Numeracy, financial literacy, and financial decision-making
Financial decisions, be they related to asset building or debt management, require the capacity to do calculations, including some complex ones. But how numerate are individuals, in particular when it comes to calculations related to financial decisions? Studies and surveys implemented in both the United States and in other countries that are described in this paper show the level of numeracy among the population to be very low. Moreover, lack of numeracy is not only widespread but is particularly severe among some demographic groups, such as women, the elderly, and those with low educational attainment. This has potential consequences for individuals and for society as a whole because numeracy is found to be linked to many financial decisions. Now more than ever, numeracy and financial literacy are lifetime skills necessary to succeed in today's complex economic environment.
This paper was invited to be written for Numeracy, the open-access, peer-review journal of the National Numeracy Network. I would like to thank Dorothy Wallace, from the department of Mathematics at Dartmouth College, for encouraging me to write this review article. Audrey Brown provided excellent research assistance. All errors are my own. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
“Numeracy, Financial Literacy, and Financial Decision-Making,” in Numeracy, 5(1), Article 2, January 2012. [Winner of the inaugural Steen Award]