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Abstract

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

The articles in this special issue of The Journal of Consumer Affairs focus on financial literacy. The scope of the content spans conceptualization and measurement as well as factors influencing financial literacy and its impact. This editorial prelude suggests one way that educators might use this issue as well as a previous (Summer 2008) special issue of the journal that also focused on financial literacy.

In a popular Saturday Night Live comedy routine, Steve Martin and Amy Poehler listen to a pitch from Chris Parnell for a book that outlines the secret to financial success. The book, only one page long, is titled Don't Buy Stuff You Cannot Afford—and it is free.

If only financial success were that simple. If the definition were “not buying stuff you cannot afford,” we could relatively easily measure not only financial success but also financial literacy. Identifying and evaluating effective educational and behavioral interventions would be straightforward. Instead, we so-called experts struggle with a myriad of questions. Is knowledge alone enough? (Probably not.) What are the most important topics for financial education? (Likely any and all of them depending on who you ask.) How should we measure “success”—assuming we can define it? (Again, it likely depends on who you ask.) In late 2009, years after many of us began work in financial literacy, the U.S. Financial Literacy and Education Commission asked such foundational questions as: what should the national strategy be called? Financial literacy? Financial capability? Financial security? What should the most critical objectives be? What should be the key measures of successfully reaching these objectives?

Articles in the two special issues of Journal of Consumer Affairs on financial literacy—the Summer issues of 2008 and 2010—will no doubt be useful to decision makers. As an educator, I can easily visualize using them to organize a graduate course I would like to teach. The five sections of the proposed course are described below.

SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

Assignment: Read and be prepared to discuss Remund (2010) and Huston (2010). Do you support Remund's conceptual and operational definitions? What arguments can you make for and against these definitions? Do you support Huston's conceptualization of financial literacy? How would you operationalize her concept of financial literacy?

Remund reviewed more than one hundred resources, including academic and professional journal articles, and proposed a singular conceptual definition of financial literacy as a measure of understanding key financial concepts. The definition incorporated ability and confidence to manage personal finances. He concluded by identifying the four most common operational definitions of financial literacy and challenged researchers to develop and validate a benchmark financial survey for all adults.

Huston too defined financial literacy, emphasizing that it consists of both knowledge and application of human capital specific to personal finance. Her article discussed the relationship among financial knowledge, education, literacy, behavior and well-being. Her review of seventy-one individual studies that drew from fifty-two different data sets highlighted the utter lack of consistency in how researchers have defined and measured financial literacy in previous work and challenged us to make major improvements going forward.

SECTION 2: DOES FINANCIAL EDUCATION WORK?

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

Assignment: Read and be prepared to discuss Grimes, Rogers, and Smith (2010), Walstad, Rebeck, and MacDonald (2010) and Servon and Kaestner (2008). How did each define “financial education”? What was the outcome of interest and how was it assessed? What was each article's primary contribution to the literature? If you were to replicate each study, how would you improve it?

Grimes, Rogers, and Smith (2010) as well as Walstad, Rebeck, and MacDonald (2010) focused their research on high school economics and personal finance courses. Their work is important, in part because states in the U.S. increasingly require a high school economics course and use curriculum that includes basic financial literacy topics (Council for Economic Education 2009). Grimes, Rogers, and Smith reported research results in which high school courses in economics and business reduced the probability an adult was unbanked. Walstad, Rebeck, and MacDonald found that students exposed to the Council for Economic Education's Financing Your Future curriculum increased financial knowledge across many concepts. In times of tight state budgets, it is important to demonstrate that a well-written and properly implemented curriculum in personal finance not only increases knowledge but also is related to a positive financial behavior such as use of financial services.

SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

Assignment: Read Lusardi, Mitchell, and Curto (2010), Monticone (2010), Bone (2008), Andersen (1995) and other articles to be identified. Use the framework of Andersen's Behavioral Model to categorize the variables in the assigned research articles as predisposing, enabling and need variables as related to financial literacy. How appropriate is Andersen's framework to explain financial literacy? Use the framework in Huston (2010) to categorize the variables in the assigned research articles. How relevant is Huston's framework?

Lusardi, Mitchell, and Curto (2010) focused on financial literacy and youth. They examined several factors that influence financial literacy, measured using three questions from previous research (Lusardi and Mitchell 2006, 2008). They reported that financial literacy among U.S. youth is low; fewer than one-third of respondents demonstrated an understanding of interest rates, inflation and risk diversification, the focus of the three financial literacy questions. Although cognitive ability was significantly and positively related to financial literacy, many other factors were as well, including gender and parents' education and investment experience. Monticone (2010) used six questions, including three that were in Lusardi, Mitchell, and Curto's research, to measure financial literacy among an Italian population. The proportion correctly answering the six questions ranged from 27% to 60%. Monticone found that wealth had a small but positive effect on financial literacy.

SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

Assignment: Read and be prepared to discuss Bruine de Bruin et al. (2010), Perry (2008), Morrin et al. (2008) and Howlett, Kees, and Kemp (2008). How did each define and measure financial literacy? What outcomes did they assess and how were they measured? What was the primary contribution of each article to the literature? If you were to replicate each study, how would you improve it?

Bruine de Bruin et al. (2010) used one of the financial literacy questions from Lusardi and Mitchell (2008) plus fifteen others to assess financial literacy. Their goal was to examine the influence of financial literacy on inflation expectations. They reported that the proportions correctly answering the sixteen financial literacy questions ranged from 29.8% to 94.6%. Individuals with lower financial literacy were more likely to report higher inflation expectations.

SECTION 5: RESEARCH PROPOSAL

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES

Assignment: Based on your work in this course, write a proposal to conduct research that proposes a methodology to measure financial literacy, or to examine factors that influence financial literacy, or to demonstrate an outcome of financial literacy. Be sure to include your definition of financial literacy in your proposal. Present and defend your proposal to your professor and classmates.

Note to the readers: Look for articles based on these proposals in future issues of The Journal of Consumer Affairs.

REFERENCES

  1. Top of page
  2. Abstract
  3. SECTION 1: WHAT IS FINANCIAL LITERACY AND HOW IS IT MEASURED?
  4. SECTION 2: DOES FINANCIAL EDUCATION WORK?
  5. SECTION 3: WHAT FACTORS INFLUENCE FINANCIAL LITERACY?
  6. SECTION 4: HOW IS FINANCIAL LITERACY IMPORTANT?
  7. SECTION 5: RESEARCH PROPOSAL
  8. REFERENCES