Author(s): Costas Siriopoulos
Recent research reports that individuals with higher levels of financial illiteracy tend to make more high-cost transactions, suffering higher fees and commissions and using high-cost products and methods of borrowing (Barber et al 2005, Lusardi and Tufano 2009; Klapper et al. 2012). A related research conducted by Agarwal et al. (2009) revealed a U-shaped pattern over the life- cycle, with the minimum amount of transactions fees, commissions and investment mistakes occurred at about age 53. Campbell (2006) showed that individuals often do not understand the terms of their mortgages and committed major financial mistakes such as absence of diversification, lack of ability to choose the right financial instrument, and non-understanding of new financial tools and under-participation in financial markets, with important implications for financial innovation.