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Financial literacy and stock market participation

Maarten van Rooij (), Annamaria Lusardi () and Rob Alessie ()

Journal of Financial Economics, 2011, vol. 101, issue 2, 449-472

Abstract: We have devised two special modules for De Nederlandsche Bank (DNB) Household Survey to measure financial literacy and study its relationship to stock market participation. We find that the majority of respondents display basic financial knowledge and have some grasp of concepts such as interest compounding, inflation, and the time value of money. However, very few go beyond these basic concepts; many respondents do not know the difference between bonds and stocks, the relationship between bond prices and interest rates, and the basics of risk diversification. Most importantly, we find that financial literacy affects financial decision-making: Those with low literacy are much less likely to invest in stocks.

Keywords: Portfolio; choice; Knowledge; of; economics; and; finance; Financial; sophistication; Risk; diversification; Learning; from; peers (search for similar items in EconPapers)
Date: 2011
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Related works:
Working Paper: Financial Literacy and Stock Market Participation (2007) Downloads
Working Paper: Financial literacy and stock market participation (2007) Downloads
Working Paper: Financial Literacy and Stock Market Participation (2007) Downloads
Working Paper: Financial Literacy and Stock Market Participation (2007) Downloads
Working Paper: Financial Literacy and Stock Market Participation (2007) Downloads
Working Paper: Financial literacy and stock market participation (2007) Downloads
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