nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2021‒02‒08
three papers chosen by

  1. Impact Assessment of Pradhan Mantri Jan-Dhan Yojana in Augmenting Financial Inclusion in India - A District-Level Analysis By Yadav, Vishal; Singh, Shishir Kumar; Velan, Nirmala; Aftab, Md Asif
  2. Understanding Debt in the Older Population By Annamaria Lusardi; Olivia S. Mitchell; Noemi Oggero
  3. Financial Technology and the Inequality Gap By Roxana Mihet

  1. By: Yadav, Vishal; Singh, Shishir Kumar; Velan, Nirmala; Aftab, Md Asif
    Abstract: The study builds up a financial inclusion index (FII) across districts of 27 Indian states utilizing UNDP's similar approach in constructing the Human Development Index. The FII is constructed for the period 2011-2018. The study additionally investigates government schemes' effectiveness, especially the PMJDY, in augmenting financial inclusion throughout its inception. The study's significant finding shows that a greater part of the Indian locale falls under the class of low financial inclusion. Southern areas perform better while the central, eastern, and north-eastern locale perform poorly in financial inclusion. Further, FII and HDI have a positive association between them. Furthermore, the PMJDY framework has not driven the economy towards a high degree of financial inclusion with only a couple of areas improving their rank from low to medium financial inclusion. Subsequently, underlying changes are legitimized in the institutional setting by fortifying and growing monetary organizations and all the while handling digital literacy.
    Keywords: Financial Institutions, Financial inclusion index (FII), Indian districts, PMJDY.
    JEL: G00 G21 O16
    Date: 2020–12–31
  2. By: Annamaria Lusardi; Olivia S. Mitchell; Noemi Oggero
    Abstract: Poor financial capability can erode well-being in later life. To explore debt and debt management among older Americans, age 51-61, we designed and analyzed a new module in the 2018 Health and Retirement Study along with information from the 2018 National Financial Capability Study. Even though this group should be at the peak of their retirement savings, it nevertheless carries debt due to student loans and unpaid medical bills; having children also contributes to carrying debt close to retirement. By contrast, the financially literate have more positive financial perceptions and behaviors. Specifically, being able to answer one additional financial literacy question correctly is associated with a higher probability of reporting an above average credit record and planning for retirement. Higher financial literacy is also linked to being less likely to carry excessive debt, being contacted by debt collectors, and carrying medical debt or student loans, even after accounting for a large range of demographics and other characteristics. Evidently, financial knowledge can help limit debt exposure at older ages.
    JEL: G40 G41 G51 G53 H31
    Date: 2020–12
  3. By: Roxana Mihet (University of Lausanne and Swiss Finance Institute)
    Abstract: Information-based models of capital income inequality that link return heterogeneity to investor sophistication levels need to assume an increase in data costs to generate an increase in inequality. Empirically, this assumption contradicts the fact that investment markets have become more informative over time, and theoretically, it also overlooks the possibility that poorer investors can avoid paying a large fixed cost for data, simply by buying shares in a fund. In this paper, I study the impact of financial innovation on capital income inequality in a theoretical framework where investors, heterogeneous in their sophistication, have a costly choice between not investing, investing through a fund of average quality, and searching for an informed fund. The model predicts that while financial innovation can make the investment sector more efficient and boost financial inclusion, some financial innovation also brings risks. For example, when the cost of financial data processing falls, more wealthier investors trade on information. This makes participation less valuable for the marginal stock market participant, who is a relatively poorer investor in some average (uninformed) fund and who exits the market altogether, foregoing the equity premium. This amplifies the inequality gap and also jointly explains why in the last decades, in spite of a dramatic reduction in data processing costs and fund fees, the US stock market has become more informative, yet the stock market participation rate has been on the decline.
    Keywords: Quant Analysis, Inequality, Information Acquisition, Funds, Innovation.
    JEL: E21 G11 G14 L1 L15
    Date: 2021–01

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