Financial Literacy and Decision Making

Prof Lusardi is well known for her works in financial literacy. She is the Denit Trust professor of economics and accountancy at the George Washington School of Business. She is the recipient of the Fidelity Pyramid Prize, awarded to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans. She holds a Ph.D. degree in Economics from Princeton University. You can see her blog at http://annalusardi.blogspot.com/

You can see her papers such as:

1. “Baby Boomer Retirement Security: The Role of Planning, Financial Literacy and Housing Wealth.” Journal of Monetary Economics 54: 205−24. (2007)
   1. “Planning and Financial Literacy: How Do Women Fare?” American Economic Review 98: 413−17. (2008)
   2. “Teach Workers About the Peril of Debt.” Harvard Business Review 22−24. (2009)
   3. “Financial Literacy Among the Young.” Journal of Consumer Affairs 44(2): 358−80. (2010)
   4. “Financial Literacy Around the World: An Overview.” Journal of Pension Economics and Finance 10: 497−508.(2011)
   5. “Financial Literacy and Retirement Planning in the United States.” Journal of Pension Economics and Finance 10: 509−25.(2011)
   6. “Financial Literacy and Stock Market Participation.” Journal of Financial Economics 101(2): 449−72. (2011)

Recently, she published again in Journal of American Society of Aging about the Financial Literacy and Decision Making in Adults. The context is indeed US. Like her other papers, the source of the data is Health and Retirement Study 2004. Her findings is also interesting. In this paper, she addressed:

“The connection between financial literacy and financial behavior is worrisome in light of the fact that elderly people have been shown to have the lowest levels of literacy; thus, they seem to be rather illequipped to make savvy financial decisions. However, money and debt management are particularly important for this group of the population for the following three reasons:

First, they are in the decumulation phase of the life cycle; thus, they need to make sure their wealth lasts until the end of life. Given that Social Security and pensions account for about half of total wealth for the median household close to retirement, it is important to understand the decisions of older investors because investment income is likely to be a significant proportion of retirement income.

Second, financial mistakes can be dire as elders face a limited set of options; for example, many cannot return to work.

Finally, because they are at, or past, the peak of wealth accumulation, but display low levels of financial knowledge, they can become the target of financial scams.”

You can check the full paper in http://asaging.org/blog/financial-literacy-and-financial-decision-making-older-adults