‘Financial literacy’ is a term used to describe a range of factual knowledge and conceptual understanding relating to an individual’s capacity engage with the workings of personal finance – e.g. savings, borrowing, taxation, investment, pensions and so on.  It is generally hypothesised that individuals with higher financial literacy will make more economically rational decisions and indulge in less risky behaviours with respect to their own finances, both in the short-run and the long-term.

In many countries, it is perceived that there is something of a crisis of financial literacy among adolescents and young adults (e.g. Atkinson et al 2007; Lusardi and Mitchell 2011).  This is associated with short-term decision-making, a failure to delay gratification, excessive use of debt and a failure to minimise costs or maximise benefits (e.g. paying too much tax or choosing low return investments).  It is argued that these individuals are developing bad behaviours that will cause difficulties for them and for wider society as they move into adulthood and the more significant financial decisions that it brings, although there are questions about the predictive power of financial literacy on behaviour (e.g. Mandell and Klein 2009).

A particular group of young adults who are expected to make financial decisions with far-reaching consequences is comprised of students.  In many countries, students are finding themselves deciding on how much personal debt to accrue and from what sources, as well as entering into taxation systems for the first time.  In the UK, for example, many students will be borrowing approximately £9,000 per year for their tuition fees and £4,000 per year towards their living costs through a student loans, as well as using credit cards and overdrafts to meet any shortfall.

Financial literacy is therefore likely to be of key importance to higher education students in terms of guiding (and potentially defining) the decisions that they make.  However, previous studies have suggested that financial literacy may be lower for women, people from minority ethnic communities and those from lower socio-economic groups (e.g. Chen and Volpe 1998; Murphy 2005; Lusardi et al 2010).  This suggests that some students may be less well prepared for the financial components of university life than others.

While there have been many within-country studies of financial literacy, there is little international comparative data available.  It has not, therefore, been possible to compare how well different countries might prepare their young people, nor how financial literacy might be impacted by demographic factors.  The 2012 PISA exercise has collected data from eighteen countries that will be released in mid 2014 and this will provide useful contextual data for this study, which is based around data from the UK, the US and New Zealand (NZ).

This study aims to investigate the levels of financial literacy in different countries, with specific respect to the following research questions:

1. Do comparable samples of young people from different countries present similar levels of financial literacy?
2. Which demographic or personality factors are significant predictors for financial literacy levels, and is the group of predictors consistent between different countries?
3. Are financial literacy levels linked to between-country differences in policy on financial education?

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