nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2020‒11‒30
five papers chosen by

  1. Household Choice of Financial Borrowing and Its Source: Multinomial Probit Model with Selection By Kanika Rana; Brinda Viswanathan
  2. Financial Literacy and Intertemporal Arbitrage By Luis Oberrauch; Tim Kaiser
  3. Does Lasting Behavior Change Require Knowledge Change? Evidence From Savings Interventions For Young Adults By Samantha Horn; Julian Jamison; Dean Karlan; Jonathan Zinman
  4. Fintech, Bigtech, and Financial Inclusion By Loretta J. Mester
  5. Financial Inclusion, Information and Communication Technology Diffusion and Economic Growth: A Panel Data Analysis By Amrita Chatterjee; Nitigya Anand

  1. By: Kanika Rana (ICSSR Research Fellow, Madras School of Economics, Chennai); Brinda Viswanathan (Professor, Madras School of Economics)
    Abstract: In developing countries, the economically disempowered, borrow from multiple sources and also have multiple borrowings notwithstanding that some may be unable to access any form of credit. To ensure a greater amount of financial inclusion, it becomes necessary to understand what determines the choice between alternative loan source combinations while taking into account that borrowers may have distinct characteristics from non-borrowers. Access to formal credit sources, are elusive for the disadvantaged due to different demand and supply side perceptions. Microfinance institutions (MFI) play an intermediate role having some attributes of the informal network and some similar to formal institutions. This study uses an observational data set for 2011-12 to analyse the role of socio-economic-demographic characteristics in the household‟s choice for different types of loan sources. In particular, the extensive nature of data allows us to study the mediating role played by MFI through its linkages with formal and informal sources. The results of Multinomial Probit with Heckman selection, to account for onborrowing households, reveal that where institutional sources are still a preferred option for the relatively advantaged section of the population, presence of microfinance loans in combination with other loan sources has contributed in ensuring greater equity in credit access to all. However, women headed households or dalit households with lesser opportunities of networking are less likely to take credit from formal sources
    Keywords: Household credit and sources, formal and informal institution, microfinance institutions, multinomial probit, Heckman selection
    JEL: C35 E51 G21
  2. By: Luis Oberrauch; Tim Kaiser
    Abstract: We study the role of financial literacy for inter-temporal decision-making using an adapted version of the Convex Time Budget Protocol (Andreoni and Sprenger 2012). While we find no evidence of dynamically inconsistent preferences in the aggregate, we document substantial heterogeneity in choice-patterns and estimated parameters at the individual-level: We find that subjects with higher levels of financial literacy are more likely to make patient inter-temporal choices, to allocate the entire budget to a single payment-date, allocate the entire budget to corner choices as interest rates increase, and to show individual discount factors which are in line with extra-experimental market rates. At the same time, financial literacy is uncorrelated with choice consistency and estimated individual error parameters. These results serve as suggestive evidence for inter-temporal arbitrage among financially literate respondents, thereby revealing a potential confound in time-preference elicitation tasks relying on time-dated monetary rewards.
    Keywords: Intertemporal choice, financial literacy, narrow bracketing, arbitrage
    JEL: D91
    Date: 2020
  3. By: Samantha Horn; Julian Jamison; Dean Karlan; Jonathan Zinman
    Abstract: Is financial knowledge change necessary for lasting savings behavior change? Or, akin to the canonical Friedman billiards player, can behavior persist “as if” such knowledge is held? We randomize 240 Ugandan young-adult clubs to financial education, savings account access, both, or neither. Each education arm, but not the account-only arm, increases financial knowledge and trust in banks at one-year. But at five-years the knowledge effects disappear, and the trust effects diminish. Savings activity, wealth, and income increase at both one-year and five-years for all treatment arms, suggesting that knowledge change is unnecessary for lasting impacts on behavior and outcomes.
    JEL: D12 D91 O12
    Date: 2020–10
  4. By: Loretta J. Mester
    Abstract: Since the beginning of this conference series, the discussions have consistently been very topical, and the agenda for the next two days does not disappoint on that score. The conference will cover many of the hot issues confronting practitioners, academics, and policymakers as financial system innovation proceeds at a rapid pace. Today I will discuss the implications of digitalization for financial inclusion and some steps that need to be taken to ensure that digitalization helps to foster inclusion rather than promote exclusion. The views I will present today are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Date: 2020–11–09
  5. By: Amrita Chatterjee (Assistant Professor, Madras School of Economics); Nitigya Anand (Associate Solution Advisor, Deloitte & Touche Assurance and Enterprise Risk Services India Pvt. Ltd.)
    Abstract: There have been enough evidences to accept that Financial Inclusion (FI) and Information and Communication Technology (ICT) play positive role in economic growth, even though there are some exceptions. Moreover, we cannot deny the fact that ICT like mobile phone and internet penetration can strengthen the inclusiveness of formal banking sector. The present study has first examined whether ICT development can be an important determinant of Financial Inclusion by using a fixed effect panel data model. The results show that ICT is indeed an important determinant of FI. The same panel data of 41 countries was then used to test whether the growth process of the countries are influenced by Financial Inclusion and ICT diffusion in a dynamic Panel Data Model. Further the paper has investigated the role of FI powered by a better ICT penetration in fostering the growth of the nations using system GMM method by incorporating interactions between FI and ICT indicators. The results suggest that both FI and ICT individually and together through their close interaction can improve current year’s growth. However, we need education, awareness and technical assistance to get sustained growth.
    Keywords: Financial Inclusion, Growth, Information and Communication Technology, Dynamic Panel data model, System GMM estimator
    JEL: L86 L96 C23 O0 G2

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