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Journal of Economic Literature: Vol. 52 No. 1 (March 2014)

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The Economic Importance of Financial Literacy: Theory and Evidence

Article Citation

Lusardi, Annamaria, and Olivia S. Mitchell. 2014. "The Economic Importance of Financial Literacy: Theory and Evidence." Journal of Economic Literature, 52(1): 5-44.

DOI: 10.1257/jel.52.1.5

Abstract

This paper undertakes an assessment of a rapidly growing body of economic 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 young, 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.

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Authors

Lusardi, Annamaria (George Washington U)
Mitchell, Olivia S. (U PA)

JEL Classifications

A20: Economic Education and Teaching of Economics: General
D14: Household Saving; Personal Finance
G11: Portfolio Choice; Investment Decisions
I20: Education and Research Institutions: General
J26: Retirement; Retirement Policies


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