How Important is Financial Literacy for Economic Well-Being?

von Daniel Kraushaar, Marius Mundhenk, Tim Schwarz

Seminararbeit
Prof. Ph.D. Michael Haliassos


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Abstract

Pressure on social security systems, demographic change, increasing complexity of financial products and growing self-responsibility of market participants are expected to have severe consequences on both individual and aggregate economic well-being. Old age poverty, mortgages defaults and foregone returns are only some examples for consequences of common financial mistakes. Current literature suggests that financial literacy is a crucial tool to counteract the above-mentioned unfavorable outcomes. But financial literacy is found to be low across countries irrespective of structural characteristics leaving households unarmed. In this paper we review current literature on how financial literacy can be measured, outline its effect on economic well-being and provide alternatives to financial education. Finally, we will take a brief look at possible future developments and give concluding remarks.