over-the-limit fees—than men with low financial literacy. There were, however, no differences in behavior between men and women with high financial literacy. Further, women and low financial literacy respondents reported paying higher interest rates on their credit cards. These findings suggest that increasing financial literacy may help reduce some gender-based differences in credit card behavior and lower credit card interest rates for both men and women.
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Financial Literacy and Household Savings in Romania
Article
Full-text available
  • Jul 2013
We present new evidence from the Euro Survey of the Austrian Central Bank on the level of financial literacy in Romania and analyze how financial literacy is related to household savings. Less than 5% of respondents were able to correctly answer the three “core” financial literacy questions on interest compounding, inflation, and risk diversification, with the risk diversification question posing the greatest difficulties. Twenty percent of respondents are able to answer both the interest compounding and inflation questions correctly. Financial literacy levels differ between regions and across rural and urban areas. Older and less-educated individuals perform worst on the financial literacy questions, but those who remember previous periods of economic turbulence during transition perform better. We find that financial literacy is positively and significantly related to saving and investment.
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Financial Literacy and Retirement Planning in Switzerland
Article
Full-text available
  • Jul 2013
We use a representative survey covering 1,500 households to document the level of financial literacy in Switzerland and to examine how financial literacy is related to retirement planning. We measure financial literacy with standardized questions that capture knowledge about three basic financial concepts: Compound interest, inflation, and risk diversification. We measure retirement planning by the incidence of a voluntary retirement savings account. Our results show that financial literacy in Switzerland is high by international standards--a result which is compatible with the high ranking of Switzerland on the PISA mathematical scales. Financial literacy is lower among low-income, less-educated, and immigrant, non-native-speaking households as well as among women. We find that financial literacy is strongly correlated with voluntary retirement saving. Our results also show that financial literacy is correlated with financial market participation and mortgage borrowing.
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Financial Literacy and Credit Card Behaviors: A Cross-Sectional Analysis by Age
Article
Full-text available
  • Jul 2013
In this study, we use a measure of financial literacy that includes both a test score of actual financial literacy and a self-rating of perceived financial literacy to investigate how financial literacy affects five credit card behaviors: (1) always paying a credit card balance in full; (2) carrying over a credit card balance and being charged interest; (3) making only a minimum payment on a credit card balance; (4) being charged a fee for a late payment; and (5) being charged a fee for exceeding a credit limit. Probit analysis was used to assess each behavior with a large nationally representative sample of U.S. adults (N = 28,146) divided into groups to reflect the five major decades in the adult life cycle (18–29; 30–39; 40–49; 50–59; and 60–69 and older). Perceived financial literacy was found to be a stronger predictor of less costly practices in credit card use than actual financial literacy for the five credit card behaviors and across each of the five age groups. The study also shows that the combination of the subjective assessment with the objective assessment of financial literacy provides a more comprehensive analysis of how financial literacy affects each credit card behavior. This combined approach to assessment produced the largest estimates of the effects of financial literacy on credit card behavior. The findings hold across the five credit card behaviors and the five age groups.
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Financial Literacy and Retirement Planning in Australia
Article
Full-text available
  • Dec 2012
We implement a customized survey to a representative sample of 1,024 Australians to examine the relationship between financial literacy and retirement planning. Overall we find aggregate levels of financial literacy similar to comparable countries with the young, least educated, unemployed and those not in the labor force most at risk. However, unlike the international norm, we find that financial skills increase with age. The role played by the Australia’s mandatory private retirement arrangements, system of defaults, and interactions with the means-tested safety net pension at older ages remain open questions.
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The Geography of Financial Literacy
Article
  • Jul 2013
This paper explores how well equipped today’s households are to make complex financial decisions in the face of often high-cost and high-risk financial instruments. Specifically we focus on financial literacy. Most importantly, we describe the geography of financial literacy, i.e., how financial literacy is distributed across the fifty US states. We describe the correlation of financial literacy and some important aggregate variables, such as state-level poverty rates. Finally, we examine the extent to which differences in financial literacy can be explained by states’ demographic and economic characteristics. To assess financial literacy, five questions were added to the 2009 National Financial Capability Study, covering fundamental concepts of economics and finance encountered in everyday life: simple calculations about interest rates and inflation, the workings of risk diversification, the relationship between bond prices and interest rates, and the relationship between interest payments and maturity in mortgages. We constructed an index of financial literacy based on the number of correct answers provided by each respondent to the five financial literacy questions. The financial literacy index reveals wide variation in financial literacy across states. Much of the variation is attributable to differences in the demographic makeup of the states; however, a handful of states have either higher or lower levels of financial literacy than is explained by demographics alone. Also, there is a significant correlation between the financial literacy of a state and that state’s poverty level. The findings indicate directions for policy makers and practitioners interested in targeting areas where financial literacy is low.
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Financial literacy and retirement planning in the United States
Article
  • Oct 2011
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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Mathematics and Democracy: The Case for Quantitative Literacy
Article
  • Sep 2002
Both computers and calculators are limited by architecture, operating system, and software, to some predetermined level of precision within decimal number presentation and calculation. Rational fractions produce either terminating or repeating decimal ...
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