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SOCIAL SCIENCE RESEARCH NETWORK
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 7, No. 29: October 12, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Financial Literacy
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T A B L E O F C O N T E N T S
"Financial Literacy and Financial Education: Review and Policy
Implications"
ANNAMARIA LUSARDI
Dartmouth College - Department of Economics, National
Bureau of Economic Research (NBER)
"Baby Boomer Retirement Security: The Roles of Planning,
Financial Literacy, and Housing Wealth"
ANNAMARIA LUSARDI
Dartmouth College - Department of Economics, National
Bureau of Economic Research (NBER)
OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk Management
Department, National Bureau of Economic Research (NBER)
"Financial Literacy Strategies: Where do We Go from Here?"
ROBERT I. LERMAN
Urban Institute, American University, Institute for the
Study of Labor (IZA)
"A Note on Economic Principles and Financial Literacy"
ZVI BODIE
Boston University - Department of Finance & Economics
"Financial Literacy: If It's so Important, Why isn't It
Improving?"
LEWIS MANDELL
State University of New York - Financial & Managerial
Economics
"Can Personal Financial Management Education Promote Asset
Accumulation by the Poor?"
JOHN CASKEY
Swarthmore College - Economics Department, Bard College
- The Levy Economics Institute
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"Financial Literacy and Financial Education: Review and Policy
Implications"
NFI Policy Brief No. 2006-PB-11
Contact: ANNAMARIA LUSARDI
Dartmouth College - Department of Economics,
National Bureau of Economic Research (NBER)
Email: annamaria.lusardi@dartmouth.edu
Auth-Page: http://ssrn.com/author=53048
Full Text: http://ssrn.com/abstract=923437
ABSTRACT: In recent years, as workers have gained an
unprecedented degree of control over their pensions and savings,
the importance of financial literacy and financial education has
increased considerably. Large changes in the structure of
financial markets, labor markets, and demographics in developed
countries have led to this change. Consumers have a bewildering
array of complex financial products - from reverse mortgages to
annuities - to choose from, making saving decisions increasingly
complex. Knowledge about the working of compound interest rates,
the effects of inflation, and the working of financial markets is
essential to make saving decisions. Several initiatives have been
undertaken to improve financial literacy. The Organization for
Economic Co-Operation and Development (OECD) comprehensively
defines financial education as the process by which financial
consumers/investors improve their understanding of financial
products and concepts and, through information, instruction
and/or objective advice, develop the skills and confidence to
become more aware of financial risks and opportunities, to make
informed choices, to know where to go for help, and to take other
effective actions to improve their financial well-being. Building
upon this definition, I provide a review of the current state of
financial literacy and financial education programs, and discuss
whether workers possess the financial literacy necessary to
process information and formulate saving plans.
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"Baby Boomer Retirement Security: The Roles of Planning,
Financial Literacy, and Housing Wealth"
CFS Working Paper No. 2006/20
Contact: ANNAMARIA LUSARDI
Dartmouth College - Department of Economics,
National Bureau of Economic Research (NBER)
Email: annamaria.lusardi@dartmouth.edu
Auth-Page: http://ssrn.com/author=53048
Co-Author: OLIVIA S. MITCHELL
University of Pennsylvania - Insurance & Risk
Management Department, National Bureau of Economic
Research (NBER)
Email: mitchelo@wharton.upenn.edu
Auth-Page: http://ssrn.com/author=41556
Abstract: http://ssrn.com/abstract=933601
ABSTRACT: We compare wealth holdings across two cohorts of the
Health and Retirement Study: the early Baby Boomers in 2004, and
individuals in the same age group in 1992. Levels and patterns of
total net worth have changed relatively little over time, though
Boomers rely more on housing equity than their predecessors. Most
important, planners in both cohorts arrive close to retirement
with much higher wealth levels and display higher financial
literacy than non-planners. Instrumental variables estimates show
that planning behavior can explain the differences in savings and
why some people arrive close to retirement with very little or no
wealth.
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"Financial Literacy Strategies: Where do We Go from Here?"
Networks Financial Institute Policy Brief No. 2006-PB-10
Contact: ROBERT I. LERMAN
Urban Institute, American University, Institute for
the Study of Labor (IZA)
Email: blerman@ui.urban.org
Auth-Page: http://ssrn.com/author=265484
Full Text: http://ssrn.com/abstract=923448
ABSTRACT: The evolution of market economies has dramatically
broadened the opportunities of consumers, workers, investors, and
firms. Financial services have become especially free and
accessible, but also increasingly complex. For the new financial
freedom to help most people, they must understand their choices
and the likely implications of alternative decisions.
Unfortunately, many Americans have a weak grasp of basic personal
finance principles. This paper emphasizes the importance of
financial literacy in an increasingly complex market economy and
examines the current state of financial education in the U.S. and
abroad. We explore two methods of delivering financial knowledge
- through broad financial curriculums and through more focused
"teachable moments." After examining the pros and cons of each,
along with the evidence about their effectiveness, we suggest
that a combination of the two perspectives, with the specific
topics and behavioral strategies varying by target audience. We
conclude by calling for a more rigorous evaluation of the effects
of existing programs.
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"A Note on Economic Principles and Financial Literacy"
Networks Financial Institute Policy Brief No. 2006-PB-07
Contact: ZVI BODIE
Boston University - Department of Finance &
Economics
Email: zbodie@bu.edu
Auth-Page: http://ssrn.com/author=16745
Full Text: http://ssrn.com/abstract=923561
ABSTRACT: Finance is a branch of economics that deals with
budgeting, saving, investing, borrowing, lending, insuring,
diversifying, and matching. In setting standards of financial
literacy we ought to make sure they are consistent with the basic
principles taught in economics courses.
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"Financial Literacy: If It's so Important, Why isn't It
Improving?"
Networks Financial Institute Policy Brief No. 2006-PB-08
Contact: LEWIS MANDELL
State University of New York - Financial &
Managerial Economics
Email: lewm@buffalo.edu
Auth-Page: http://ssrn.com/author=386661
Full Text: http://ssrn.com/abstract=923557
ABSTRACT: Financial literacy has assumed greater importance in
our society as the result of the increasing complexity of
financial products and the simultaneous cutting of economic
safety nets by government, employers and even parents who worry
about their own retirements. If the problem isn't solved and
consumers don't look out for themselves, they may exercise a "put
option" by throwing themselves on the mercy of taxpayers when
they cannot support themselves in retirement. In addition, a lack
of financial literacy may contribute to seemingly "irrational"
behavior that distorts financial markets. Measured financial
literacy scores among high school seniors is low and has even
declined since 1997. More distressing is the fact that students
who take a course in personal finance end up no more financially
literate than those who don't. Tracking students who took such a
course over a 5 year period shows no positive impact on financial
literacy, attitudes toward thrift or behavior. The only bright
spot is the stock market game which consistently increases
literacy scores, indicating that teaching should be interactive,
contemporary and "fun."
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"Can Personal Financial Management Education Promote Asset
Accumulation by the Poor?"
Networks Financial Institute Policy Brief No. 2006-PB-06
Contact: JOHN CASKEY
Swarthmore College - Economics Department, Bard
College - The Levy Economics Institute
Email: JCASKEY1@SWARTHMORE.EDU
Auth-Page: http://ssrn.com/author=192648
Full Text: http://ssrn.com/abstract=923565
ABSTRACT: This paper asks whether personal financial management
education is an effective mechanism for helping lower-income
households accumulate financial assets and improve credit
histories. The paper argues that the best existing studies of the
effectiveness of financial literacy initiatives suggest that such
initiatives might help lower-income households build savings and
improve credit records, but the results are only suggestive due
to the limitations of the studies. The paper concludes that a
high research priority should be to gathering more robust
evidence on whether teaching personal financial management skills
to lower-income households can be an effective means to improve
their financial situations.
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