Risk Literacy

30 Pages Posted: 24 Feb 2015

See all articles by Annamaria Lusardi

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Date Written: February 2, 2015

Abstract

I examine financial literacy — specifically knowledge of risk — using data from surveys in the United States and other countries. I show that risk literacy is very low; the majority of individuals lack knowledge of concepts such as risk diversification and do not understand the relationship between risk and return. Findings are strikingly similar across countries; a third of survey respondents in most countries report that they do not know the answer to risk literacy questions. I also show that risk literacy matters for financial decisions; those who are more knowledgeable about risk are more likely to have precautionary savings and to plan for retirement. Given that individuals have much greater responsibility for their financial well-being before and after retirement than in the past, addressing lack of financial literacy, including risk literacy, may provide new ways to promote saving and financial security.

Keywords: financial literacy, risk diversification, retirement planning, precautionary saving

JEL Classification: D91

Suggested Citation

Lusardi, Annamaria, Risk Literacy (February 2, 2015). Available at SSRN: https://ssrn.com/abstract=2568754 or http://dx.doi.org/10.2139/ssrn.2568754

Annamaria Lusardi (Contact Author)

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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