Abstract

http://ssrn.com/abstract=2038765
 
 

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Financial Literacy and the Financial Crisis


Leora F. Klapper


World Bank; World Bank - Development Research Group (DECRG)

Annamaria Lusardi


The George Washington University School of Business; National Bureau of Economic Research (NBER)

Georgios A. Panos


University of Stirling - Economics Division - Stirling Management School

March 1, 2012

Netspar Discussion Paper No. 03/2012-007

Abstract:     
The ability of consumers to make informed financial decisions improves their ability to develop sound personal finance. This paper uses a panel dataset from Russia, an economy in which consumer loans grew at an astounding rate - from about US$10 billion in 2003 to over US$170 billion in 2008 - to examine the importance of financial literacy and its effects on behavior. The survey contains questions on financial literacy, consumer borrowing (formal and informal), saving and spending behavior. The paper studies both the financial consequences and the real consequences of financial illiteracy. Even though consumer borrowing increased very rapidly in Russia, the authors find that only 41% of respondents demonstrate understanding of the workings of interest compounding and only 46% can answer a simple question about inflation. Financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing. Moreover, individuals with higher financial literacy are significantly more likely to report having greater availability of unspent income and higher spending capacity. The relationship between financial literacy and availability of unspent income is higher during the financial crisis, suggesting that financial literacy may better equip individuals to deal with macroeconomic shocks.

Number of Pages in PDF File: 54

Keywords: financial literacy, financial crisis, financial inclusion, Russia

JEL Classification: D14, D91, E21

working papers series





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Date posted: April 13, 2012  

Suggested Citation

Klapper, Leora F. and Lusardi, Annamaria and Panos, Georgios A., Financial Literacy and the Financial Crisis (March 1, 2012). Netspar Discussion Paper No. 03/2012-007. Available at SSRN: http://ssrn.com/abstract=2038765 or http://dx.doi.org/10.2139/ssrn.2038765

Contact Information

Leora F. Klapper
World Bank ( email )
1818 H Street, N.W.
Washington, DC 20433
United States
202-473-8738 (Phone)
HOME PAGE: http://econ.worldbank.org/staff/lklapper
World Bank - Development Research Group (DECRG)
1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
Annamaria Lusardi (Contact Author)
The George Washington University School of Business ( email )
School of Business and Public Management
Washington, DC 20052
United States
HOME PAGE: http://business.gwu.edu/faculty/annamaria_lusardi.cfm
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Georgios A. Panos
University of Stirling - Economics Division - Stirling Management School ( email )
Room 3B79 Cottrell Building
University of Stirling
Stirling, Scotland FK9 4LA
United Kingdom
HOME PAGE: http://www.stir.ac.uk/management/staff-directory/economics/georgios-panos/
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