Around the World Leora Klapper World Bank Development Research GroupAn - PDF document

1 Around the World: Leora Klapper, World B
Around the World: Leora Klapper, World Bank Development Research GroupAnnamaria Lusardi, The George Washington University School of BusinessPeter van Oudheusden, World Bank Development Research Group INSIGHTS FROM THE STANDARD & POOR’S RATINGS SERVICES GLOBAL FINANCIAL LITERACY SURVEY The ndings, in

2 terpretations, and conclusions expressed
terpretations, and conclusions expressed in this report are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its afliated organizations or those of the executive directors of the World Bank or the govern

3 ments they represent. The World Bank doe
ments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorse

4 ment or acceptance of such boundaries.
ment or acceptance of such boundaries. We are grateful for the support provided by Standard & Poor’s Ratings Services and its parent company McGraw Hill Financial Inc, as part of their ongoing program to highlight nancial literacy as a key component of robust and sustainable nancial markets ar

5 ound the world.To download the complete
ound the world.To download the complete Standard & Poor’s Ratings Services Global FinLit Survey and related material, visit http://www.FinLit.MHFI.com.This report was authored by Leora Klapper, Annamaria Lusardi, and Peter van Oudheusden, with the support of Jake Hess and Saniya Ansar. around the World:

6 INSIGHTS FROM THE S&P GLOBAL FINLIT SURV
INSIGHTS FROM THE S&P GLOBAL FINLIT SURVEYFinancial literacy: What it is and why it matters2. Summary of the 2014 S&P FinLit SuveyLower nancial literacy among women Many users of nancial products lack nancial skillsAccount ownership and savingsCredit3. FINANCIAL LITERACY AROUND THE WORLDPAGE 4

7 Financial literacy: What it is and why i
Financial literacy: What it is and why it mattersWithout an understanding of basic nancial concepts, people are not well equipped to make decisions related to nancial management. People who are nancially literate have the ability to make informed nancial choices regarding saving, investing

8 , borrowing, and more. Financial knowled
, borrowing, and more. Financial knowledge is especially important in times where increasingly complex nancial products are easily available to a wide range of the population. For example, with governments in many countries pushing to boost access to nancial services, the number of people with bank

9 accounts and access to credit products i
accounts and access to credit products is rising rapidly. Moreover, changes in the pension landscape transfer decision-making responsibility to participants who previously relied on their employers or governments for their nancial security Financial ignorance carries signicant costs. Consumers who f

10 ail to understand the concept of interes
ail to understand the concept of interest compounding spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans (Lusardi and Tufano, 2015; Lusardi and de Bassa Scheresberg, 2013). They also end up borrowing more and saving less money (Stango and Zinman, 2009). Meanwhile, th

11 e potential benets of nancial
e potential benets of nancial literacy are manifold. People with strong nancial skills do a better job planning and saving for retirement (Behrman et al., 2012; Lusardi and Mitchell, 2014). Financially savvy investors are more likely to diversify risk by spreading funds across several ventures

12 (Abreu and Mendes, 2010). Given the many
(Abreu and Mendes, 2010). Given the many ways nancial literacy affects nancial behavior (Lusardi and Mitchell, 2014), it is important to understand the extent of people’s understanding of basic nancial concepts as well as the degree to which nancial skills fall short among groups like

13 women and the poor. The Standard & Poor
women and the poor. The Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) provides this information across a wide array of countries. It builds on early initiatives by the International Network on Financial Education (INFE) of the Organization for Economic Co

14 -operation and Development (OECD), the W
-operation and Development (OECD), the World Bank’s Financial Capability and Household Surveys, the Financial Literacy around the World (FLAT World) project, and numerous national survey initiatives that collect information on nancial literacy. The survey complements these efforts by delivering the

15 rst and most comprehensive global g
rst and most comprehensive global gauge of nancial literacy to date. FINANCIAL LITERACY AROUND THE WORLDPAGE 5The information on nancial literacy is based on questions added to the Gallup World Poll survey. More than 150,000 nationally representative and randomly selected adults in more than 1

16 40 economies were interviewed during the
40 economies were interviewed during the 2014 calendar year. The surveys were conducted face-to-face in economies where less than 80 percent of the population has access to a telephone or is the customary methodology. The target population consists of the entire population aged 15 and above, aside from prison

17 ers and soldiers. Financial literacy was
ers and soldiers. Financial literacy was measured using questions assessing basic knowledge of four fundamental concepts in nancial decision-making: knowledge of interest rates, interest compounding, ination, and risk diversication. The S&P Global FinLit Survey ndings are sobering. Worldwi

18 de, only 1-in-3 adults are nanciall
de, only 1-in-3 adults are nancially literate. Not only is nancial illiteracy widespread, but there are big variations among countries and groups. For example, women, the poor, and lower educated respondents are more likely to suffer from gaps in nancial knowledge. This is true not only in deve

19 loping economies but also in countries w
loping economies but also in countries with well-developed nancial markets. People with relatively high nancial literacy also tend to have a few things in common, regardless of where they live. Adults who use formal nancial services like bank accounts and credit cards generally have higher 

20 ;nancial knowledge, regardless of their
;nancial knowledge, regardless of their income. Even poor people who have a bank account are more likely to be nancially literate than poor people who do not have a bank account, and rich adults who use credit also generally have better nancial skills than rich adults who do not. This suggests the r

21 elationship between nancial knowled
elationship between nancial knowledge and nancial services may work in two directions: While higher nancial literacy might lead to broader nancial inclusion, operating an account or using credit may also deepen consumers’ nancial skills.The S&P Global FinLit Survey can be used by

22 academics, regulators, policymakers, an
academics, regulators, policymakers, and funders to gauge nancial literacy across the globe. By showing where nancial skills are strong and where they are lacking, these new data can help stakeholders design policies and programs to improve the nancial well-being of individuals around the worl

23 d. FINANCIAL LITERACY AROUND THE WORLDPA
d. FINANCIAL LITERACY AROUND THE WORLDPAGE 6Country-level nancial literacy ranges from 71 percent to 13 percentIn the S&P Global FinLit Survey, the literacy questions that measure the four fundamental concepts for nancial decision-making—basic numeracy, interest compounding, ination, and r

24 isk diversication—are as follo
isk diversication—are as follows. (The answer options are in the brackets, with the correct answer in bold.)RISK DIVERSIFICATIONSuppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments? [one business or i

25 nvestment; multiple businesses or invest
nvestment; multiple businesses or investments; don’t know; refused to answer]INFLATIONSuppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today? [l

26 ess; more; don’t know; refused to a
ess; more; don’t know; refused to answer]NUMERACY INTERESTSuppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent? [105 US dollars; US dollars plus three percent; don’t know; refused to answer]COMPOUND INTERESTSu

27 ppose you put money in the bank for two
ppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the rst year, or will it add the same amount of money both years? [more; the same; don’t know; refused to answer]Supp

28 ose you had 100 US dollars in a savings
ose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after ve years if you did not remove any money from the account? om the account? more than 150 dollars; exactly 150 dollars; less than 150 dollars; don’t