The Economic Importance of Financial Literacy: Theory and Evidence

70 Pages Posted: 4 May 2013 Last revised: 10 Jan 2014

See all articles by Annamaria Lusardi

Annamaria Lusardi

Stanford University - Stanford Institute for Economic Policy Research

Olivia S. Mitchell

University of Pennsylvania - The Wharton School, Pension Research Council; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

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Date Written: June 2013

Abstract

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.

Suggested Citation

Lusardi, Annamaria and Mitchell, Olivia S., The Economic Importance of Financial Literacy: Theory and Evidence (June 2013). GFLEC Working Paper Series No. 2014-001, Available at SSRN: https://ssrn.com/abstract=2260193 or http://dx.doi.org/10.2139/ssrn.2260193

Annamaria Lusardi (Contact Author)

Stanford University - Stanford Institute for Economic Policy Research ( email )

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Olivia S. Mitchell

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
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Philadelphia, PA 19104-6302
United States

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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