The Economic Importance of Financial Literacy: Theory and Evidence
In this paper, we undertake an assessment of the rapidly growing body of 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 growing, 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.
The research reported herein was performed pursuant to a grant from the TIAA-CREF Institute; additional research support was provided by the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania. The authors thank Tabea Bucher-Koenen, Janet Currie, and Maarten van Rooij for suggestions, and Carlo de Bassa Scheresberg, Hugh Kim, Donna St. Louis, and Yong Yu for research assistance. Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of the funders or any other institutions with which the authors are affiliated The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Olivia S. Mitchell
Mitchell serves as a Trustee for the Wells Fargo Advantage Funds and has received more than $10,000 from the TIAA-CREF Institute and RAND for research studies on retirement security.
Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March. citation courtesy of