On Multidimensional Approaches to Financial Literacy Measurement

Financial literacy has become an important research topic in recent years. This paper uses data on financial literacy collected in 2012 by Israel's Central Bureau of Statistics. To measure financial literacy it first adopts ideas originally suggested by Lusardi and Mitchell (Am Econ Rev 98(2):413-417, 2008, J Pension Econ Finance 10(4):509-525, 2011). Then it proposes to measure financial literacy by borrowing concepts commonly used in the literature on multi-dimensional poverty measurement. The paper thus introduces three approaches to financial literacy measurement, the so-called "fuzzy" approach, that of Alkire and Foster (J Public Econ 95(7-8):476-487, 2011) and that of Rippin (Distributional justice and efficiency: integrating inequality within and between dimensions in additive poverty indices. Georg-August-Universitat Gottingen, Gottingen). The empirical analysis shows that in Israel the overall level of financial sophistication is quite low. Men are generally more financially literate than women, and Jews more than non-Jews. The relationship between age and financial literacy is U-shaped. Financial literacy, and its components, increase with the level of education and are generally higher among married individuals and those who are employed.