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Research Details

(UM08-12) - Financial Literacy and Financial Behavior Across the Life-Cycle
Annamaria Lusardi

We examine financial literacy using data resulting from a set of questions included in the most recent wave of the National Longitudinal Survey of Youth. These questions were previously asked of older adults in a financial literacy module in the 2004 Health and Retirement Study (HRS). In this way, we can compare findings across age groups and cohorts. We show that financial illiteracy is widespread for the younger adult population, and knowledge of basic financial concepts such the working of inflation and risk diversification is missing among most of the young population. Moreover, financial illiteracy is particularly acute among some specific groups such as women, Blacks, and Hispanics, and those whose peers have low educational attainment. Illiteracy can also be linked to other important characteristics such as talents and ability, smoking when young, quality of education, and parental background. Specifically, those with less educated parents and whose family did not own stocks, a home, or retirement saving plans, are less likely to be financially literate. As these findings mirror the evidence from the HRS, financial illiteracy is problematic both for the young and the old.



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