Inequality and the finance you know: does economic literacy matter?

Abstract

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.

Voting in the aftermath of a pension reform: the role of financial literacy

“…being available for a large number of countries from the mid-1990s until the late 2000s. Recent macro-economic analyses on the relevance of FL to stock market participation (Jappelli, 2010) and inequality (Lo Prete, 2013, 2018 features with respect to other dimensions of education, we also consider OECD-PISA data on the level of "mathematical literacy". They are based on the assessment of mathematical performance of 15-year-old scholars.…”

“…However, the IMD Business School's indicator has the notable advantage of being available for a large number of countries from the mid-1990s until the late 2000s. Recent macro-economic analyses on the relevance of FL to stock market participation (Jappelli, 2010) and inequality (Lo Prete, 2013, 2018) exploit its country and time coverage. A more recent direct indicator compiled through national surveys is the FL score of the Programme on International Student Assessment (PISA) of the OECD.…”

“…Poor FL is also associated with a lack of portfolio diversification in both country studies (Guiso and Jappelli, 2009) and cross-country research (Jappelli, 2010; Giofré, 2017). People's ability to take advantage of new investment opportunities, measured by economic literacy, may help to reduce inequality across countries and over time (Lo Prete, 2013, 2018). Little has been undertaken so far to include economic and financial knowledge in models that study why governments are reluctant to introduce economic reforms.…”

Machine Learning and Financial Literacy: An Exploration of Factors Influencing Financial Knowledge in Italy

“…Moreover, using a life-cycle approach, Lusardi et al (2017) show that gaps in FL amplify differences in wealth accumulation patterns and the consequent perpetuation in wealth inequality. In this direction, Lo Prete (2013Prete ( , 2018 empirically tested how the ability to take advantage of different financial opportunities, measured by financial knowledge, may help to reduce inequality across countries and over time. She found that the level of economic literacy is associated with income inequality across countries, using a sample of advanced and developing countries observed over the 1980-2007 period.…”

Financial literacy, education, and voter turnout

“…In individual data, it helps explain differences in stock market participation and in planning for retirement behavior in individual data (see, e.g., Lusardi and Mitchell, 2007;van Rooij et al, 2011). In aggregate data, it is associated to decreasing income inequality, in contexts where people's ability to understand economic and financial concepts helps them to use financial instruments (Lo Prete, 2013 and2018).…”