Abstract
In a global financial environment with an ever-increasing number and complexity of financial products, an uneducated citizen is inevitably at a disadvantage when it comes to making informed financial decisions. Despite the vital importance of financial education and literacy, the reality is that the level of financial knowledge varies substantially worldwide. This article defines the concept of financial education as well as the results achieved at an international level. The article also analyses the potential consequences of higher-level financial education for citizens and financial consumers. Finally, the article summarizes the main positions for and against financial education and draws conclusions in the form of recommendations for designing and implementing financial education programmes.
TopBackground
Despite the vital importance of financial education and literacy, the reality is that the level of financial knowledge varies substantially worldwide.
The Global Financial Literacy Test carried out by Standard and Poor´s with the collaboration of the World Bank in 2014 has revealed a worrying situation: only one-third of the surveyed adults were labelled as financially literate, in that they demonstrated an understanding of basic financial concepts such as risk management via diversification, simple and compound interest calculations, inflation and purchasing power. However, there are highly significant differences between countries in the level of financial literacy.
In a global financial environment with an ever-increasing number and complexity of financial products, an uneducated citizen is inevitably at a disadvantage when it comes to making informed financial decisions. Users who fail to understand basic financial issues often overestimate their ability to manage their personal finances; being overly self-confident makes them believe that they have a significantly better understanding of financial issues than they actually do (Arellano, Cámara & Roasta, 2014; Hospido & Villanueva, 2016; Lusardi & Mitchell, 2014).
Key Terms in this Chapter
Ethical Finance: A financial system that seeks, not only purely financial returns, but also qualitative oucomes, reflection ideas from faith, social, environmental and governance theories.
Financial Consumer: Any client, user or potential customer of the products or services offered by financial entities.
Personal Finance: The management of money and financial decisions for a person or family including budgeting, investments, retirement planning and investments.
Financial Literacy: The capacity of students to apply knowledge and skills in key subject areas and to analyse, reason, and communicate effectively as they pose, solve, and interpret problems in a variety of situation.
Behavioural Finance: Born from the union of psychology, traditional economy and neuroeconomy, behavioural finance study investors' psychology while making financial and investment decisions.
Financial Competences: Knowledge and understanding of financial concepts, as well as skills, motivation and confidence to apply and understand that knowledge, in order to make effective decisions in a variety of financial contexts.