Financial Advice Is Not a Substitute for Financial Literacy

Gaining financial literacy is critical if you want to thrive in today’s society. And yet, only about a third of the global population can be described as being financially literate. Joining us today to unpack the concept of financial literacy and its impact is Dr. Annamaria Lusardi, Professor of Economics and Accountancy at George Washington University. Dr. Lusardi has taught Economics for over 20 years, and her passion for financial literacy is reflected in everything she does. Her career has been instrumental in furthering the cause of increased global financial literacy, from being the Founder and Academic Director of the Global Financial Literacy Excellence Center, to serving as the co-chair of the G53 Financial Literacy and Personal Finance Research Network. In our conversation, Dr. Lusardi breaks down the definition of financial literacy, how it’s measured by leading experts across the world, along with some of the key differences we see between people in richer and poorer countries. She explains why financial advice isn’t a replacement for financial literacy and provides guidance on what we should be doing to educate various population groups. We also discuss how global trends have created an increased need for financial literacy as an essential skill, especially for young people, and why greater global financial literacy is beneficial to everyone, including governments and wealthier individuals. Tune in as we delve into the many facets of financial literacy and the important role it plays in our collective health, happiness, and success!

 

Key Points From This Episode:

 

• Lusardi defines the concept of financial literacy and the importance of being able to apply it as a skill. (0:04:30)
• How experts measure financial literacy and some of the key challenges involved. (0:07:55)
• The global survey that was conducted on financial literacy in 2014 and its dismal findings. (0:11:44)
• The areas of financial literacy that people struggle with most and why the need for financial literacy has increased over time. (0:15:26)
• The costs and benefits of gaining financial literacy and the concept of optimal financial knowledge. (0:22:42)
• An overview of the type of person who should be investing in financial literacy and why. (0:27:46)
• How the strength of your government’s social safety net affects financial literacy rates. (0:30:15)
• The extent to which financial literacy affects stock market participation and wealth accumulation. (0:31:18)
• Some of the common mistakes that those with low levels of financial literacy tend to make. (0:35:10)
• Why financial literacy’s end goal should be geared towards happiness and living a good life. (0:39:24)
• The impact that financial advice and financial advisors have on economic outcomes. (0:43:18)
• How financial literacy varies across demographic groups and some of the factors that account for disparities in financial literacy. (0:45:42)
• How financial education programs can yield positive results and where this education should take place for it to be optimal. (0:52:13)
• What listeners can do to increase financial literacy for those around them and why there is no alternative to good financial knowledge. (0:58:55)

 

 

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Dr. Annamaria Lusardi — https://www.annamarialusardi.com/

'Financial literacy and financial resilience: Evidence from around the world' — https://onlinelibrary.wiley.com/doi/abs/10.1111/fima.12283

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'Optimal Financial Knowledge and Wealth Inequality' — https://www.journals.uchicago.edu/doi/10.1086/690950

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'Employee Financial Literacy and Retirement Plan Behavior: A Case Study' — https://onlinelibrary.wiley.com/doi/abs/10.1111/ecin.12389

'Skating on thin ice: New evidence on financial fragility' — https://www.dnb.nl/media/uxldldkl/working-paper-no-670_tcm47.pdf

'Stereotypes in financial literacy: Evidence from PISA' — https://www.sciencedirect.com/science/article/abs/pii/S0929119920302753?via%3Dihub

'Fearless Woman: Financial Literacy and Stock Market Participation' — https://gflec.org/wp-content/uploads/2021/03/Fearless-Woman-Research-Final.pdf?x53868

'How Financially Literate Are Women? An Overview and New Insights' — https://onlinelibrary.wiley.com/doi/abs/10.1111/joca.12121

'Factors Contributing to Financial Well-Being among Black and Hispanic Women' — https://jor.pm-research.com/content/9/1/71

'Financial Education Affects Financial Knowledge and Downstream Behaviors' — https://gflec.org/wp-content/uploads/2020/04/Working-Paper-Financial-education-affects-financial-knowledge-and-downstream-behaviors-April_2020.pdf