Ten questions and things to know about financial literacy

While on vacation under the Italian sun, I was asked a lot of questions about financial literacy. Rather than writing a blog post about a single topic, I thought it might be useful to answer some of the questions I’ve been asked in order to hit on a lot of general information about financial literacy. So, here is my list of the top ten questions and things to know about financial literacy:

1) What is financial literacy?
Financial literacy is like reading and writing. It is the knowledge of basic but essential concepts that are needed to be able to operate in today’s society.

2) How do I know whether I am financially literate?
You can take a test here:
http://www.rand.org/labor/centers/financial-literacy/widgets/financial-knowledge-test.html

3) How do I compare with respect to others?
The above test will tell you how the average American responded to five financial literacy questions. If you live in the U.S. and you want to know how financially literate people in your state are, check here:
http://www.usfinancialcapability.org/

4) How does financial literacy in the United States (or Italy) compare with respect to other countries?
We have done a comparison of financial literacy across eight countries (the U.S., Italy, Germany, the Netherlands, Sweden, Russia, Japan, and New Zealand). In a nutshell, the world is flat in terms of financial literacy! You can read about this work here (warning: these are long papers but still fun to read)
http://www.financialliteracyfocus.org/academics/FLatW.html

5) Why should I become financially literate? Can’t I be happily ignorant?
There are costs of being financially illiterate. Studies show that those who have low financial literacy are less likely to take advantage of the opportunities offered by financial markets (for example, refinancing mortgages when interest rates go down or getting higher returns by investing in stocks and bonds), are less likely to invest in mutual funds with low fees, and are more likely to have problems with debt and to pay higher borrowing costs. Overall, ignorance is not bliss.
An overview of these studies is provided in this paper:
http://www.financialliteracyfocus.org/files/FLatDocs/Lusardi_Mitchell_Overview.pdf

6) Where do I go for information if I want to improve my financial literacy?
For readers in the United States, a reliable and independent source of information is www.mymoney.gov. One of the best web sites for financial literacy is New Zealand’s national site. Here is the link (after all, we are going global!):
http://www.sorted.org.nz/

7) What if I want to have fun while I’m learning?
Excellent idea! Doorways to Dreams has designed financial literacy games, so you can become financially literate while having fun. Here is their financial entertainment website:
http://financialentertainment.org/

8) What do I do to promote financial literacy and to become financially literate?
Ask for financial literacy programs in your school, your workplace, and your local library. Become an ambassador for financial literacy.
Three examples of initiatives or tools to use are here:

http://www.math.dartmouth.edu/~mqed/FinancialLiteracyProject/

http://nyse.nyx.com/financial-fitness-kit

http://www.finra.org/Newsroom/NewsReleases/2011/P122886

9) Who is promoting financial literacy? Just academic nerds like you?
Are you kidding me? Here is a list of people (and one puppet) who are promoting financial literacy.
(i) Elmo, puppet and TV celebrity (for you younger readers):
http://video.nytimes.com/video/2011/04/15/business/100000000776361/talking-money-with-elmo.html?hp

(ii) Ben Bernanke, Chairman of the Federal Reserve. You can read one of his recent speeches here:
http://www.federalreserve.gov/newsevents/testimony/bernanke20110420a.htm

(iii) Ray Lewis, football star. You can read about one of his talks here:
http://articles.nydailynews.com/2011-04-29/sports/29510296_1_ray-lewis-uaf-financial-literacy

(iv) Both President Bush and President Obama have been supporters of financial literacy, via, for example, the President’s Advisory Council on Financial Literacy
http://www.treasury.gov/resource-center/financial-education/Pages/Advisory.aspx

10) Are there any big initiatives happening on financial literacy?
Yes, there are many. One important initiative is that of the OECD (Organisation for Economic Cooperation and Development). Starting in 2012, the OECD’s Programme for International Student Assessment (PISA) will measure financial literacy among 15-year-olds in 19 countries. You can read more about this important initiative here:
http://www.pisa.oecd.org/dataoecd/8/43/46962580.pdf