Empirical studies of the link between finance and inequality document that across countries financial development is associated with lower and decreasing income inequality. This article uses an indicator of economic literacy as a proxy for the ability to reap the benefits of financial investment opportunities, and documents that such specific competences matter for the relationship between changes in inequality and financial development. As financial markets become more sophisticated, the ability to take advantage of new investment opportunities may help reduce inequality, and the empirical association between financial development and lower income inequality indeed appears to be driven by economic literacy.

This study documents that the electoral cost of major pension reforms is lower in countries where the level of financial literacy is higher. The evidence from data on legislative elections held between 1990 and 2010 in 21 advanced countries is robust when we control for macroeconomic, demographic, and political conditions. Interestingly, these findings are not robust when we use less specific indicators of human capital as general schooling, supporting the view that knowledge of basic economic and financial concepts has distinctive features that may help reduce the electoral cost of reforms having a relevant impact on the life cycle of individuals.

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This paper considers the relationship between financial markets and income distribution from a perspective that emphasizes the role of people's ability to use financial markets and their instruments in helping reduce income inequality. Using cross-section and panel regression techniques, it documents in a sample of advanced and developing countries that income inequality grows less where economic literacy is higher, while the direct association between financial development and inequality usually referred to as the "finance-inequality nexus" is not significant in the medium term nor in long crosssectional regressions controlling for the level of economic literacy.