nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2019‒11‒11
eight papers chosen by
Viviana Di Giovinazzo
Università degli Studi di Milano-Bicocca

  1. Financial literacy and suboptimal financial decisions at older ages By Fong, Joelle H.; Koh, Benedict SK.; Mitchell, Olivia S.; Rohwedder, Susann
  2. Who is a Passive Saver Under Opt-In and Auto-Enrollment? By Goda, Gopi Shah; Levy, Matthew R.; Flaherty Manchester, Colleen; Sojourner, Aaron; Tasoff, Joshua
  3. Meet People Where They Are: Building Formal Credit Using Informal Financial Traditions By Akana, Tom
  4. Debt close to retirement and its implications for retirement well-being By Lusardi, Annamaria; Mitchell, Olivia S.; Oggero, Noemi
  5. 2018 Bitcoin Omnibus Survey: Awareness and Usage By Christopher Henry; Kim Huynh; Gradon Nicholls; Mitchell Nicholson
  6. Decision Making under Uncertainty: An Experimental Study in Market Settings By Federico Echenique; Taisuke Imai; Kota Saito
  7. How Enhancing Gender Inclusion Affects Inequality: Thresholds of Complementary Policies for Sustainable Development By Simplice A. Asongu; Nicholas M. Odhiambo
  8. Inequality Thresholds, Governance and Gender Economic Inclusion in sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo

  1. By: Fong, Joelle H.; Koh, Benedict SK.; Mitchell, Olivia S.; Rohwedder, Susann
    Abstract: Over the life-cycle, wealth holdings tend to be highest in the early part of retirement. The quality of financial decisions among older adults is therefore an important determinant of their financial security during the asset drawdown phase. This paper assesses how financial literacy shapes financial decision-making at older ages. We devised a special module in the Singapore Life Panel survey to measure financial literacy to study its relationship with three aspects of household financial and investment behaviors: credit card debt repayment, stock market participation, and adherence to age-based investment glide paths. We found that the majority of respondents age 50+ has some grasp of concepts such as interest compounding and inflation, but fewer know about risk diversification. We provide evidence of a statistically significant positive association between financial literacy and each of the three aspects of suboptimal financial decision-making, controlling for many other factors, including education. A one-unit increase in the financial literacy score was associated with an 8.3 percentage point greater propensity to hold stocks, and a 1.7 percentage point higher likelihood of following an age-appropriate investment glide path. The financial literacy score is only weakly positively linked with timely credit card balance repayment, both in terms of statistical significance and estimate size.
    Keywords: retirement,financial literacy,credit card debt,stock market nonparticipation,lifecycleinvestment,household portfolio
    JEL: D14 E21 G11 J32
    Date: 2019
  2. By: Goda, Gopi Shah (Stanford University); Levy, Matthew R. (London School of Economics); Flaherty Manchester, Colleen (University of Minnesota); Sojourner, Aaron (Federal Reserve Bank of Minneapolis); Tasoff, Joshua (Claremont Graduate University)
    Abstract: Defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment. Using administrative data on employer-sponsored retirement accounts linked to survey data, we estimate the relationship between retirement saving choices and individual characteristics – long-term discounting, present bias, financial literacy, and exponential-growth bias – under two distinct choice environments: an opt-in regime and an auto-enrollment regime. Consistent with our conceptual model, we find that the determinants of following the default and contribution behavior are regime-specific. Under the opt-in regime, financial literacy plays an important role in predicting total contributions, active saving choices, and maxing out contributions in the tax-preferred account. In contrast, under the auto-enrollment regime, present bias is the most significant behavioral predictor of contribution behavior. A causal interpretation of the estimates suggests that auto-enrollment increases saving primarily among those with low financial literacy.
    Keywords: Present bias; Exponential-growth bias; Household finance; Retirement saving decisions; Choice architecture; Defaults; Financial literacy; Procrastination
    JEL: J32
    Date: 2019–09–26
  3. By: Akana, Tom (Federal Reserve Bank of Philadelphia)
    Abstract: The Consumer Finance Institute hosted a workshop in February 2019 featuring José Quiñonez, chief executive officer, and Elena Fairley, programs director, of Mission Asset Fund (MAF) to discuss MAF’s approach to helping its clients improve access to mainstream financial markets. MAF’s signature program, Lending Circles, adapts a traditional community-based financial tool known as a rotating savings and credit association (ROSCA) to help establish or expand credit reports for participants who may not be able to do so through traditional means. Lending Circles have served more than 10,000 clients since 2007 and have expanded well beyond MAF’s core constituency in the Mission District of San Francisco. Quiñonez and Fairley discussed MAF’s approach to working with the communities it serves and shared the key successes and challenges that MAF has encountered. This paper provides an overview of the information shared in the workshop and additional research connecting Lending Circles to previous work on ROSCAs.
    Keywords: rotating savings and credit association (ROSCA); financial inclusion; credit invisibles; underserved; unbanked
    JEL: D14 D71 D91
    Date: 2019–08–15
  4. By: Lusardi, Annamaria; Mitchell, Olivia S.; Oggero, Noemi
    Abstract: We analyze debt and debt management of Americans nearing retirement age. We show that older people have numerous financial obligations that can lead to financial distress. Using data from the 2015 National Financial Capability Study and an extensive literature review, we show that lack of financial literacy, lack of information, and behavioral biases help explain the prevalence of debt later in life. Our evidence indicates that debt at older ages can negatively influence retirement well-being.
    Date: 2019
  5. By: Christopher Henry; Kim Huynh; Gradon Nicholls; Mitchell Nicholson
    Abstract: The Bank of Canada continues to use the Bitcoin Omnibus Survey (BTCOS) to monitor trends in Canadians’ awareness, ownership and use of Bitcoin. The most recent iteration was conducted in late 2018, following an 85 percent decline in the price of Bitcoin throughout the year. In 2017, almost half of Bitcoin adopters reported investing as their primary reason for owning it. This implies that the dramatic price drop could have affected whether Canadians continue to own Bitcoin and, if they do, what they use it for. The BTCOS has been conducted each year since 2016 with slight changes and improvements in every iteration. For 2018, we added questions on Canadians’ financial literacy, their plans to stop using cash and their preferences over features of online transactions. We also improved our way of calibrating sample estimates to represent the overall Canadian population with respect to demographic composition. The survey shows that from 2016 to 2018, both the share of Canadians who are aware of Bitcoin and who own bitcoin increased. But the share of past owners also increased, suggesting an influx of Bitcoin owners who sold their holdings after 2017. The main reason for owning Bitcoin continued to be for store of value or investment purposes, though this decreased slightly from 2017. Finally, Bitcoin owners differed from the overall population in two ways: they were less financially literate and more likely to say they plan to stop using cash.
    Keywords: Bank notes; Digital Currencies and Fintech; Econometric and statistical methods
    JEL: C12 E4 O51
    Date: 2019–11
  6. By: Federico Echenique; Taisuke Imai; Kota Saito
    Abstract: We design and implement a novel experimental test of subjective expected utility theory and its generalizations. Our experiments are implemented in the laboratory with a student population, and pushed out through a large-scale panel to a general sample of the US population. We find that a majority of subjects' choices are consistent with maximization of {\em some} utility function, but not with subjective utility theory. The theory is tested by gauging how subjects respond to price changes. A majority of subjects respond to price changes in the direction predicted by the theory, but not to a degree that makes them fully consistent with subjective expected utility. Surprisingly, maxmin expected utility adds no explanatory power to subjective expected utility. Our findings remain the same regardless of whether we look at laboratory data or the panel survey, even though the two subject populations are very different. The degree of violations of subjective expected utility theory is not affected by age nor cognitive ability, but it is correlated with financial literacy.
    Date: 2019–11
  7. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study investigates how enhancing gender inclusion affects inequality in 42 African countries for the period 2004-2014. The empirical evidence is based on the Generalized Method of Moments. Three inequality indicators are used, namely, the: Gini coefficient, Atkinson index, and Palma ratio. The two gender inclusion measurements used include female labour force participation and female employment. The following main findings are established. There are positive net effects on inequality from the enhancement of gender inclusion dynamics. An extended threshold analysis is used to assess critical masses at which further increasing gender inclusion enhances inequality. The established thresholds are: (i) 55.555 “employment to population ratio, 15+, female (%)†for the nexus with the Gini coefficient. (ii) 50 “labor force participation rate, female (% of female population ages 15+)†and between 50 to 55 “employment to population ratio, 15+, female (%)†, for the Atkinson index. (iii) 61.87 “labor force participation rate, female (% of female population ages 15+)†for the Palma ratio.These established thresholds are worthwhile for sustainable development because, beyond the critical masses, policy makers should complement the gender inclusion policy with other measures designed to reduce income inequality. Some complementary measures that can be taken on board beyond the established thresholds could focus on enhancing, inter alia: information and communication technology, infrastructural development; financial inclusion and inclusive education.
    Keywords: Africa; Gender; Inclusive development; Sustainable development
    JEL: G20 I10 I32 O40 O55
    Date: 2019–01
  8. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: Inequality and gender economic exclusion are major policy concerns facing sub-Saharan Africa in the post-2015 development agenda. The study provides critical masses of inequality that should not be exceeded if governance is to promote gender economic participation. The research focuses on 42 countries in sub-Saharan Africa using annual data spanning from 2004 to 2014. The empirical evidence is based on the Generalized Method of Moments. The following findings are established. First, inequality (i.e. the Gini coefficient) levels that completely nullify the positive effect of governance on female labour force participation are 0.708 for political stability, 0.601 for voice & accountability, 0.588 for government effectiveness, 0.631 for regulatory quality, 0.612 for the rule of law, and 0.550 for corruption-control. Second, inequality thresholds at which female unemployment can no longer be mitigated by governance channels include: 0.561 (for political stability) and 0.465 (for the rule of law). Third, inequality levels that completely dampen the positive impact of governance on female employment are 0.608 for political stability, 0.580 for voice & accountability, 0.581 for government effectiveness, and 0.557 for the rule of law. As the main policy implication, for good governance to promote gender economic inclusion, inequality levels should not exceed established thresholds.
    Keywords: Africa; Gender; Inequality; Inclusive development
    JEL: G20 I10 I32 O40 O55
    Date: 2019–01

This nep-fle issue is ©2019 by Viviana Di Giovinazzo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.