ABSTRACT
Education, Nelson Mandela once said, is “the most powerful instrument to change the world.” If we agree with that, today’s basic education must include financial literacy. The reason for this claim is twofold: (i) individuals have greater responsibility for their finances in an increasingly complex world, and (ii) citizenship in contemporary democracies requires a basic understanding of economic policies, which have an ever-greater impact on individuals and the community.
The chapter contains a survey of the relevant world economic literature along this double track. The first section introduces the topic. The next section examines the financial dimension of the most relevant individual choices in the life cycle (education vs. work, consumption vs. saving, buying vs. renting a home, etc.) and shows not only a widespread ignorance of basic concepts needed to make wiser decisions but also the potential social benefits coming from financial literacy and education programs. The final sections consider more aggregate outcomes, such as the effects of financial literacy on income and wealth distribution and on active participation in political processes, and conclude the chapter.
