Financial Literacy and the Financial Crisis

The ability of consumers to make informed financial decisions improves their chances of having sound personal finance. This paper uses a panel dataset from Russia, where consumer loans grew at an astounding rate -- from about US$10 billion in 2003...

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Main Authors: Klapper, Leora, Lusardi, Annamaria, Panos, Georgios A.
Format: Policy Research Working Paper
Language:English
Published: 2012
Subjects:
ID
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120229095430
http://hdl.handle.net/10986/3266
id okr-10986-3266
recordtype oai_dc
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic ABILITY OF CONSUMERS
ACCOUNT CREDITOR
ACCOUNT OWNERSHIP
ACCOUNTING
ADMINISTRATIVE DATA
ANNUAL INTEREST RATE
ASSET MARKETS
AVAILABILITY OF CREDIT
BALANCE SHEET
BANK ACCOUNT
BANK ACCOUNTS
BANK CREDIT
BANK LOANS
BANKING PRODUCTS
BANKING RELATIONSHIPS
BANKING SECTOR
BANKING SERVICES
BANKING SUPERVISIONS
BANKING SYSTEM
BASIC FINANCIAL LITERACY
BORROWER
BORROWER BEHAVIOR
BORROWING
BUSINESS SCHOOL
CALCULATION
CALCULATIONS
CAPITAL FORMATION
CENTRAL BANK
CHECKING ACCOUNT
CHECKS
COGNITIVE FUNCTIONS
CONSUMER
CONSUMER CREDIT
CONSUMER DEBT
CONSUMER FINANCE
CONSUMER LOANS
CONTRIBUTION
CREDIT CARD
CREDIT CARD DEBT
CREDIT INFORMATION
CREDITOR
CURRICULUM
DEBIT CARD
DEBIT CARDS
DEBT CONTRACTS
DEBT LOADS
DEBT MANAGEMENT
DEFINED CONTRIBUTION PENSIONS
DELINQUENCY
DEMOGRAPHIC CHARACTERISTICS
DEMOGRAPHIC GROUPS
DEPOSITS
DEVELOPING FINANCIAL MARKETS
DOMESTIC CREDIT
DUMMY VARIABLE
DUMMY VARIABLES
DURABLE
DURABLE GOODS
EARNINGS
ECONOMIC ACTIVITY
ECONOMIC DECISIONS
ECONOMIC DEVELOPMENT
ECONOMIC GROWTH
EDUCATION LEVEL
EDUCATION LEVELS
EDUCATIONAL ATTAINMENT
EMERGING MARKETS
EMPLOYEE
EMPLOYER
ENTREPRENEUR
ENTREPRENEURS
ETHNIC MINORITIES
FAMILY INCOME
FAMILY MEMBERS
FEDERAL RESERVE
FEDERAL RESERVE BANK
FINANCES
FINANCIAL ASSISTANCE
FINANCIAL BEHAVIOR
FINANCIAL CONSEQUENCES
FINANCIAL CRISES
FINANCIAL CRISIS
FINANCIAL DECISION
FINANCIAL DISTRESS
FINANCIAL EDUCATION
FINANCIAL EDUCATION PROGRAMS
FINANCIAL EXPERIENCES
FINANCIAL FRAGILITY
FINANCIAL ILLITERACY
FINANCIAL INFORMATION
FINANCIAL INSTITUTION
FINANCIAL INSTITUTIONS
FINANCIAL ISSUES
FINANCIAL KNOWLEDGE
FINANCIAL LITERACY
FINANCIAL LITERACY TRAINING
FINANCIAL MANAGEMENT
FINANCIAL MARKETPLACE
FINANCIAL MARKETS
FINANCIAL MATTERS
FINANCIAL OUTCOMES
FINANCIAL PENETRATION
FINANCIAL PRODUCTS
FINANCIAL RESOURCES
FINANCIAL SECTOR
FINANCIAL SERVICES
FINANCIAL SOPHISTICATION
FINANCIAL STABILITY
FORMAL BANK
FORMAL BANKING
FORMAL BANKING SYSTEM
FORMAL CREDIT
FORMAL FINANCIAL INSTITUTION
FORMAL FINANCIAL MARKETS
FRAUD
GENDER
GENERAL POPULATION
HIGH SCHOOL
HIGH SCHOOL FINANCIAL LITERACY
HIGHER EDUCATION
HOUSEHOLD APPLIANCES
HOUSEHOLD DEBT
HOUSEHOLD FINANCE
HOUSEHOLD FINANCIAL MANAGEMENT
HOUSEHOLDS
ID
INCOME
INCOME SHOCKS
INDEBTEDNESS
INFLATION
INFORMAL BORROWING
INFORMAL CREDIT
INFORMATION SHARING
INFORMED CONSUMERS
INFORMED FINANCIAL DECISIONS
INSTALLMENT
INSTRUMENT
INTEREST PAYMENT
INTEREST PAYMENTS
INTEREST RATE
INTEREST RATES
INTERNATIONAL BANK
INTERNATIONAL STANDARDS
INVESTMENT CLIMATE
LESS FINANCIALLY LITERATE
LEVELS OF LITERACY
LIABILITY
LIABILITY SIDE
LITERACY COURSES
LITERACY DATA
LITERATE INDIVIDUALS
LIVING STANDARD
LIVING STANDARDS
LOAN
LOW EDUCATIONAL ATTAINMENT
LOW FINANCIAL LITERACY
LOW INCOME
LOW LEVELS OF EDUCATION
LOWER INCOME
LOWER INCOMES
MACROECONOMIC STABILITY
MONTHLY INCOME
MONTHLY PAYMENTS
MORTGAGE
MORTGAGES
MUTUAL FUNDS
NEGATIVE INCOME SHOCK
NEW BANK ACCOUNTS
NUMERACY
OCCUPATIONS
OLDER INDIVIDUALS
PENSION
PENSIONER
PERSONAL BANKING
PERSONAL FINANCE
PORTFOLIO
PORTFOLIO CHOICE
PROBABILITY
PUBLIC ECONOMICS
PUBLIC POLICY
PURCHASING POWER
RAPID GROWTH
REPAYMENT
REPAYMENT PERIODS
RESEARCH ASSISTANCE
RESERVE BANK
RETAIL PRICE
RETIREMENT
RETIREMENT PLAN
RETIREMENT PLANNING
RETIREMENT PLANS
RETIREMENT READINESS
RETIREMENT SAVING
RETIREMENT SECURITY
SALARIES
SALARY
SALE
SALES
SAVING BEHAVIOR
SCHOOLING
SECONDARY EDUCATION
SECONDARY SCHOOL
SINGLE PERSON
SOCIAL PROTECTION
SOCIOECONOMIC STATUS
STATE BANKS
STATE UNIVERSITY
STOCK MARKET
STOCKS
TECHNICAL EDUCATION
TRANSPARENCY
UNDERSTANDING PENSIONS
UNEMPLOYED
UNEMPLOYMENT
UNEMPLOYMENT RATE
UNIVERSITIES
VALUABLE
VULNERABLE CONSUMERS
spellingShingle ABILITY OF CONSUMERS
ACCOUNT CREDITOR
ACCOUNT OWNERSHIP
ACCOUNTING
ADMINISTRATIVE DATA
ANNUAL INTEREST RATE
ASSET MARKETS
AVAILABILITY OF CREDIT
BALANCE SHEET
BANK ACCOUNT
BANK ACCOUNTS
BANK CREDIT
BANK LOANS
BANKING PRODUCTS
BANKING RELATIONSHIPS
BANKING SECTOR
BANKING SERVICES
BANKING SUPERVISIONS
BANKING SYSTEM
BASIC FINANCIAL LITERACY
BORROWER
BORROWER BEHAVIOR
BORROWING
BUSINESS SCHOOL
CALCULATION
CALCULATIONS
CAPITAL FORMATION
CENTRAL BANK
CHECKING ACCOUNT
CHECKS
COGNITIVE FUNCTIONS
CONSUMER
CONSUMER CREDIT
CONSUMER DEBT
CONSUMER FINANCE
CONSUMER LOANS
CONTRIBUTION
CREDIT CARD
CREDIT CARD DEBT
CREDIT INFORMATION
CREDITOR
CURRICULUM
DEBIT CARD
DEBIT CARDS
DEBT CONTRACTS
DEBT LOADS
DEBT MANAGEMENT
DEFINED CONTRIBUTION PENSIONS
DELINQUENCY
DEMOGRAPHIC CHARACTERISTICS
DEMOGRAPHIC GROUPS
DEPOSITS
DEVELOPING FINANCIAL MARKETS
DOMESTIC CREDIT
DUMMY VARIABLE
DUMMY VARIABLES
DURABLE
DURABLE GOODS
EARNINGS
ECONOMIC ACTIVITY
ECONOMIC DECISIONS
ECONOMIC DEVELOPMENT
ECONOMIC GROWTH
EDUCATION LEVEL
EDUCATION LEVELS
EDUCATIONAL ATTAINMENT
EMERGING MARKETS
EMPLOYEE
EMPLOYER
ENTREPRENEUR
ENTREPRENEURS
ETHNIC MINORITIES
FAMILY INCOME
FAMILY MEMBERS
FEDERAL RESERVE
FEDERAL RESERVE BANK
FINANCES
FINANCIAL ASSISTANCE
FINANCIAL BEHAVIOR
FINANCIAL CONSEQUENCES
FINANCIAL CRISES
FINANCIAL CRISIS
FINANCIAL DECISION
FINANCIAL DISTRESS
FINANCIAL EDUCATION
FINANCIAL EDUCATION PROGRAMS
FINANCIAL EXPERIENCES
FINANCIAL FRAGILITY
FINANCIAL ILLITERACY
FINANCIAL INFORMATION
FINANCIAL INSTITUTION
FINANCIAL INSTITUTIONS
FINANCIAL ISSUES
FINANCIAL KNOWLEDGE
FINANCIAL LITERACY
FINANCIAL LITERACY TRAINING
FINANCIAL MANAGEMENT
FINANCIAL MARKETPLACE
FINANCIAL MARKETS
FINANCIAL MATTERS
FINANCIAL OUTCOMES
FINANCIAL PENETRATION
FINANCIAL PRODUCTS
FINANCIAL RESOURCES
FINANCIAL SECTOR
FINANCIAL SERVICES
FINANCIAL SOPHISTICATION
FINANCIAL STABILITY
FORMAL BANK
FORMAL BANKING
FORMAL BANKING SYSTEM
FORMAL CREDIT
FORMAL FINANCIAL INSTITUTION
FORMAL FINANCIAL MARKETS
FRAUD
GENDER
GENERAL POPULATION
HIGH SCHOOL
HIGH SCHOOL FINANCIAL LITERACY
HIGHER EDUCATION
HOUSEHOLD APPLIANCES
HOUSEHOLD DEBT
HOUSEHOLD FINANCE
HOUSEHOLD FINANCIAL MANAGEMENT
HOUSEHOLDS
ID
INCOME
INCOME SHOCKS
INDEBTEDNESS
INFLATION
INFORMAL BORROWING
INFORMAL CREDIT
INFORMATION SHARING
INFORMED CONSUMERS
INFORMED FINANCIAL DECISIONS
INSTALLMENT
INSTRUMENT
INTEREST PAYMENT
INTEREST PAYMENTS
INTEREST RATE
INTEREST RATES
INTERNATIONAL BANK
INTERNATIONAL STANDARDS
INVESTMENT CLIMATE
LESS FINANCIALLY LITERATE
LEVELS OF LITERACY
LIABILITY
LIABILITY SIDE
LITERACY COURSES
LITERACY DATA
LITERATE INDIVIDUALS
LIVING STANDARD
LIVING STANDARDS
LOAN
LOW EDUCATIONAL ATTAINMENT
LOW FINANCIAL LITERACY
LOW INCOME
LOW LEVELS OF EDUCATION
LOWER INCOME
LOWER INCOMES
MACROECONOMIC STABILITY
MONTHLY INCOME
MONTHLY PAYMENTS
MORTGAGE
MORTGAGES
MUTUAL FUNDS
NEGATIVE INCOME SHOCK
NEW BANK ACCOUNTS
NUMERACY
OCCUPATIONS
OLDER INDIVIDUALS
PENSION
PENSIONER
PERSONAL BANKING
PERSONAL FINANCE
PORTFOLIO
PORTFOLIO CHOICE
PROBABILITY
PUBLIC ECONOMICS
PUBLIC POLICY
PURCHASING POWER
RAPID GROWTH
REPAYMENT
REPAYMENT PERIODS
RESEARCH ASSISTANCE
RESERVE BANK
RETAIL PRICE
RETIREMENT
RETIREMENT PLAN
RETIREMENT PLANNING
RETIREMENT PLANS
RETIREMENT READINESS
RETIREMENT SAVING
RETIREMENT SECURITY
SALARIES
SALARY
SALE
SALES
SAVING BEHAVIOR
SCHOOLING
SECONDARY EDUCATION
SECONDARY SCHOOL
SINGLE PERSON
SOCIAL PROTECTION
SOCIOECONOMIC STATUS
STATE BANKS
STATE UNIVERSITY
STOCK MARKET
STOCKS
TECHNICAL EDUCATION
TRANSPARENCY
UNDERSTANDING PENSIONS
UNEMPLOYED
UNEMPLOYMENT
UNEMPLOYMENT RATE
UNIVERSITIES
VALUABLE
VULNERABLE CONSUMERS
Klapper, Leora
Lusardi, Annamaria
Panos, Georgios A.
Financial Literacy and the Financial Crisis
geographic_facet The World Region
The World Region
relation Policy Research working paper ; no. WPS 5980
description The ability of consumers to make informed financial decisions improves their chances of having sound personal finance. This paper uses a panel dataset from Russia, where consumer loans grew at an astounding rate -- from about US$10 billion in 2003 to over US$170 billion in 2008 -- to examine the importance of financial literacy and its relationship with behavior. The survey asked questions on financial literacy, consumer borrowing (formal and informal), and spending behavior. The paper studies the consequences of greater financial literacy on the use of financial products and financial planning. Even though consumer borrowing rose rapidly in Russia, only 41 percent of the survey respondents understood how interest compounding worked and only 46 percent could answer a simple question about inflation. Financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing. Individuals with higher rates of financial literacy are significantly more likely to report having more unspent income at the end of the month and higher spending capacity. The relationship between financial literacy and the availability of unspent income is more evident during the financial crisis, suggesting that better financial literacy may better equip individuals to deal with macroeconomic shocks.
format Publications & Research :: Policy Research Working Paper
author Klapper, Leora
Lusardi, Annamaria
Panos, Georgios A.
author_facet Klapper, Leora
Lusardi, Annamaria
Panos, Georgios A.
author_sort Klapper, Leora
title Financial Literacy and the Financial Crisis
title_short Financial Literacy and the Financial Crisis
title_full Financial Literacy and the Financial Crisis
title_fullStr Financial Literacy and the Financial Crisis
title_full_unstemmed Financial Literacy and the Financial Crisis
title_sort financial literacy and the financial crisis
publishDate 2012
url http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120229095430
http://hdl.handle.net/10986/3266
_version_ 1764386704556294144
spelling okr-10986-32662021-04-23T14:02:08Z Financial Literacy and the Financial Crisis Klapper, Leora Lusardi, Annamaria Panos, Georgios A. ABILITY OF CONSUMERS ACCOUNT CREDITOR ACCOUNT OWNERSHIP ACCOUNTING ADMINISTRATIVE DATA ANNUAL INTEREST RATE ASSET MARKETS AVAILABILITY OF CREDIT BALANCE SHEET BANK ACCOUNT BANK ACCOUNTS BANK CREDIT BANK LOANS BANKING PRODUCTS BANKING RELATIONSHIPS BANKING SECTOR BANKING SERVICES BANKING SUPERVISIONS BANKING SYSTEM BASIC FINANCIAL LITERACY BORROWER BORROWER BEHAVIOR BORROWING BUSINESS SCHOOL CALCULATION CALCULATIONS CAPITAL FORMATION CENTRAL BANK CHECKING ACCOUNT CHECKS COGNITIVE FUNCTIONS CONSUMER CONSUMER CREDIT CONSUMER DEBT CONSUMER FINANCE CONSUMER LOANS CONTRIBUTION CREDIT CARD CREDIT CARD DEBT CREDIT INFORMATION CREDITOR CURRICULUM DEBIT CARD DEBIT CARDS DEBT CONTRACTS DEBT LOADS DEBT MANAGEMENT DEFINED CONTRIBUTION PENSIONS DELINQUENCY DEMOGRAPHIC CHARACTERISTICS DEMOGRAPHIC GROUPS DEPOSITS DEVELOPING FINANCIAL MARKETS DOMESTIC CREDIT DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS EARNINGS ECONOMIC ACTIVITY ECONOMIC DECISIONS ECONOMIC DEVELOPMENT ECONOMIC GROWTH EDUCATION LEVEL EDUCATION LEVELS EDUCATIONAL ATTAINMENT EMERGING MARKETS EMPLOYEE EMPLOYER ENTREPRENEUR ENTREPRENEURS ETHNIC MINORITIES FAMILY INCOME FAMILY MEMBERS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCES FINANCIAL ASSISTANCE FINANCIAL BEHAVIOR FINANCIAL CONSEQUENCES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DECISION FINANCIAL DISTRESS FINANCIAL EDUCATION FINANCIAL EDUCATION PROGRAMS FINANCIAL EXPERIENCES FINANCIAL FRAGILITY FINANCIAL ILLITERACY FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL ISSUES FINANCIAL KNOWLEDGE FINANCIAL LITERACY FINANCIAL LITERACY TRAINING FINANCIAL MANAGEMENT FINANCIAL MARKETPLACE FINANCIAL MARKETS FINANCIAL MATTERS FINANCIAL OUTCOMES FINANCIAL PENETRATION FINANCIAL PRODUCTS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL SOPHISTICATION FINANCIAL STABILITY FORMAL BANK FORMAL BANKING FORMAL BANKING SYSTEM FORMAL CREDIT FORMAL FINANCIAL INSTITUTION FORMAL FINANCIAL MARKETS FRAUD GENDER GENERAL POPULATION HIGH SCHOOL HIGH SCHOOL FINANCIAL LITERACY HIGHER EDUCATION HOUSEHOLD APPLIANCES HOUSEHOLD DEBT HOUSEHOLD FINANCE HOUSEHOLD FINANCIAL MANAGEMENT HOUSEHOLDS ID INCOME INCOME SHOCKS INDEBTEDNESS INFLATION INFORMAL BORROWING INFORMAL CREDIT INFORMATION SHARING INFORMED CONSUMERS INFORMED FINANCIAL DECISIONS INSTALLMENT INSTRUMENT INTEREST PAYMENT INTEREST PAYMENTS INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL STANDARDS INVESTMENT CLIMATE LESS FINANCIALLY LITERATE LEVELS OF LITERACY LIABILITY LIABILITY SIDE LITERACY COURSES LITERACY DATA LITERATE INDIVIDUALS LIVING STANDARD LIVING STANDARDS LOAN LOW EDUCATIONAL ATTAINMENT LOW FINANCIAL LITERACY LOW INCOME LOW LEVELS OF EDUCATION LOWER INCOME LOWER INCOMES MACROECONOMIC STABILITY MONTHLY INCOME MONTHLY PAYMENTS MORTGAGE MORTGAGES MUTUAL FUNDS NEGATIVE INCOME SHOCK NEW BANK ACCOUNTS NUMERACY OCCUPATIONS OLDER INDIVIDUALS PENSION PENSIONER PERSONAL BANKING PERSONAL FINANCE PORTFOLIO PORTFOLIO CHOICE PROBABILITY PUBLIC ECONOMICS PUBLIC POLICY PURCHASING POWER RAPID GROWTH REPAYMENT REPAYMENT PERIODS RESEARCH ASSISTANCE RESERVE BANK RETAIL PRICE RETIREMENT RETIREMENT PLAN RETIREMENT PLANNING RETIREMENT PLANS RETIREMENT READINESS RETIREMENT SAVING RETIREMENT SECURITY SALARIES SALARY SALE SALES SAVING BEHAVIOR SCHOOLING SECONDARY EDUCATION SECONDARY SCHOOL SINGLE PERSON SOCIAL PROTECTION SOCIOECONOMIC STATUS STATE BANKS STATE UNIVERSITY STOCK MARKET STOCKS TECHNICAL EDUCATION TRANSPARENCY UNDERSTANDING PENSIONS UNEMPLOYED UNEMPLOYMENT UNEMPLOYMENT RATE UNIVERSITIES VALUABLE VULNERABLE CONSUMERS The ability of consumers to make informed financial decisions improves their chances of having sound personal finance. This paper uses a panel dataset from Russia, where consumer loans grew at an astounding rate -- from about US$10 billion in 2003 to over US$170 billion in 2008 -- to examine the importance of financial literacy and its relationship with behavior. The survey asked questions on financial literacy, consumer borrowing (formal and informal), and spending behavior. The paper studies the consequences of greater financial literacy on the use of financial products and financial planning. Even though consumer borrowing rose rapidly in Russia, only 41 percent of the survey respondents understood how interest compounding worked and only 46 percent could answer a simple question about inflation. Financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing. Individuals with higher rates of financial literacy are significantly more likely to report having more unspent income at the end of the month and higher spending capacity. The relationship between financial literacy and the availability of unspent income is more evident during the financial crisis, suggesting that better financial literacy may better equip individuals to deal with macroeconomic shocks. 2012-03-19T17:29:23Z 2012-03-19T17:29:23Z 2012-02-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120229095430 http://hdl.handle.net/10986/3266 English Policy Research working paper ; no. WPS 5980 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region