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Financial literacy is a form of literacy, and is the ability of individuals to make appropriate decisions in managing their personal finances. Raising levels of financial literacy is now a focus of government programmes in countries including[1] Australia, Japan, the United States and the UK. The OECD started an inter-governmental project in 2003 with the objective of providing ways to improve financial education and literacy standards through the development of common financial literacy principles. In the UK, the alternative term “financial capability” is normally used: the Financial Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The US Government also established its Financial Literacy and Education Commission in 2003.

International findings

An international OECD study was published in late 2005 analysing financial literacy surveys in OECD countries. A selection of findings[2] included:

  • In Australia, 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a problem using the concept only 28 per cent had a good level of understanding.
  • A British survey found that consumers do not actively seek out financial information. The information they do receive is acquired by chance, for example, by picking up a pamphlet at a bank or having a chance talk with a bank employee.
  • A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist.
  • A survey of Korean high-school students showed that they had failing scores - that is, they answered fewer than 60 per cent of the questions correctly - on tests designed to measure their to choose and manage a credit card, their knowledge about saving and investing for retirement, and their awareness of risk and the importance of insuring against it.
  • A survey in the US found that four out of ten American workers are not saving for retirement.

“Yet it is encouraging that the few financial education programmes which have been evaluated have been found to be reasonably effective. Research in the US shows that workers increase their participation in 401(k) plans (a type of retirement plan, with special tax advantages, which allows employees to save and invest for their own retirement) when employers offer financial education programmes, whether in the form of brochures or seminars.”[3]


The Australian Government established a National Consumer and Financial Literacy Taskforce in 2004, which recommended the establishment of the Financial Literacy Foundation in 2005. The task force also recognised the need for a social marketing campaign.[4] The Australian Federal Government created a website "Understanding Money" in mid 2006.[2]

United Kingdom

The current UK strategy involves the FSA spending about £10 million a year[5] across a seven-point plan. The priority areas are:

  • New parents
  • Schools (a programme being delivered by pfeg)
  • Young Adults
  • Workplace
  • Consumer communications
  • Online tools
  • Money advice

A baseline survey[6] conducted 5,300 interviews across the UK in 2005. The report identifies four themes:

  • Many people are failing to plan ahead
  • Many people are taking on financial risks without realising it
  • Problems of debt are severe for a small proportion of the population, and many more people may be affected in an economic downturn
  • The under-40s are, on average, less financially capable than their elders

“In short, unless steps are taken to improve levels of financial capability, we are storing up trouble for the future.”[7]

There are also numerous charities in the United Kingdom working to improve financial literacy such as Credit Action, The Talking Economics Project, Citizens Advice Bureax and the Personal Finance Education Group.

United States

The US Treasury established its Office of Financial Education in 2002; and the US Congress established the Financial Literacy and Education Commission under the Financial Literacy and Education Improvement Act in 2003. The Commission published its National Strategy on Financial Literacy [8] in 2006.

See also


  1. ”Taking Ownership of the Future: The National Strategy for Financial Literacy” US Financial Literacy and Education Commission, 2006, page 113
  2. Hecklinger, Richard E. Deputy Secretary-General of the OECD speaking January 9, 2006 at The Smith Institute, London reported in New Statesman accessed at [1] June 5, 2006
  3. Hecklinger, Richard E - as cited above
  4. Preliminary task force recommendations 2004
  5. “Financial capability in the UK: Delivering Change”, Financial Services Authority, 2006, page 1, ISBN 1-84518-418-1
  6. “Financial capability in the UK: Establishing a Baseline”, Financial Services Authority, 2006, ISBN 1-84518-419-X
  7. “Financial capability in the UK: Establishing a Baseline”, page 3
  8. “Taking Ownership of the Future”, Financial Literacy and Education Commission, 2006

External links

Further reading

  • “Improving Financial Literacy - Analysis of Issues and Policies” OECD 2005
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