Chapter 4: Financial Literacy and Education

Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 65-82, Hoboken, NJ: John Wiley & Sons, Inc., 2014

Posted: 1 Mar 2014 Last revised: 10 May 2014

Date Written: February 10, 2014

Abstract

Financial literacy is a form of human capital that includes knowledge and skills related to personal finances including mathematical ability, knowledge of financial instruments and financial theory, and the ability to apply knowledge effectively. This chapter reviews how financial literacy has been conceptualized and measured in the literature. Financial literacy is related to many positive financial outcomes. Newer studies focus on identifying the pathways between financial literacy and asset accumulation, portfolio selection, and credit choice. Evidence shows that financial education can improve financial literacy and decision quality, but also questions whether financial literacy education is effective or socially efficient. Low levels of financial literacy among consumers suggest a need for increased high school financial literacy education and policies that provide simplified disclosure and high quality defaults.

Keywords: Financial literacy, financial knowledge, financial education, human capital, personal finance, behavioral finance, behavioural finance, behavioral economics, behavioural economics

JEL Classification: A12, D81, G00, G30, G10, M00, M10, M41

Suggested Citation

Finke, Michael S. and Huston, Sandra J., Chapter 4: Financial Literacy and Education (February 10, 2014). Investor Behavior: The Psychology of Financial Planning and Investing. H. Kent Baker and Victor Ricciardi, editors, 65-82, Hoboken, NJ: John Wiley & Sons, Inc., 2014, Available at SSRN: https://ssrn.com/abstract=2402478

Michael S. Finke (Contact Author)

The American College ( email )

Bryn Mawr, PA 19010
United States

Sandra J. Huston

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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