Financial Literacy and Stock Market Participation

descriptionPublicationkeyboard_double_arrow_right Article , Report , Research , Other literature type , Preprint 01 Jan 2007 Germany, United States, Netherlands English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Rooij, Maarten van; Lusardi, Annamaria; Alessie, Rob J. M.;

doi: 10.2139/ssrn.1476958 , 10.1016/j.jfineco.2011.03.006 , 10.2139/ssrn.1014994 , 10.3386/w13565

handle: 11370/52929546-8b6a-4317-90de-8a11c820cf84 , 10419/25528 , 10419/322735 , 2027.42/57575

Financial Literacy and Stock Market Participation

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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. (C) 2011 Elsevier B.V. All rights reserved.

Countries

Germany, United States, Netherlands

Related Organizations

University of Amsterdam
Netherlands
University of Groningen
Netherlands
George Washington University
United States
De Nederlandsche Bank
Netherlands
Utrecht University
Netherlands

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Keywords

330, Portfolio Choice, Knowledge of Economics and Finance, Financial Sophistication, UM07-SP, Ordered by external client, Social Sciences, Portfolio choice; Knowledge of Economics and Finance, Financial Sophistication, Knowledge of economics and finance, 332, Wissen, Financial Sophistication, Portfolio choice; Knowledge of Economics and Finance; Financial Sophistication., Portfolio choice, HOUSEHOLD FINANCE, D91, Learning from peers, RETIREMENT, G11, Portfolio Choice,Knowledge of Economics and Finance,Financial Sophistication, Niederlande, Portfolio Choice, Kenntnis, RISK, Knowledge of Economics and Finance, ddc:330, Financial sophistication, Risk diversification, INSTRUMENTS, Privater Haushalt, Sparen, HOLD STOCKS, D80, WP 2007-162, Aktienmarkt, WEAK, EQUITY, Population and Demography, Kapitalanlage, COSTS, jel: jel:D80, jel: jel:D91, jel: jel:G11, ddc: ddc:330

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