Financial literacy and saving decisions : how can financial literacy be more effective?

This papers looks at two aspects of financial literacy to investigate the causal factors behind preference for the insurance saving plan over government bonds, when choosing a saving vehicle. Using a survey experiment with 127 NTU undergraduates as subjects, we find that the lack of information on returns from government bonds plays a significant role in explaining this preference. Interestingly, providing calculations to show the actual rates of return of the insurance saving plan has no effect on reducing the subjects’ preference for it. Our findings suggest a need for the government to step up effort in educating the public about government bonds and their yields, so as to help economic agents make more informed saving decisions. Also, in the bid to raise financial literacy, financial education institutes/providers can pay more emphasis on sharing the current yields of various financial products. This way, financial literacy education is likely to have stronger implications in facilitating real life financial decisions.Bachelor of Art