Academic Journals Database
Disseminating quality controlled scientific knowledge

The Geography of Financial Literacy

ADD TO MY LIST
 
Author(s): Christopher Bumcrot | Judy Lin | Annamaria Lusardi

Journal: Numeracy
ISSN 1936-4660

Volume: 6;
Issue: 2;
Start page: 2;
Date: 2013;
Original page

Keywords: financial literacy | financial capability

ABSTRACT
This paper explores how well equipped today’s households are to make complex financial decisions in the face of often high-cost and high-risk financial instruments. Specifically we focus on financial literacy. Most importantly, we describe the geography of financial literacy, i.e., how financial literacy is distributed across the fifty US states. We describe the correlation of financial literacy and some important aggregate variables, such as state-level poverty rates. Finally, we examine the extent to which differences in financial literacy can be explained by states’ demographic and economic characteristics. To assess financial literacy, five questions were added to the 2009 National Financial Capability Study, covering fundamental concepts of economics and finance encountered in everyday life: simple calculations about interest rates and inflation, the workings of risk diversification, the relationship between bond prices and interest rates, and the relationship between interest payments and maturity in mortgages. We constructed an index of financial literacy based on the number of correct answers provided by each respondent to the five financial literacy questions. The financial literacy index reveals wide variation in financial literacy across states. Much of the variation is attributable to differences in the demographic makeup of the states; however, a handful of states have either higher or lower levels of financial literacy than is explained by demographics alone. Also, there is a significant correlation between the financial literacy of a state and that state’s poverty level. The findings indicate directions for policy makers and practitioners interested in targeting areas where financial literacy is low.

Tango Rapperswil
Tango Rapperswil

    
RPA Switzerland

Robotic Process Automation Switzerland