The Role of Financial Inclusion: Does Financial Inclusion Matter?

The Role of Financial Inclusion: Does Financial Inclusion Matter?

Ulkem Basdas (Philip Morris International, Portugal)
Copyright: © 2020 |Pages: 32
DOI: 10.4018/978-1-7998-2440-4.ch011

Abstract

This chapter highlights the importance of financial education, its link with financial decision-making process, comparative status of different countries, and efforts to improve current situation. Unfortunately, there is no standard definition for neither financial education nor measures to quantify it. Therefore, this chapter first aims to provide a comprehensive definition in order to explain how financial knowledge affects the decision-making process. Then, financial literacy measures from previous studies over different countries would be discussed to show financial illiteracy problem is global. Lastly, solutions and recommendations would be discussed at three different levels: younger people, individuals, and national strategies.
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Background

In contrary to other financial concepts, financial literacy does not have a single definition or even there is not a single phrase to express. Several terms are used interchangeably, such as financial education, inclusion, literacy, knowledge, or skills. However, without a proper definition the gap between current situation and ideal or desired level of literacy cannot be set. Therefore, first question is to ask what the financial literacy is in order to be able to understand what has to be done.

Key Terms in this Chapter

Numeracy: The ability to understand and work with numbers.

Financial Literacy Measure: Any type of measurement used to quantify the financial literacy.

Instrumental Variable: Any variable, which is not directly representative of the variable in interest, but highly correlated with it.

Self-Assessment Questionnaire: The questionnaires that ask respondents to assess themselves.

Lusardi-Mitchell Design: Lusardi and Mitchell (2011) design included three questions: one for interest rate calculation, one to understand the awareness of respondent on the impact of inflation, and last one to test both knowledge about stocks versus stock mutual funds, and risk diversification.

Financial Decision Making: Any decision-making process that affects overall financial well-being of an individual.

Financial Literacy: Financial literacy is the set of following items: knowledge about financial concepts/products/services, competence to use financial concepts/products/services, ability to take financial decisions (i.e., transmission to behavior), confidence in financial operations.

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