**2. Literature Survey**

The literature on financial literacy focuses on two main areas: (i) the determinants of financial literacy, including age, gender, level of education, and occupation; and (ii) the effects of financial literacy on financial behavior, including saving, use of credit, and preparation for retirement.

One of the earliest to develop quantifiable measures of financial literacy was that of the Jump\$tart Coalition for Personal Financial Literacy program for high school and college students in the US in 1997 described in Mandell (2009). Lusardi and Mitchell (2006) added a set of financial literacy questions to the 2004 Health and Retirement Study (HRS), a survey of US households aged 50 and older, which have served as a model for later surveys. The three core questions in the original survey were aimed at identifying respondents' understanding of some key financial concepts: compound interest, real rates of return, and risk diversification. Later surveys, including the OECD/INFE survey, extended the financial knowledge questions but also added questions about financial attitudes, financial behavior, and financial experience. The methodology for calculating scores from the OECD/INFE survey responses is described below in Section 3.2.

Lusardi and Mitchell (2014) provide an extensive review of the literature on factors related to financial literacy. Financial literacy scores tend to follow a hump-shaped pattern with respect to age, first rising and then declining in old age. However, elderly persons' confidence in their financial literacy shows no similar decline, suggesting a perceptual gap. Women generally score lower than men in financial literacy, although this seems to vary a lot by country and culture. On the other hand, women tend to be more willing to admit not knowing an answer than men are. Higher levels of education and parents' education are positively correlated with financial literacy. These findings were generally confirmed in the analysis of the results of the OECD/INFE survey in the above-mentioned sample of 30 countries in OECD/INFE (2016).

A key question for policy is whether financial education programs can improve financial literacy. A large number of studies have been conducted, but the results are inconclusive. The results depend on many specific aspects of the programs, including course content, knowledge of the teachers, etc. Fernandes et al. (2014) perform a meta-analysis of 188 studies and find that financial education has a significant but very small effect of only 0.1% on related economic behaviors. Lusardi and Mitchell (2014) cite Walstad et al. (2010) as an example of a careful study that found significant impacts from a financial literacy study program. In their survey, Hastings et al. (2013, p. 359) argue that the evidence on the effectiveness of financial education programs on financial literacy is " . . . at best contradictory."

Many papers attempt to link measures of financial literacy with other economic and financial behaviors, going back to Bernheim (1995, 1998) in the US. Hilgert et al. (2003) found a strong correlation between financial literacy and daily financial managemen<sup>t</sup> skills, while other studies found that the more numerate and financially literate are more likely to participate in financial markets, invest in stocks, and make precautionary savings (Christelis et al. 2010; van Rooij et al. 2011; de Bassa Scheresberg 2013). The more financially savvy are also more likely to undertake retirement planning, and those who make financial plans also tend to accumulate more wealth (Lusardi and Mitchell 2011). Mahdzan and Tabiani (2013) find similar evidence in Malaysia.

In terms of household borrowing, Moore (2003) found that those with lower financial literacy are more likely to have more expensive mortgages. Campbell (2006) showed that those with lower income and less education were less likely to refinance their mortgages during periods of falling interest rates. Stango and Zinman (2009) found that those who could not correctly calculate interest rates generally borrowed more and accumulated less wealth.
