Financial Literacy Scores Research Articles

Associations of literacy with diabetes indicators in older adults

BackgroundLiteracy, the ability to access, understand and utilise information and concepts from diverse sources in ways that promote good outcomes is key to successful ageing. Domain-specific health and financial literacy...

Marriage and the Financial Knowledge Gender Gap

Prior studies of financial literacy find a significant knowledge gap between men and women. This has led some to speculate that women are either less interested in, or less able to understand, financial concepts. Household production and marital bargaining theory may explain why low earning married women with children will rationally choose to delegate financial decisions to their husband. Descriptive statistics show that higher earning women, single, and married women are more financially knowledgeable than men. In a multivariate model, we find that women with children have lower financial literacy scores than married men and that higher earning married women are more financially literate than lower earning married women. There is still evidence of a gender gap even among higher earning women with no children compared to married men, but this gap appears to be declining within the youngest age cohorts.

The Impacts of Financial Literacy on Chinese Financially Excluded Households’ Retirement Planning Behaviors

In this paper, I am using the data from the 2013 Chinese Household Finance Survey (CHFS) to explore the impacts of financial literacy on Chinese households’ retirement planning and the demand for commercial insurances, especially among the financial excluded/vulnerable subpopulations (rural, illiterate and migrant), in China. I find improving financial literacy could help Chinese households be more prepared for retirement. The households with higher objective financial literacy score and paid more attention to financial information are more likely to have retirement plan, and they are also more likely to have diversified ways to support financial life after retirement. In addition, annual household disposable income, family net assets, gender, age, age squared, family size, number of children, health condition etc. are found to be significant factors to explain how Chinese households choose different ways to support their lives after retirement. Rural and illiterate households are more dependent on saving and child support after retirement, while urban and literate households are more likely to rely on social pension plan and retirement pay after retirement. Rural residents and migrants are more vulnerable, concerning the social pension system coverage. Trustiness of commercial pension plan is the important determinant whether Chinese households are willing to buy commercial insurance and commercial pension plans, and which can be improved by means of increasing financial knowledge and paying more attention to financial information.

ÜNİVERSİTE ÖĞRENCİLERİNİN İLERİ FİNANSAL OKURYAZARLIK DÜZEYLERİNİN İNCELENMESİ, ANADOLU ÜNİVERSİTESİ ÖRNEĞİ

2008 Küresel Finans Krizi bireyin finansal sorumluluklarını artırmıştır. Sorumlulukları yerine getirebilmenin temel koşulu finansal okuryazar olmaktır. Bu çalışmada ise üniversite öğrencilerinin finansal okuryazarlıkta ileri düzey becerileri sorgulanmaktadır. İleri finansal okuryazarlığın, temel finansal okuryazarlık ve çeşitli demografik değişkenler arasındaki ilişki de eş anlı olarak araştırılmıştır. Bu amaçla Anadolu Üniversitesi İktisadi ve İdari Bilimler Fakültesi’nde kayıtlı farklı bölüm ve sınıflardan 335 öğrencinin görüşleri değerlendirilmiştir. Çalışmaya katılanların %35,7’ si ileri düzeyde finansal okuryazar bulunmuştur. Öğrencilerin ileri finansal okuryazarlık sınıf üyeliğinin belirlenmesinde en etkili değişkenin temel finansal okuryazarlık skoru olduğu belirlenmiştir.

ÜNİVERSİTE ÖĞRENCİLERİNİN İLERİ FİNANSAL OKURYAZARLIK DÜZEYLERİNİN İNCELENMESİ, ANADOLU ÜNİVERSİTESİ ÖRNEĞİ

The 2008 Global Financial Crisis increased the financial responsibilities of the individual. The basic condition for fulfilling the responsibilities is to be a financial literate. In this study, the advanced skills of university students in financial literacy are questioned. The relationship between advanced financial literacy, basic financial literacy and various demographic variables has also been investigated simultaneously. For this purpose, the opinions of 335 students from different departments and classes were evaluated at Anadolu University Faculty of Economics and Administrative Sciences. 35,7% of those who participated in the study have advanced financial literacy. It has been determined that the most influential variable in determining students’ advanced financial literacy class membership is the basic financial literacy score.

Financial Literacy in Developing Countries

Focusing on different facades of financial well-being such as wealth accumulation and retirement planning, various determinants of financial well-being have been unearthed, and financial literacy has emerged as a crucial factor that increases financial well-being. Hence, financial literacy has been an important policy instrument to increase the financial well-being of individuals, particularly given that it is relatively easy to implement. This paper is an attempt to pave the way for such policies in a group of middle income countries, namely Mexico, Lebanon, Uruguay, Colombia and Turkey. After establishing financial literacy levels, we identify the least financially literate groups in each country to facilitate targeting of public policy. We find that women, younger adults and individuals who cannot read or write in the official language of their country of residence have lower financial literacy scores. In line with the previous findings in the literature on the developed countries, our results indicate that financial literacy increases with education. We also show that it is not only the years of education, but also the quality. In Mexico and Turkey, there are large regional differences that must be addressed. We also find that differences in financial literacy across countries persist even when differences in structural characteristics are taken into account. A partial explanation may be provided by differences in financial inclusion.

Financial Literacy and Socialist Education: Lessons from the German Reunification

A growing body of literature shows the importance of financial literacy in households' financial decisions. However, fewer studies focus on understanding the determinants of financial literacy. Our paper fills this gap by analyzing a specific determinant, the educational system, to explain the heterogeneity in financial literacy scores across Germany. We suggest that the lower financial literacy observed in East Germany is partially caused by a different institutional framework experienced during the Cold War, more specifically, by the socialist educational system of the GDR which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context.

Racial Differences in the Returns to Financial Literacy Education

We examine financial literacy and the returns to financial literacy education, specifically focusing on the racial financial literacy gap. We confirm evidence that whites have higher financial literacy scores relative to minorities and that financial literacy increases with participation in financial literacy education. However, we find the benefit of participation in financial literacy education is higher for whites than that for minorities. Thus, the impact of being white alone persists, indicating a racial financial literacy and/or behavioral difference despite financial literacy education. Our findings have implications for policymakers interested in narrowing the racial wealth gap via financial literacy education.

Changing Saving and Investment Behaviour: The Impact of Financial Literacy Training and Reminders on Micro-businesses

In developing countries, savings is an important financial tool, particularly for micro-business with limited access to credit. However, micro-entrepreneurs often undersave, even when they have some surplus and the desire to save. Knowledge gaps and behavioural biases such as limited attention have been discussed as potential constraints on saving. To test ways to alleviate such constraints, we offered a 4-hour financial literacy training and periodic SMS reminders for 3 months to a randomly selected group of micro-entrepreneurs in Addis Ababa, Ethiopia. We particularly compared the joint treatment to the two treatments in isolation for the first time in the literature. We find that SMS reminders increased savings relative to no treatment, and that the combination of reminders and financial training improved the financial literacy score and increased short-term deposits in the bank. Our results confirm earlier findings that savings can be limited by attention, and that financial literacy matters for saving behaviour when saving is at the top of the mind.

SME’s financial literacy: An overview based on demographic aspects

This study attempts to examine the financial literacy level of SME’s owner in East Java based on demographic aspect. The sample was taken from 65 SME’s in East Java which produce prominent local product. The data were collected by using survey method and deep interview. They were analyzed using descriptive explorative and also cross tabulation for examining SME’s financial literacy based on demographic attribute. Research found that that the financial literacy score of SME’s owner in East Java is good enough, where they have average score 55.8 with the same score of median and mode 66.7. Majority weakness of SME’s owner is the literacy on SME understanding of net asset and insurance premium. Otherwise, whole SME’s owner is fully understood that financial knowledge is so useful for the SME. Other finding shows that there is a relationship between financial literacy’s level and SME’s owner on demographic aspect such as gender, education, the business time established. It can be concluded that demographic aspects determine the financial literacy level of SME’s owner

The Knowledge and Skills That Are Essential to Make Financial Decisions: First Results From PISA 2012

Using a multilevel analysis with data from PISA 2012, we find that the differences in financial literacy of 15-year-old students are explained by both individual and school characteristics. This paper finds that the financial education is positively related to students' financial literacy scores when it is taught as a cross-curricular subject and as part of business or economics courses, and to a lesser extent as part of mathematics and as an extracurricular activity. Also, math and reading abilities, and holding a bank account and a prepaid debit card, contribute positively to the development of financial literacy, while financial unfamiliarity contributes negatively.

Old Age and the Decline in Financial Literacy

Households age 60 and older bear increasing responsibility for managing retirement portfolios, and they hold the majority of financial assets in the United States. Cognitive aging studies find evidence of a decline in fluid and crystallized intelligence in old age that may impact the ability to manage money effectively. Using a large sample of older respondents, we test whether knowledge of basic concepts essential to effective financial choice declines after age 60. We find a consistent linear decline in financial literacy score after age 60. A nearly identical rate of decline among men, stockowners, older, and college-educated respondents indicates that cohort effects are not driving the results. Confidence in financial decision-making abilities does not decline with age. A separate analysis using data that include measures of cognitive ability suggests that a natural decline in both fluid and crystallized intelligence in old age contributes to falling financial literacy scores. This paper was accepted by Brad Barber, finance.

A glimpse of the complexity of factors that influence financial literacy

AbstractFinancial literacy has been recognised as a vital life skill, but there is little evidence of the factors behind the differences in managing personal finance. Socio‐economic factors and the provision of financial education do explain the variance in financial literacy in some countries, but not in all. In the PISA 2012 financial literacy test, Estonian students ranked very highly in international comparison; although only a few had received financial education at school. Compared with other countries, socio‐economic factors explained the smallest proportion of variance in the test score. There was, however, a significant difference between the mean financial literacy scores of Estonian‐ and Russian‐language communities. The aim of the article is to analyse the factors behind the differences in financial literacy when financial education is not provided. It also offers insight into how students in a similar education system in two different cultural and language frameworks achieve different financial literacy scores. Moreover, the results demonstrate how indicators, such as family background can work through different channels as opposed to the usual parental education or occupation based socio‐economic indicators. The latter implies that unexplained factors remain, such as cultural, developmental and societal indicators, which most researchers pay little attention to when explaining efficient policies for improving financial literacy. Multivariate regression models show that the level of financial literacy in Estonia is correlated with gender, language of the school, the number of books at home, mathematics and reading scores. The Blinder–Oaxaca decomposition explains less than half of the gap between the two communities. The only variable significantly explaining the gap is the number of books at home. Books can be interpreted as a symbol of social status, evidence of cultural background or source of influence for broader picture and better problem solving skills.

Associations of APOE ε4 With Health and Financial Literacy Among Community-Based Older Adults Without Dementia.

Older adults often exhibit low health and financial literacy, but the reasons why remain unclear. One possibility is that those older adults at high risk for developing dementia demonstrate low literacy even in the absence of marked cognitive impairment. We therefore examined associations of health and financial literacy with the APOE ε4 allele, the chief genetic risk factor for Alzheimer's disease, among older adults without dementia. Participants were 487 older adults without dementia enrolled in the Rush Memory and Aging Project (mean age = 83, mean years of education = 15, 77% female, 91% non-Hispanic White). Participants underwent APOE genotyping and assessments of cognition, health literacy, and financial literacy. Health and financial literacy scores were also averaged into a total literacy score. ε4 was associated with lower total and health literacy, with a trend toward an association with lower financial literacy, after adjustment for age, sex, and education. Associations of ε4 with lower total and health literacy persisted after further adjustment for global cognitive function and 5 specific cognitive domains. ε4 affects literacy even in the absence of clinical dementia and does so relatively independent of performance on traditional cognitive tests.

Effects of Financial Literacy on Individual Choices Among Financial Access Strands in Kenya

This paper investigates effects of financial literacy on individual choices among formal financial services, informal financial services, and complete financial exclusion in Kenya. The study employed cross-sectional analysis using FinAccess national surveys 2009 and 2013 for 6,598 and 6,449 individuals, respectively. Multinomial probit regressions show that financial literacy is a strong predictor of individual demand for financial services. Financial literacy scores increases with increasing level of formality and average performance on financial literacy tests is generally lower than those reported in extant studies for developed countries. The findings suggest importance of policy efforts to promote financial literacy to expand individual access to formal financial services. To our knowledge this is the first paper in developing countries context to use both objective and self-reported measures of financial literacy and its role in individual choices among different financial access strands.

Financial Education in Asia: Assessment and Recommendations

This paper assesses the case for promoting financial education in Asia. It argues that the benefits of investing in financial education can be substantial. Data are limited, but indicate low financial literacy scores for selected Asian countries. As economies develop, access to financial products and services will increase, but households and small and medium-sized enterprises need to be able to use the products and services wisely and effectively. More effective management of savings and investment can contribute to overall economic growth. Moreover, as societies age and fiscal resources become stretched, households will become increasingly responsible for their own retirement planning. Asia’s evolving experience suggests that more national surveys of financial literacy are needed and that coherent, tailored national strategies for financial education are essential for success.

The Unsophisticated Sophisticated: Old Age and the Accredited Investors Definition

Accredited investors are able to buy unregistered securities such as private equity, venture capital and hedge funds with little regulatory oversight. This lack of oversight is justified because investors who meet the accredited investor thresholds ($200,000 annual income/$300,000 for a couple, or a net worth of over $1 million excluding primary residence) are assumed to be sophisticated enough to understand these complex and opaque securities. Some have argued that income and wealth thresholds are not necessarily an accurate proxy of financial sophistication.We use financial literacy instruments from the Consumer Finance Monthly and from the Health and Retirement Study to explore whether accredited older households, who are more likely to experience age-related cognitive decline and who have accumulated significant lifecycle savings, are less financially literate than younger unaccredited respondents. In both data sets, we find that accredited households age 80 and older are more than 80% less likely than unaccredited investors age 60-64 to have high financial literacy scores. Respondents with less than a high school degree were more likely to have a high financial literacy score than older accredited respondents in a multivariate analysis. While accredited investors are more financially literate than unaccredited investors within each age group, older accredited investors had significantly and strongly lower financial literacy scores than younger unaccredited investors and the difference increased consistently with age.

Financial Literacy and Mortgage Credit: Evidence from the Recent Mortgage Market Crisis

We use a novel approach to calculate individual “financial literacy score” for a large set of California mortgage borrowers and then investigate the relation between financial literacy and mortgage outcomes. We find borrowers with low financial literacy are more likely to accept riskier mortgages and have mortgages with disadvantageous characteristics, ceteris paribus. In addition, they pay a higher rate, are less likely to take advantage of advantageous prepayment opportunities, and are more likely to default. Our estimates show that financial literacy is economically significant where mortgage outcomes are concerned. Our lower-bound estimate is that converting low literacy borrowers into high literacy borrowers would lead to $460 million in reduced mortgage payments annually in California due to reduced borrowing cost. Other reasonable scenarios yield savings exceeding $2 billion annually. Further, with improved financial literacy, borrowers would be 25 to 50 percent less likely to have the “toxic” short-term adjustable rate mortgages that contributed to the broader housing crisis. Our results argue for serious consideration of how best to improve financial literacy, as opposed to whether efforts should be made to improve financial literacy.

An Analysis of the Nature of the Relationship Between SAT Scores and Financial Literacy

The 2008 Jump$tart study, assessing the financial literacy of American high school seniors and college students, reported an association between self-reported SAT scores and financial literacy scores. In the present study, an even stronger relationship was found between actual SAT scores and financial literacy scores from an abbreviated version of the Jump$tart test. Given that SAT scores are known to be correlated to parental income, also investigated was whether the relationship exists because the SAT serves as a proxy for parental income. By means of multiple regressions, it was determined that this relationship cannot be entirely explained by parental income.

When I First Learned about Retirement: Financial and Retirement Concept Recognition among College Students

It has long been argued that financial literacy education should begin in childhood or adolescence, but little is currently known about the ages at which individuals come to understand basic retirement and financial planning concepts. The primary goal of the present investigation is to provide data that reflect the reported ages at which key general and technical retirement planning concepts are acquired. A secondary goal is to identify individual difference dimensions—including one’s financial literacy level and early parental learning experiences—that are associated with the age at which key concepts are reportedly acquired. Retrospective reports obtained from a sample of 646 college students revealed that an understanding of general concepts was widespread and took place during the pre-teen and early teenage years. Understanding of the technical concepts was suboptimal, however. Nearly half of the sample were unfamiliar with most of the technical terms. Among those who were familiar with the technical concepts, learning reportedly occurred later in adolescence. Understanding of both sets of concepts was linked to higher financial literacy scores and saving lessons learned during childhood from one’s parents. Results have implications for financial literacy intervention programs designed to target children, adolescents, and young adults.