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Financial literacy and its role in promoting a sound financial system

Author

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  • Doug Widdowson
  • Kim Hailwood

    (Reserve Bank of New Zealand)

Abstract

This article discusses the importance of financial literacy. Financial literacy – the ability to make informed judgements and decisions regarding the use and management of money – is important for individual consumers of financial services, the financial system and the wider economy. It influences how people save, borrow, invest and manage their financial affairs. It therefore affects their capacity to grow their wealth and income, and has significant implications for people’s lifestyle choices. Financial literacy also has a significant part to play in influencing how financial institutions – such as banks, non-bank deposit takers and insurers – manage their affairs and what products they provide. Because financial literacy influences people’s investment decisions, including risk/return tradeoffs, it also affects how resources in the economy are allocated. In turn, this has implications for the potential growth rate and stability of the economy. Accordingly, the main theme of this article is that financial literacy matters – at many different levels. The focus of this article is on financial literacy at the household and individual level. Research raises some concerns regarding financial literacy in New Zealand. The evidence suggests that many New Zealanders have limited financial literacy. The Retirement Commission and other government agencies are working to improve financial literacy levels. The private sector has also taken initiatives in this area. Work is under way to strengthen the regulation of financial advisers and to improve financial disclosure by issuers of securities to the public. However, there appears to be a need for further initiatives to raise the level of financial literacy in New Zealand. These initiatives should be accompanied by others to improve the delivery of user-friendly financial information to investors and consumers. This article explores the potential for further work in these areas.

Suggested Citation

  • Doug Widdowson & Kim Hailwood, 2007. "Financial literacy and its role in promoting a sound financial system," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, June.
    • Handle: RePEc:nzb:nzbbul:june2007:5
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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2007/2007jun70-2widdowsonhailwood.pdf
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    Cited by:

    1. Ester Muñoz-Céspedes & Raquel Ibar-Alonso & Sara de Lorenzo Ros, 2021. "Financial Literacy and Sustainable Consumer Behavior," Sustainability, MDPI, vol. 13(16), pages 1-21, August.
    2. Janice Burns & Maire Dwyer, 2007. "Households'attitudes to savings, investment and wealth," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, December.
    3. Christina Leung, 2009. "The demographics of household inflation perceptions and expectations," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 34-42, June.
    4. Javier Gómez‐Biscarri & Germán López‐Espinosa & Andrés Mesa‐Toro, 2022. "Drivers of depositor discipline in credit unions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 849-885, December.
    5. Yun-Gi Hwang & Soohyun Park & Daecheol Kim, 2018. "Efficiency Analysis of Official Development Assistance Provided by Korea," Sustainability, MDPI, vol. 10(8), pages 1-13, August.
    6. YingShuang Tan & Wanshuo Yang & Sid Suntrayuth & Xin Yu & Stavros Sindakis & Saloome Showkat, 2024. "RETRACTED ARTICLE: Optimizing Stock Portfolio Performance with a Combined RG1-TOPSIS Model: Insights from the Chinese Market," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 9029-9052, June.
    7. Leora Klapper & Annamaria Lusardi, 2020. "Financial literacy and financial resilience: Evidence from around the world," Financial Management, Financial Management Association International, vol. 49(3), pages 589-614, September.
    8. Beata Swiecka & Eser Yeşildağ & Ercan Özen & Simon Grima, 2020. "Financial Literacy: The Case of Poland," Sustainability, MDPI, vol. 12(2), pages 1-17, January.
    9. Mhd Akbar Hasibuan & Marwanti, 2019. "The Importance of Personal Financial Management Awareness at the Padang Lawas Student Family Association in Yogyakarta, Indonesia," Journal of Scientific Reports, IJSAB International, vol. 1(1), pages 44-50.
    10. Sheza Riaz & Hadi Hassan Khan & Bilal Sarwar & Wahab Ahmed & Noor Muhammad & Sajjida Reza & Sheikh Muhammad Nabeel Ul Haq, 2022. "Influence of Financial Social Agents and Attitude Toward Money on Financial Literacy: The Mediating Role of Financial Self-Efficacy and Moderating Role of Mindfulness," SAGE Open, , vol. 12(3), pages 21582440221, August.
    11. Noviarini, Jelita & Coleman, Andrew & Roberts, Helen & Whiting, Rosalind H., 2023. "Financial literacy and retirees' resource allocation decisions in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    12. Antoneta POLO & Dorjana NANO, 2015. "The Role Of University On Students Money Management Practices," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 87-96, December.
    13. Isaac Koomson & Sefa Awaworyi Churchill & Musharavati Ephraim Munyanyi, 2022. "Gambling and Financial Stress," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 473-503, August.
    14. Umi Widyastuti & Erie Febrian & Sutisna & Tettet Fitrijanti, 2019. "Factors Explaining the Market Discipline of Sharia Mutual Funds from a Behavioural Finance Perspective: A Theoretical Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 198-212.
    15. Jelena Titko & Natalja Lace & Tatjana Polajeva, 2015. "Financial Issues Perceived By Youth: Preliminary Survey For Financial Literacy Evaluation In The Baltics," Oeconomia Copernicana, Institute of Economic Research, vol. 6(1), pages 75-98, March.
    16. Ma. Jesusa Corazon M Lambert & Zuroni Md Jusoh & Husniyah Abd Rahim & Norzalina Zainudin, 2023. "Factors Affecting Financial Well-being of Millennials: A Systematic Review," Information Management and Business Review, AMH International, vol. 15(2), pages 98-108.
    17. Amaral, Christopher & Kolsarici, Ceren, 2020. "The financial advice puzzle: The role of consumer heterogeneity in the advisor choice," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    18. Noviarini, Jelita & Coleman, Andrew & Roberts, Helen & Whiting, Rosalind H., 2021. "Financial literacy, debt, risk tolerance and retirement preparedness: Evidence from New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    19. Jianmu Ye & KMMCB Kulathunga, 2019. "How Does Financial Literacy Promote Sustainability in SMEs? A Developing Country Perspective," Sustainability, MDPI, vol. 11(10), pages 1-21, May.
    20. Trang M. T. Phung & Quoc N. Tran & Phuong Nguyen‐Hoang & Nhut H. Nguyen & Tho H. Nguyen, 2023. "The role of learning motivation on financial knowledge among Vietnamese college students," Journal of Consumer Affairs, Wiley Blackwell, vol. 57(1), pages 529-563, January.
    21. Mehmet POLAT, 2023. "An Empirical Application on Determine the Economic Literacy Levels of Public Staff," Sosyoekonomi Journal, Sosyoekonomi Society, issue 31(56).
    22. Zulhawati & Meiliyah Ariani & Budi Harsono, 2022. "The effectiveness of using the digital wallet OVO in the Jakarta, Indonesia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(3), pages 61-72, April.

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