nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2019‒06‒10
three papers chosen by

  1. Formal Financial Inclusion in Cambodia: What are the Key Barriers and Determinants? By SAM, Vichet
  2. Financial literacy and precautionary insurance By Kubitza, Christian; Hofmann, Annette; Steinorth, Petra
  3. Pre-departure policies for migrants' origin countries By Barsbai, Toman

  1. By: SAM, Vichet
    Abstract: This article investigates the barriers to formal financial inclusion in Cambodia, focusing on saving and credit strands. We propose the multinomial logit model, allowing to distinguish the outcome variable into three categories: Formal inclusion, Informal inclusion and Financial exclusion. We apply this model to the FinScope survey data conducted in late 2015, which represents the adult population in Cambodia. Results suggest that the trust to financial institutions, the financial literacy, the distance to banks or MFI, the lack of documentation and the service costs are the main obstacles, but these barriers affect the probability of using formal financial services differently according to the types of financial services (saving or credit). Gender, marital status, education, income, access to media and information, the use of mobile phone with the access to the Internet and the household size are also found to be the key determinants.
    Keywords: Determinants and Barriers to financial inclusion, Developing country, Multinomial logit model.
    JEL: G21 G28
    Date: 2019–05–18
  2. By: Kubitza, Christian; Hofmann, Annette; Steinorth, Petra
    Abstract: This paper studies insurance demand for individuals with limited financial literacy. We propose uncertainty about insurance payouts, resulting from contract complexity, as a novel channel that affects decision-making of financially illiterate individuals. Then, a trade-off between second-order (risk aversion) and third-order (prudence) risk preferences drives insurance demand. Sufficiently prudent individuals raise insurance demand upon an increase in contract complexity, while the effect is reversed for less prudent individuals. We characterize competitive market equilibria that feature complex contracts since firms face costs to reduce complexity. Based on the equilibrium analysis, we propose a monetary measure for the welfare cost of financial illiteracy and show that it is mainly driven by individuals' risk aversion. Finally, we discuss implications for regulation and consumer protection.
    Keywords: financial literacy,insurance demand,prudence,precautionary insurance
    JEL: D11 D81 D91 G22
    Date: 2019
  3. By: Barsbai, Toman
    Abstract: International migration generates large benefits for migrants and their family members who stay behind. But migrants' socio-economic integration in destination countries is often imperfect and many migrants face the risk of exploitation. Migrants' origin countries should therefore consider policies to increase the benefits of international migration. Pre-departure orientation seminars for migrants and financial education can improve migrant's decision-making. Likewise, behavioral interventions can reduce migrant mistreatment. These policy options are low-cost and have shown promising impact in the contexts they were evaluated. It may pay off to experiment with them in other contexts.
    Date: 2018

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