Financial Literacy around the World

Interesting new study on financial literacy. A tiny amount of interest goes a long way.

Financial Literacy around the World: An Overview

Annamaria Lusardi, Olivia S. Mitchell

NBER Working Paper No. 17107

Issued in June 2011

NBER Program(s):   AG

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

In an increasingly risky and globalized marketplace, people must be able to make well-informed financial decisions. Yet new international research demonstrates that financial illiteracy is widespread when financial markets are well developed as in Germany, the Netherlands, Sweden, Japan, Italy, New Zealand, and the United States, or when they are changing rapidly as in Russia. Further, across these countries, we show that the older population believes itself well informed, even though it is actually less well informed than average. Other common patterns are also evident: women are less financially literate than men and are aware of this shortfall. More educated people are more informed, yet education is far from a perfect proxy for literacy. There are also ethnic/racial and regional differences: city-dwellers in Russia are better informed than their rural counterparts, while in the U.S., African Americans and Hispanics are relatively less financially literate than others. Moreover, the more financially knowledgeable are also those most likely to plan for retirement. In fact, answering one additional financial question correctly is associated with a 3-4 percentage point higher chance of planning for retirement in countries as diverse as Germany, the U.S., Japan, and Sweden; in the Netherlands, it boosts planning by 10 percentage points. Finally, using instrumental variables, we show that these estimates probably underestimate the effects of financial literacy on retirement planning. In sum, around the world, financial literacy is critical to retirement security.

via Financial Literacy around the World: An Overview.

Einhorn on Ballmer at Ira Sohn: A Caretaker

Some very good stuff in David Einhorn’s full analysis of Microsoft from the Ira Sohn conference a few weeks back:

Ballmer’s problem is that he is stuck in the past, and is at best a caretaker in an industry demanding constant innovation. He’s allowed competitors to beat Microsoft in huge areas including search, mobile communication software, tablet computing, and social networking. But even worse, his response to these failures has been to pour tremendous resources into efforts to either buy or develop his way out of these holes.

via Transcript of David Einhorn’s Speech at the Ira Sohn Conference – Insider Monkey.

If Felix Zulauf Ran the Zoo …

From the weekend Barron’s Mid-Year Roundtable, here is some trenchant and detoxifying Felix Zulauf:

If you ran the ECB, how would you deal with Greece?

There is no painless solution. We have to let entities, even governments, default. But we have to make sure first that the banking system can handle its clients’ defaults. That is the problem. In the European banking system, equity capital is only 3% of assets. In the U.S. it is 4.5%. Raising banks’ equity-capital ratios is the only way to solve the problem in the long run.

We missed the chance during the financial crisis. I would have handled the whole crisis differently. I would have nationalized the banks and not allowed them to pay any dividends or big bonuses. First they would have to improve their equity-capital positions. This would go hand in hand with extremely low growth.

You would have been very unpopular.

The fiscal authorities have to support the system. But instead of wasting money to boost consumption, they should be spending on investments that will bear fruit long term. By the middle of the decade at the latest, we will have a major crisis, bigger than 2008. Several countries will default, particularly in Europe. Quasi-fixed exchange rates between the U.S. and China will start to unravel, which will force the U.S. dollar down tremendously. It will push bond yields up and stocks down.

via Barron’s Mid-Year Investment Roundtable –

Groupon Needs More IPO Stock-Floggers

This is not a good sign for the Groupon IPO — more stock-floggers needed:

Groupon Inc., seeking to raise $750 million in an initial public… [cont.]

[Full post at my Bloomberg blog]

Notes: Recovery, Groupon, Oil, Wimbledon, etc.

Groupon to Offer IPO Role to Six More Banks (Bloomberg)Market efficiency, anticipation and the formation of bubbles-crashes (arXiv)Nigeria: The Cost… [cont.]

[Full post at my Bloomberg blog]

BP: Global Solar & Renewables Growth

From the latest BP energy report, impressive growth in global renewable energy, up 73 percent year over year. Most of this is happening in Europe,… [cont.]

[Full post at my Bloomberg blog]

Anticipation and the formation of bubbles

Interesting new paper:

Market efficiency, anticipation and the formation of bubbles-crashes

Serge Galam

(Submitted on 8 Jun 2011)

A dynamical model is introduced for the formation of a bullish or bearish trends driving an asset price in a given market. Initially, each agent decides to buy or sell according to its personal opinion, which results from the combination of its own private information, the public information and its own analysis. It then adjusts such opinion through the market as it observes sequentially the behavior of a group of random selection of other agents. Its choice is then determined by a local majority rule including itself. Whenever the selected group is at a tie, i.e., it is undecided on what to do, the choice is determined by the local group belief with respect to the anticipated trend at that time. These local adjustments create a dynamic that leads the market price formation. In case of balanced anticipations the market is found to be efficient in being successful to make the “right price” to emerge from the sequential aggregation of all the local individual informations which all together contain the fundamental value. However, when a leading optimistic belief prevails, the same efficient market mechanisms are found to produce a bullish dynamic even though most agents have bearish private informations. The market yields then a wider and wider discrepancy between the fundamental value and the market value, which in turn creates a speculative bubble. Nevertheless, there exists a limit in the growing of the bubble where private opinions take over again and at once invert the trend, originating a sudden bearish trend. Moreover, in the case of a drastic shift in the collective expectations, a huge drop in price levels may also occur extremely fast and puts the market out of control, it is a market crash.

via [1106.1577] Market efficiency, anticipation and the formation of bubbles-crashes.

Pimco’s Long-Short-Long Position in U.S. Debt

PIMCO’s Bill Gross is apparently net short U.S. debt in the sense that it is net long said debt. Got that? Me neither, but it’s fun.

Pacific Investment Management Co., under criticism for missing this year’s rally in Treasuries, revised how it lists asset holdings to show that its flagship fund held U.S. government debt in May.

The $243 billion Total Return Fund managed by Bill Gross increased its holdings of U.S. government debt to 5 percent from 4 percent in April, according to data on the Newport Beach, California-based company’s website. In the prior month’s posting, the category that was classified as government and government- related debt had shown negative holdings of 4 percent. The website showed an added category this month of swaps and liquid rates with holdings of minus 9 percent. Michael Reid, a spokesman at Pimco, declined to comment.

via Pimco Adjusts to Show Gross Fund Owns U.S. Debt – Bloomberg.

Email Spam: 95% of Revenues Through Three Banks

From a new paper on email spam, 95% of revenues (in the study) cleared through three banks. Remarkable.


Oil Production & Consumption



via Economist