Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 4

Financial Literacy and Education

Michael S. Finke

Professor and Retirement Planning & Living Director, Department of Personal Financial Planning, Texas Tech University

Sandra J. Huston

Associate Professor and Personal Financial Literacy Program Director, Department of Personal Financial Planning, Texas Tech University

INTRODUCTION

Financial literacy is a relatively new term that began appearing in news headlines in the mid-1990s. Since its inception, confusion has surrounded what financial literacy is and how one becomes financially literate. Financial literacy may refer to specific knowledge, specific skill, perceived knowledge, financial behavior, financial experience, financial outcomes, and/or financial education. As a result, researchers have proposed many definitions and methods of measuring financial literacy (Hung, Parker, and Yoong 2009; Huston 2010). In 2008, the President's Advisory Council on Financial Literacy (PACFL) (2008, p. 4) attempted to officially define financial literacy as “the ability to use knowledge and skills to manage resources effectively for a lifetime of financial well-being.” However, both the appropriateness and universal adoption of this definition have been questioned (Hung et al. 2009; Huston 2010). The lack of a standard financial literacy measure may be attributed to the relative infancy of the field of study and the confusion surrounding the nature of the construct (Remund 2010; Knoll and Houts 2012).

A new term has emerged in the ...