Financial literacy and financial behavior

Abstract

The relevance of financial literacy and the need to assess it are based on the assumption that more financially literate individuals make better financial decisions and show good financial behaviors, or (at least) are more aware about the possible consequences of their choices about money issues. This chapter analyzes the relationship between financial literacy and financial behaviors with the aim to check whether a positive effect on the financial consumer decision making process caused by financial literacy exists. Both a theoretical analysis and empirical evidence from previous studies are used to investigate the relationship between financial literacy and different financial behaviors (loans and debt, saving and investment, retirement and planning, etc.). The need to take care with regard to financial literacy is confirmed as well as its increasing relevance due to new and more challenging economic and financial frameworks compared to those of the recent past, when the need of people to play an active role and make financial decisions increased for several reasons (e.g. downsizing of the welfare systems, increasing complexity of financial products and services, flexibility of the job market, etc.).

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