financial literacy

Older Americans are not particularly financially literate, as shown by Lusardi and Mitchell (2006) using data from a special-purpose module the authors created for the 2004 HRS. These findings have been confirmed among Early Baby Boomers, who displayed not only low numeracy, but also a lack of knowledge of fundamental economic concepts such as interest rate compounding (Lusardi and Mitchell, 2007a). Moreover, particular sub-groups of the population suffer even greater deficits in financial literacy; Lusardi and Mitchell (2008a) find that women display much lower literacy than men and are much less likely to plan for retirement. Furthermore, minorities and those with low education and low income are more likely to display low levels of financial knowledge (Lusardi and Mitchell, 2007b; Lusardi, 2008b; Smith and Stewart, 2008).

Chen & Volpe (1998) claim that business-major students have better understanding on financial and investment matters compared to other non-business major. This is supported by Lai & Tan (2009) who claim that without having known financial knowledge such as expected return, growth and liquidity of investment students would not able to gain substantial amount of profit. Chen & Volpe claim that on average business major answered more than half of the questions correctly. They conclude that participants from different class ranks have different levels of financial knowledge. However, it is reported that, even though accounting, economic and business students have been exposed to financial and investment subjects in their curriculum yet there were multiple mix decisions among them in order to make a proper decision. Thus, this study will examine whether there is any different in the financial literacy of students from different programs.

compound interest works (second question), and understanding of the effect of inflation (third question), assess knowledge of the time value of money (fourth question) and whether respondents suffer from money illusion (fifth question). The second set of questions to measure advanced financial knowledge. These are much more complex questions that are devised to assess knowledge of financial assets, such as stocks and bonds; the trade- off between risk and return; the understanding of risk diversification. The original set of questions is adopted from Health and Retirement Survey (2012) which is conduction in the USA twice a year. A financial literacy score has been created by summing correct answers and reporting them as a percentage.

Through survey data on financial literacy questionnaires from 300 respondents of Karachi, we find that as people grow in their age, they become more careful in spending their earnings. This can be attributed to family size / liabilities and old-age insecurities in developing countries like Pakistan, which does not provide social security to its citizens. Secondly, male members in Pak- istani society have the habit of savings. This result is consistent with Yu, Wu, Chan, and Chou (2015) who find gender differences in financial knowledge and analytical abilities among Hong Kong workers. Hence, policy makers should devise such programs that specifically focus on women finan- cial education. Thirdly, persons with higher qualification and large family size (as well as widow / divorced) do advise their peers, friends, and relatives about better utilization of surplus funds. Lastly, respondents with higher income bracket do agree that better knowledge of financial institu- tions and markets facilitate people to live a financially secure life. Moreover, this paper points to the fact that inherent characteristics developed in childhood and prevailing external environment does play a major role in the decision to save / invest. However, Brockman and Michayluk (2015) suggest that policy interventions to enhance financial knowledge do not seem to impact financial behaviour and savings rates, that might be related to intrinsic characteristics.

This research should be of interest to educators and employers seeking to enhance efforts to plan and save for retirement, as well as researchers interested in exploring financial literacy further. In the future, it will be critical to ask specific questions about financial knowledge as outlined here, since education, income, and age are correlated with but do not adequately capture all the dimensions of respondents’ financial literacy human capital. Additionally, the fact that we find more financially literate adults to be more likely to plan for retirement complements work by other analysts seeking to link financial sophistication and decisionmaking. For instance, some evidence points to the fact that financially unsophisticated households tend to avoid the stock market (van Rooij, Lusardi and Alessie, 2007; Kimball and Shumway, 2006; Christelis, Jappelli and Padula, 2006), and are less likely to choose mutual funds with lower fees (Hastings and Tejeda-Ashton, 2008). The financially unsophisticated are also less likely to refinance their mortgages in a propitious environment (Campbell, 2006), and they select less advantageous mortgages in the first place (Moore, 2003). People who cannot correctly calculate interest rates given a stream of payments tend to borrow more and accumulate less wealth (Stango and Zinman, 2008). Now our results show that the financially illiterate do not plan for retirement either.

Unfortunately, the NCR does not have something similar to the ASIC's MoneySmart website. Having such a website in South Africa would be useful. The MoneySmart website assists Australian consumers with becoming educated on the basics (e.g. how to budget), something that the Topline Research Solutions' 2013 report said South African consumers still lacked. The MoneySmart website is also not only a useful tool for creating a financially literate consumer, but also provides teachers at schools and other educational institutions with educational resources and materials they can use when teaching children and students about financial matters. Taking into account all the NCR's annual reports published since 2007, it is clear that the NCR has seriously increased its educational and awareness programmes. Many industry role players, such as credit providers, consumer organisations, trade unions, legal academics and consumers, feel that it is important to empower consumers through financial education, as this enables them to have knowledge of and take responsibility for their credit matters in addition to encouraging them to read any contracts relating to credit before signing them. They also believe that programmes on money management for use in schools should be made compulsory, to raise awareness levels and establish financial literacy from an early age. Consumer education must be used to its full potential as an indirect measure to prevent consumer over-indebtedness. Managing finances is an important life skill and it would help children to have a familiarity with money matters at an early age. The general feeling in South Africa is thus that financial education should form part of the subject called "life skills" currently taught at schools. 143

On the research side, many financial literacy topics are under investigation. In some cases, a general agreement has been reached such as on the necessary prerequisites to gauge financial literacy (including the types of knowledge that best motivate and facilitate financial action), or in the definition of survey questions and methodologies to effectively measure a latent variable such as financial literacy. However, although the role of diversity (e.g., gender, ethnicity, age, education) has been well documented, including considering different settings and time spans, our understanding of how these forms of diversity continue to generate financial gaps as well as the best ways to eliminate them is far from complete. In many other cases, we are still in the infancy of our knowledge, particularly with respect to the analysis of information ‐ seeking behaviours by financial consumers and their impact on financial habits. A better understanding of such topics is paramount for financial regulators who seek to improve the disclosure mechanisms that help consumers understand financial options and improve their financial decision ‐ making. (Bongini, P., & Zia, B. ,2018)

Many papers have documented a strong correlation between financial literacy and a set of behaviors. Bernheim (1995, 1998) showed that most households lack basic financial knowledge and cannot perform very simple calculations and that the saving behavior of many households is dominated by crude rules of thumb. Hilgert, Hogarth, and Beverly (2003) found a strong link between financial literacy and day-to-day financial management. Financial literacy has also been linked to a set of behaviors related to saving, wealth, and portfolio choice (for an overview, see Lusardi and Mitchell 2011a). For example, several papers have shown that individuals with greater financial literacy are more likely to participate in financial markets and to invest in stocks (Christelis, Jappelli, and Padula 2010, Almenberg and Widmark 2011, Almenberg and Dreber 2011, Yoong 2011, Van Rooij, Lusardi, and Alessie 2011). Moreover, more literate individuals are more likely to be savvy in choosing mutual funds, including selecting those with lower fees (Hastings and Tejeda-Ashton 2008, Hastings and Mitchell 2011, Hastings Mitchell, and Chyn 2011).

Second, we use IV estimation to assess the impact of financial literacy on financial behavior. Two instruments are used: (a) the number of newspapers in circulation per two-digit region (both regional and national) and (b) the total number of universities per two-digit region (both public and private). The two variables can be expected to be correlated with financial literacy in terms of ―exposure‖ to newspaper readership (either directly or through family members and neighbors who read the paper) and higher education of peers in the region. The experience of others is not under the control of the respondent and is thus exogenous with respect to his or her actions, but respondents can learn from those around them, thus increasing their own literacy. Several other studies have documented that individuals learn about financial matters from peers (Duflo and Saez, 2003 Hong, Kubik, and Stein, 2004; and Brown, Ivkovic, Smith, and Weisbenner, 2008). Studies have also documented the importance of proximity to a university as an exogenous measure of financial knowledge (Christiansen, Joensen, and Rangvid, 2008).

Awareness and Education. OECD Working Papers on Finance, Insurance and Private Pensions, No. 14, OECD Publishing. http://dx.doi.org/10.1787/5k9d5v6kh56g-en Hussein Ali., and Al Anood Bin Kalli. (2009). Financial literacy and investment decisions of UAE investors. The Journal of Risk Finance, Vol. 10, Iss 5, pp. 500- 516.

differences, still there were few studies found that age as an important factor in explaining financial literacy (Lusardi & Mitchell, 2006; Worthington, 2006). Lusardi and Mitchell, (2011) also found that middle aged group are more financially literate than millenium and old generation. Worthington, (2006) found that Financial literacy is highest for persons aged between 50 and 60 years. Arrondel et al, (2013) and Beckmann, (2013) found that old persons are less financially literate whereas Bhushan et al, (2013) showed that financially literacy is not affected by age. Our study demonstrated that the mean level of financial literacy for male is slightly lower than female at 3.37 while female is at 3.50. The result indicated that there is no significant difference. However there were several other studies found that male performed financially better than females (Kharchenko & Olga, 2011; Arrondel et al, 2013; Koenen and Lusardi, 2011). Few researchers relate educational level and financial literacy (Mandell, 2008; Agnew et al, 2013; Lusardi,2008) and our findings suggested that there was no significant difference between education level and financial literacy,

These debt loads are of particular concern given recent evidence that young people may lack sufficient knowledge to successfully navigate their financial decisions: for instance, a National Council on Economic Education study of high school students and working-age adults showed widespread lack of knowledge among respondents regarding fundamental economic concepts (NCEE 2005), confirming evidence provided by the Jump$tart Coalition for Personal Financial Literacy (Mandell 2004). Policymakers have become so concerned about young people’s finances that the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 included several provisions specifically targeted at protecting younger credit card consumers. For instance, credit cards will no longer be issued to young people under the age of 21 unless they have an adult co-signer or can show proof that they have the means to repay the debt; college students will be required to receive permission from parents or guardians in order to increase credit limits on joint accounts; and those under 21 will be protected from pre- screened credit card offers unless they specifically opt in for the offers.

In the context of rapid changes and constant develop- ments in the financial sector and the broader economy, it is important to understand whether people are equipped to effectively navigate the maze of financial de- cisions that they face every day. To provide the tools for better financial decision-making, one must assess not only what people know but also what they need to know, and then evaluate the gap between those things. There are a few fundamental concepts at the basis of most fi- nancial decision-making. These concepts are universal, applying to every context and economic environment. Three such concepts are (1) numeracy as it relates to the capacity to do interest rate calculations and under- stand interest compounding; (2) understanding of infla- tion; and (3) understanding of risk diversification. Translating these concepts into easily measured financial literacy metrics is difficult, but Lusardi and Mitchell (2008, 2011b, 2011c) have designed a standard set of questions around these concepts and implemented them in numerous surveys in the USA and around the world.

The main aim of the nation is to see a digitalized economy by inculcating the digital concept in every sector. Digital Financial Literacy is a combination of two concepts i.e. financial literacy and the digital platforms. Financial literacy means the level of attitude-behaviour and knowledge that an individual has in respect to financial products and services and also talks about how good an individual is at personal finance. Financial literacy guides the economy towards financial inclusion. Financial inclusion can be explained as rendering financial products and services to every social class in the nation. To begin with, it must be given to the below poverty line group because if a stable economy is the aim of any nation it needs to begin its development from the baseline. In the current research, the researchers are considering the digital aspect of inclusion as we are in the digital era. Financial education, consumer protection, and financial inclusion are essential ingredients for both the financial empowerment of individuals and the overall stability of financial markets and economies, particularly in the context of the changing pace of technological expansion and the advancement of digital financial services. Their significance has been globally acknowledged and endorsed by G20 leaders through high- level principles on Innovative Financial Inclusion (OECD, 2011). National Strategies for Financial Education (OECD, 2012), and Digital Financial Inclusion. Financial literacy and financial inclusion are present in the nation which is at a low scale. To contribute towards Digital India the current study tries to measure the level of digital financial literacy and digital financial inclusion in Bangalore. Also tries to understand the impact of digital financial literacy on digital financial inclusion. With the rising pace of technology and artificial intelligence, it is important to address the economy on the prominence of being a digitalized economy. According to the S&P Survey, 76% of the Indians are not financial literate which suggests that there is a need to increase the level of financial literacy. Being a part of the digital era indicates the need to fall in the brackets of Digital Financial Literacy through which digital financial inclusion could be attained. The benefits that the economy could witness if the nation falls under the brackets of digital financial inclusion could be priceless. This possibly will address issues such as reduction or no fake currencies in the market. Every move of the present government is to see a digital transformation in every sector. In terms of the

57 financial literacy toward financial capability is identified. To measure the financial literacy, respondents were exposed to the questions covering fundamental concepts of economics and finance expressed in everyday life, such as simple calculations about interest rates, inflation, the workings of risk diversification, knowledge about bond and stock prices, mortgages. Generally, the finding in a variety of other studies shows alike result by using the same questions or a sub-set of the questions [6]. There were 5 items on this scale consists basic knowledge of interest, inflation, bond and stock price, risk investment and mortgage. Respondents who answered correctly were given 1 point. The total scale ranged from 0 to 5 and the higher score indicates higher financial literacy.

Previous research on financial literacy usually focuses on its potential effects on market participation, however, little research is done on its potential effects on financial outcomes. This study has filled in this research gap. Only 10% of household in this survey participate into stock market, while the percentage is even smaller for mutual fund participation, which is only 5%. For those who participate, less than one in four can receive positive return. Meanwhile financial literacy may improve the chance of “winning” in financial market. As we have mentioned in section 2, Chinese financial market is not efficient enough, our research results indicate that investors have a big chance to suffer loss if not equipped with enough level of financial literacy. The results may also holds in other financial markets which are not efficient enough. With the fast development of global financial market, more and more households start to participate in risky financial markets. However, some are not well equipped with financial knowledge. And our results show the importance of increasing household financial literacy, which may help consumers make wise decisions in portfolio choices and improve financial wellbeing. Although effects of current financial education programs are in debate, financial literacy itself should be paid more attention by governments and financial service businesses. Financial literacy has been brought into sight for the last two decades and some developed countries like United States and United Kingdom have introduced financial education programs at various levels. Developing countries like China with a growing financial market could learn successes and lessons experienced by them.

As discussed in Section C, people can become bewildered by too much information and choice, leading to inertia and/or ineffective actions. Therefore a successful social marketing campaign must promote simple, clear messages. Where messages are complex, they should be broken down into single steps or ‗calls to action‘ (e.g. ‗ring this hotline‘, ‗visit this website‘). These simple, action-oriented messages are particularly important for those in the ‗contemplation‘ or ‗preparation/action‘ stages of change. This was a method used by the Financial Literacy Foundation (FLF, 2006) in its Understanding Money media campaign. The aim was to raise awareness about the importance of managing money and the call to action was to visit the Understanding Money website. Over the 19 weeks of the campaign, 243,691 people made 333,381 visits to the website and the most popular parts of the site were activity-related:

As global funds flow at unprecedented rates, consumers in developing countries have increased access to financial markets and find themselves handling more complex financial tools. In such a setting, consumers may be overexposed to financial risks. In this respect, increasing financial literacy levels of consumers has become essential, and assessing the financial literacy of the population is a key ingredient of any policy to do so. Using an international survey, we study financial literacy in Mexico, Lebanon, Uruguay, Colombia and Turkey. After establishing financial literacy levels, we identify the least financially literate groups in each country to facilitate targeting of public policy. We find that females, younger adults and individuals who cannot read or write in the official language of their country of residence have lower financial literacy scores. In line with the previous findings in the literature on the developed countries, our results indicate that financial literacy increases with education. In Mexico and Turkey, there are large regional differences that must be addressed.

With our empirical investigation we were able to prove that financial literacy encourages individual retirement planning for households with an above-average income. After we had received a positive coefficient for financial literacy in our retirement model, we tested whether this effect was stronger for the low-income households as suggested by Lusardi (2003). The empirical estimations do not support this finding. Financial literacy has no significant effect on retirement arrangement for households whose earnings fall below the mean. Anyhow, we found that for this group the professional advice has an important positive influence. This led to the idea of a strict distinction between financial literacy, a snapshot of knowledge, and financial education, more or less well-targeted events such as seminars or occasional conversations with banks. They both have a positive effect on retirement decisions for different reasons. The lack of retirement planning derives from different, heterogeneous sources. Therefore, it can be approached by different measures. Evidence suggests that financial literacy reduces information overload and short- sightedness and improves planning (Agnew et al. 2005, Lusardi et al. 2005) whereas financial education improves the propensity to save, changes saving goals and reduces inertia by forcing consideration and awareness (Clark et al. 2003, Mandell 2008). That these effects can be independent derives from our findings about low-

Financial decisions, be they related to asset building or debt management, require the capacity to do calculations, including some complex ones. But how numerate are individuals, in particular when it comes to calculations related to financial decisions? Studies and surveys implemented in both the United States and in other countries that are described in this paper show the level of numeracy among the population to be very low. Moreover, lack of numeracy is not only widespread but is particularly severe among some demographic groups, such as women, the elderly, and those with low educational attainment. This has potential consequences for individuals and for society as a whole because numeracy is found to be linked to many financial decisions. Now more than ever, numeracy and financial literacy are lifetime skills necessary to succeed in today’s complex economic environment.