Monday, October 1, 2012

Two Reasons Why Banks Should Promote Financial Literacy

It is not uncommon for people to believe that banks want a financially illiterate consumer base. However, new research indicates that may not be the case.

The World Bank's Financial Inclusion Global Practice has used survey results from the Consumer Protection and Financial Capability (CPFC) to illustrate what the CPFC data can tell us about the association between financial literacy, trust in financial institutions and financial inclusion. The results may surprise you.

You can read the full report by clicking here.

The research indicates two persuasive reasons for financial institutions to support a national movement to bring financial literacy into our classrooms.

1. The higher the level of financial literacy, the more formal financial products and services people use.

2. The number of formal products and services used also increases with the level of trust in financial institutions. Those who do not even know if they trust in banks, are unsurprisingly the ones with the least exposure to financial markets.

Dr. Lusardi and Dr. Mitchell both indicated at the PWC & Knowledge@Wharton seminar this weekend that research indicates just a little bit of financial literacy translates into a 20% increase in someone's net worth over time. That is not to say that if someone receives a financial education they will always make a wise financial choice. As the World Bank points out, almost every smoker knows about the negative effects of smoking. Yet that does not always change their behavior. But that doesn't mean we should stop informing the public of the consequences of smoking cigarettes.

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