Monika Bütler Recommends “The Economic Importance of Financial Literacy: Theory and Evidence” by Annamaria Lusardi and Olivia S. Mitchell

Interest compounding, accounting for inflation, and diversification of risks—economists know the importance of such knowledge for sound financial decisions. Noneconomists should know as well. That is where Annamaria Lusardi and Olivia Mitchell step in. Motivated by huge differences in retirement wealth among otherwise similar elderly households, the two researchers think about meaningful and simple ways to measure financial knowledge.