The Reason for IFLEE

The Value of Financial Literacy


Financial literacy levels around the world have reached a crisis point, and the United States, in particular, suffers from dire levels of financial literacy. The 2014 Program for International Student Assessment (PISA) survey showed that the United States had lower financial literacy levels than the OECD countries’ average, even falling below countries like Estonia and Poland.

Governments and employers have increasingly transferred the responsibility to save and invest to individuals, but, unfortunately, today’s median workforce lacks the knowledge and skill to manage this responsibility (Lusardi and Mitchell 2014; OECD 2008). This shortage of financial literacy leads to student loan defaults, excessive debt and personal bankruptcies. Moreover, the 2008 financial crisis demonstrated that ill-informed financial decisions - often caused by a lack

of financial literacy - can have tremendous negative consequences (INFE/OECD 2009; OECD 2009).

The economic ramifications of low financial literacy are tremendous. In the United States, simulations from a life-cycle model that incorporates financial literacy showed that financial literacy alone can explain more than half the observed wealth inequality (Lusardi, Michaud, and Mitchell 2013). Those with low financial literacy tend to not refinance their mortgages, leading to a cost of $15 - 20 billion annually in the U.S. (Campbell, 2006).

Thus, it is abundantly clear that improving financial literacy among our youth must be of utmost importance in the U.S.

The literature also shows that there is a large and persistent gender gap in financial literacy, with women having significantly less knowledge than men (Lusardi, Mitchell, and Curto 2010; Lusardi and Mitchell 2009; Lusardi and Tufano 2009a, 2009b). Several studies have also reported marked differences by race and ethnicity, with African Americans and Hispanics displaying the lowest level of financial knowledge in the U.S. (Lusardi and Mitchell 2007a, 2007b, 2011b).

Jersey City has about 30% Hispanic and 30% African American population; two ethnicities associated with the lowest level of financial literacy, and about 39% of Jersey City’s population is foreign born; another demographic in dire need of financial literacy services. The “Study on Immigrant Inclusion and Integration for Jersey City” known as Project Handshake, a collaborative effort between NJCU, Starting Points Inc. and Citi Community Development, identifies financial literacy as one of the key needs for the Jersey City immigrant community. NJCU is a Hispanic Serving Institution (HSI) that serves predominantly first generation, low income Hispanic students, a demographic that has the lowest level of financial literacy and is at risk of all the resulting maladies such as student loan defaults etc. Thus, it is imperative that steps be taken to improve financial literacy in this community/student body and hence the creation of the IFLEE.



Financial literacy is one of the most important topics for consumers and is particularly important for the young. The economic impact of low levels of financial literacy in the U.S is a serious issue that needs to be addressed. In particular, very low levels of financial literacy among minorities is a cause for concern and warrants efforts to ameliorate. The Institute for Financial Literacy at NJCU (IFLEE) will provide financial literacy services to the predominantly minority local community and students and thus play a part in addressing an important national problem.