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Financial literacy in different countries and its consequences

Financial literacy is the ability to understand and properly apply financial management skills. Effective financial planning, properly managing debt, accurately calculating interest, and understanding the time value of money are characteristics of being financially literate. Countries can be classified into 3 different groups: 1 the group of countries where financial literacy is quite high and encouraged, 2 the group of countries that are developed countries where financial literacy is low and finally 3 the group of developing countries where financial literacy is low. The most obvious example of a country belonging to the first group is the US. In the US financial literacy is high, meaning that many if not most people have a basic understanding of finance matters and important concepts. In the US, financial literacy is encouraged by many states and is more and more included in school curriculum. In the second group, the group of countries that are developed countries where financial literacy is low, we find countries like France where most (or at least many) people do not have basic understanding of financial concepts. The French public’s economic knowledge has been the focus of particular attention and regular polls for some twenty years (e.g. Banque de France, 2018). The recurrent observation made by these studies is that, although a small majority (50% to 60%) of French people say they are “interested” in the economy, their economic knowledge is generally regarded as highly inadequate. Finally in the third group, we find countries like India and Vietnam where once again most people lack financial basic knowledge. This lack of knowledge has some tangible consequences on how people from these countries invest. In India and Vietnam, local people prefer to invest in material things like gold.

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