Financial Literacy: Micro and Macro Level Economic Outcomes

This paper studies the literature review on financial literacy and its impact on various economic outcomes at the micro and macro level. Individual and institutional behaviours such as savings and investment, default probabilities and participation in financial markets are significantly impacted by the levels of financial literacy. At the macro level these translate into wider effects such as income and wealth inequalities, economic development etc. The subject needs to be dealt with caution as there are certain endogeneity issues such as omitted variable bias, reverse causality etc. Significant studies have been done at the micro level to correct for the endogeneity. However, at the macro level there are substantial literature gaps. It is also critical to model financial literacy and outcomes in a structural framework.