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We analyze a national sample of Americans with respect to their debt literacy, financial experiences, and their judgments about the extent of their indebtedness. Debt literacy is measured by questions testing knowledge of fundamental concepts related to debt and by selfassessed financial knowledge. Financial experiences are the participants ’ reported experiences with traditional borrowing, alternative borrowing, and investing activities. Overindebtedness is a self-reported measure. Overall, we find that debt literacy is low, especially among women, the elderly, minorities and those with low income and wealth. Even after controlling for demographics, we find a strong relationship between debt literacy and both financial experiences and debt loads. Specifically, individuals with lower levels of debt literacy tend to transact in high-cost manners (incurring fees and using high-cost borrowing). In applying our results to credit cards, we estimate that less knowledgeable individuals pay 46 percent more fees than do the more knowledgeable individuals. The less knowledgeable also report that their debt loads are

Many baby boomers are approaching retirement with perilously low levels of financial wealth and virtually no assets other than their homes (Lusardi and Mitchell 2007a). This is a particular concern for female-headed households which face many lean years ahead (David R. Weir and Robert J. Willis 2000). Yet little is known about why people fail to plan for retirement, and how planning as well as information costs shape retirement saving decisions. Lack of planning has important consequences for saving and portfolio choice: those who do not plan tend to accumulate far less wealth than those who plan, and nonplanners are also less likely to invest in stocks and tax-favored assets (Lusardi and Mitchell 2007c). This paper examines the factors central to women’s retirement planning, relying on a purpose-designed module we have developed for the 2004 Health and Retirement study (HRS) on planning and financial literacy. In this module, we have inserted several questions that measure basic levels of financial literacy, as well as questions to assess how respondents plan and save for retirement. Our research shows that older women in the United States have very low levels of financial literacy, and the majority of women have undertaken no retirement planning. Furthermore, financial knowledge and planning are clearly interrelated: women who display higher financial literacy are more likely to plan and be successful planners. Our findings can be of help to those seeking to enhance older women’s retirement security. Both employers and governments have devoted effort to seminars, educational programs, and retirement planning products in the last decade,

literacy questions. Yuni Yan and Hiroaki Matsuura provided excellent research assistance.

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Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This paper demonstrates widespread financial illiteracy among the U.S. population, particularly among specific demographic groups. Those with low education, women, African-Americans, and Hispanics display particularly low levels of literacy. Financial literacy impacts financial decision-making. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. While financial education programs can result in improved saving behavior and financial decision-making, much can be done to improve these programs’ effectiveness. 1

Financial development is critical for growth, but its micro-determinants are not well understood. We test leading theories of low demand for financial services in emerging markets, combining novel survey evidence from Indonesia and India with a field experiment. We find a strong correlation between financial literacy and behavior. However, a financial education program has modest effects, increasing demand for bank accounts only for those with limited education or financial literacy. In contrast, small subsidies greatly increase demand. A follow-up survey confirms these findings, demonstrating that newly opened accounts remain open and in use two years after the intervention.

This paper provides a critical survey of the large literature on the life cycle model of consumption, both from an empirical and a theoretical point of view. It discusses several approaches that have been taken in the literature to bring the model to the data, their empirical successes, and their failures. Finally, the paper reviews a number of changes to the standard life cycle model that could help solve the remaining empirical puzzles. 1.

This paper was written for the conference "Implications of Behavioral Economics for Economic Policy" held at the Federal Reserve Bank of Boston on September 27–28, 2007. It builds on several papers I have written in collaboration with Olivia Mitchell, whom I would like to thank for her encouragement, support, and many comments. Moreover, I would like to thank my discussants, Alan Blinder and David Laibson, and the conference participants for many helpful suggestions. Audrey Brown provided excellent research assistance. Any errors are my responsibility. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.