Financial Literacy

Dario Vins
May 15, 2018 · 2 min read
By rawpixel on Unsplash

Financial literacy is financial education, such as basic economics, statistics and numeracy skills combined with the ability to employ these skills in making financial decisions. As more and more households are asked to make their own decisions about such issues, financial illiteracy can become a serious threat to their life-time welfare. The authors of this paper explain why financial literacy matters and suggest, in light of their findings, some policy recommendations.

Financial literacy matters for three reasons:

  1. in the face of rapidly ageing population, the pressure on the pension system could be mitigated through shifting towards more occupational and personal insurance systems. This shifts more and more responsibilities to the individual who can greatly enhance their decision-making with higher levels of financial literacy.
  2. mortgage-debt makes up an overwhelming share of total debt of euro-area households. Understanding the implications of indebtedness and how financial literacy can help is especially important for young households, first-time homeowners and those at the lower end of the income distribution.
  3. financial literacy is negatively associated with the main elements of inclusive growth in the EU, namely poverty, inequality, social exclusion and social immobility. Financial literacy can therefore help access the benefits of economic growth and contribute to the inclusive growth agenda in the EU.

Research has shown that as people become more financially literate, they make better saving and borrowing decisions, are more likely to plan for retirement and hold more diverse assets in their balance sheet. As more and more households are asked to make their own decisions about such issues, financial illiteracy can become a serious threat to their life-time welfare.

PC-08_2018.pdf

This article was written by Uuriintuya Batsaikhan and Maria Demertzis with all rights preserved. Original publication is referenced above.

Investing with Impact

Impact-investment focused publication that addresses…

Dario Vins

Written by

Impact Investments @mifventures, CIM IF @ Mozaik Foundation / GIZ GmbH

Investing with Impact

Impact-investment focused publication that addresses impact-driven investment themes. Managed by @mifventures

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