Financial Literacy and Financial Resilience: Evidence from Around the World

Assesses knowledge of 4 concepts in financial decision making: knowledge of interest rates, interest compounding, inflation and risk diversification

Abstract

We measure financial literacy using questions assessing basic knowledge of 4 fundamental concepts in financial decision making: knowledge of interest rates, interest compounding, inflation, and risk diversification. Worldwide, just one in three adults are financially literate—that is, they know at least three out of the four financial concepts. Women, poor adults, and lower educated respondents are more likely to suffer from gaps in financial knowledge. This is true not only in developing countries but also in countries with well‐developed financial markets. Relatively low financial literacy levels exacerbate consumer and financial market risks as increasingly complex financial instruments enter the market. Credit products, many of which carry high interest rates and complex terms and conditions, are becoming more readily available. Yet only around half of adults in major emerging countries who use a credit card or borrow from a financial institution are financially literate. We discuss policies to protect borrowers against risks and encourage account holders to save.

This is an output of the World Bank’s Strategic Research Program

Citation

Klapper, L, Lusardi, A. Financial literacy and financial resilience: Evidence from around the world. Financial Management. 2020; 49: 589– 614. https://doi.org/10.1111/fima.12283

Financial Literacy and Financial Resilience: Evidence from Around the World

Published 22 August 2019