Journal of the International Academy for Case Studies Volume 26, Special Issue 1, 2020 Financial Literacy 1 1532-5822-26-S1-1-193 FINANCIAL LITERACY OR LESSONS FOR LIFE? Sophia A. Kassapi, Principal Investigator, University of Patras, Greece ABSTRACT The interest of this paper lies within financial literacy & education. Principles such as diversification of investments, exploitation of the power of interest compounding, taking advantage of tax-favored assets or employer matches are fundamental. Asteriou & Siriopoulos dictate the prevalence of vocational education, through which various financial skills emerge. How to be less vulnerable to financial fraud, use debt responsibly, runs a business efficiently, knowledge of interest compounding and numeracy are the strongest predictors of planning and economic growth. Any saving plan requires the ability to calculate present values, and an understanding of the advantages of starting to save early in life that can benefit every investor. Keywords: Information and Market Efficiency (G14). INTRODUCTION PISA (2018) defines financial literacy as the knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life. Surveys show that a majority of workers are unaware of the risks they have to face, and even if they are aware of them, they have neither the sufficient financial knowledge nor the skills to manage such risks adequately (OECD, 2019). Several studies have documented poor debt behavior and its link to financial literacy. Moore (2003) reported that the least financially literate are more likely to have costly mortgages. Lusardi & Tufano (2015) showed that the least financially savvy incurred high transaction costs, paying higher fees and using high-cost borrowing methods. In their study, the less knowledgeable also reported excessive debt loads and an inability to judge their debt positions. Mottola (2013) found that those with low financial literacy were more likely to engage in costly credit card behavior, and Utkus & Young (2011) concluded that the least literate were more likely to borrow against their 401(k) and pension accounts. Other studies have confirmed the positive association between financial knowledge and household financial decision-making. Stango & Zinman (2007) show that those who are unable to correctly calculate interest rates out of a stream of payments end up borrowing more and accumulating lower amounts of wealth. Lusardi & Tufano (2008) find that those who severely underestimate the power of interest compounding are more likely to experience difficulties repaying debt. Agarwal et al. (2007) show that financial mistakes are most prevalent among the young and the elderly—demographic groups that display the lowest levels of financial knowledge and cognitive ability. Hilgerth, Hogarth & Beverly (2003) also document a positive link between financial knowledge and financial behavior. Campbell (2006) further demonstrates that many investors failed to refinance their mortgages during a period of falling interest rates. This finding is consistent with lack of literacy, as those who failed to refinance were investors with disproportionately low education.