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Financial Literacy

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Financial literacy has received increased attention since the global financial crisis and the literature confirms that it is correlated with personal financial management . In parallel, financial education programs have grown in popularity and an increasing number of countries are developing national financial education strategies and making more investments in related programs. Literature has recently emphasized the association between financial literacy or numerical and mathematical ability, on the one hand, and risk diversification, retirement savings, investment portfolios on the other.
Traditional economic theory posits that forward-looking individuals maximize expected lifetime utility using economic information to accumulate and then …show more content…

Specifically, we examine the links between financial literacy, by which we mean the ability to process economic information and make informed decisions about household finances, and personal financial management and pension contributions. Barsky et al., (1997), Previous studies have reported strong correlations between financial literacy and asset accumulation as well as retirement planning. These findings have prompted policymakers to support efforts to enhance household personal financial management and welfare through increasing financial literacy. For instance, the U.S. President’s Advisory Council on Financial Literacy recently stated that: "While the crisis has many causes, it is undeniable that financial illiteracy is one of the root causes, Sadly, far too many individuals do not have the basic financial skills necessary to develop and maintain a budget, to understand credit, to understand investment vehicles, or to take advantage of our banking …show more content…

Moore (2003) explained that individuals are considered financially literate if they are competent and can demonstrate they have used knowledge they have learned. Financial literacy cannot be measured directly so proxies must be used. Literacy is obtained through practical experience and active integration of knowledge. As people become more literate they become increasingly more financially sophisticated and it is conjectured that this may also mean that an individual may be more competent” Many concepts, such as numeracy, share features with financial literacy. However, numeracy applies much more broadly than to just financial matters and represents a much more basic skill set more closely aligned to more general cognitive abilities (OECD, 2005). Hence, we argue that it is more productive to keep general numeracy distinct from financial literacy, instead treating it as a supporting

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