nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2017‒06‒18
two papers chosen by

  1. Social ties and the demand for financial services By Eleonora Patacchini; Edoardo Rainone
  2. Does Financial Education Impact Financial Literacy and Financial Behavior, and if so, When? By Kaiser, Tim; Menkhoff, Lukas

  1. By: Eleonora Patacchini (Cornell University); Edoardo Rainone (Bank of Italy)
    Abstract: This paper studies the importance of social interactions for the adoption of financial services among young adults. Specifically, we investigate whether, how, and why financial decisions among interacting agents are correlated. We exploit a unique dataset of friendship networks in the United States and a novel estimation strategy that accounts for possibly endogenous network formation. We find that not all social contacts are equally important: only long-lasting relationships influence financial decisions. Moreover, this peer influence exists only in cohesive social structures. This evidence is consistent with an important role of trust in financial decisions. When agents consider whether or not to adopt a financial instrument, they face a risk and may place greater value on information coming from agents they trust. These results can help explain the importance of face-to-face social contacts for financial decisions.
    Keywords: financial market participation, financial literacy, social interactions, trust, network formation, endogeneity, Bayesian estimation
    JEL: C11 C31 D1 D14 D81 D85 G11 M31
    Date: 2017–06
  2. By: Kaiser, Tim (DIW Berlin and University of Kiel); Menkhoff, Lukas (DIW Berlin and Humboldt University Berlin)
    Abstract: In a meta-analysis of 126 impact evaluation studies, we find that financial education significantly impacts financial behavior and, to an even larger extent, financial literacy. These results also hold for the subsample of randomized experiments (RCTs). However, intervention impacts are highly heterogeneous: Financial education is less effective for low-income clients as well as in low and lower-middle income economies. Specific behaviors, such as the handling of debt, are more difficult to influence and mandatory financial education tentatively appears to be less effective. Thus, intervention success depends crucially on increasing education intensity and offering financial education at a \'teachable moment\'.
    Keywords: financial education; financial literacy; financial behavior; meta-analysis; meta-regression; impact evaluation;
    JEL: D14 I21
    Date: 2017–06–08

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