This paper examines the relationship between financial literacy and stock market participation. The authors, Maarten van Rooij, Annamaria Lusardi, and Rob Alessie, use data from the Dutch Central Bank's Household Survey to measure financial literacy through two modules: one assessing basic financial concepts and the other measuring advanced financial knowledge related to stocks, bonds, and mutual funds. They find that while individuals have a basic understanding of financial concepts like inflation and interest rates, their knowledge of more complex topics such as stock and bond mechanics, risk diversification, and financial markets is limited. The study also reveals that financial literacy is highly sensitive to the wording of survey questions, suggesting that responses can be noisy proxies for true knowledge. Importantly, the authors find that those with low financial literacy are significantly less likely to invest in stocks, even after controlling for demographic and economic factors. This suggests that financial education programs should be targeted to specific groups to improve financial decision-making and participation in the stock market.This paper examines the relationship between financial literacy and stock market participation. The authors, Maarten van Rooij, Annamaria Lusardi, and Rob Alessie, use data from the Dutch Central Bank's Household Survey to measure financial literacy through two modules: one assessing basic financial concepts and the other measuring advanced financial knowledge related to stocks, bonds, and mutual funds. They find that while individuals have a basic understanding of financial concepts like inflation and interest rates, their knowledge of more complex topics such as stock and bond mechanics, risk diversification, and financial markets is limited. The study also reveals that financial literacy is highly sensitive to the wording of survey questions, suggesting that responses can be noisy proxies for true knowledge. Importantly, the authors find that those with low financial literacy are significantly less likely to invest in stocks, even after controlling for demographic and economic factors. This suggests that financial education programs should be targeted to specific groups to improve financial decision-making and participation in the stock market.