nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2023‒03‒27
four papers chosen by

  1. Revalidating Fernandes et al.’s 2014 financial literacy scale in response to ongoing legislative and behavioral changes By Weiss-Cohen, Leonardo; Newall, Philip Warren Stirling; Ranyard, Rob; Ayton, Peter; Clacher, Iain
  2. Commission bans and consumer financial protection By Albert Erasmus Grafe
  3. Electronic Foreclosures By Francesco Mazzola
  4. Inclusion and Democratization Through Web3 and DeFi? Initial Evidence from the Ethereum Ecosystem By Lin William Cong; Ke Tang; Yanxin Wang; Xi Zhao

  1. By: Weiss-Cohen, Leonardo; Newall, Philip Warren Stirling (University of Warwick); Ranyard, Rob; Ayton, Peter; Clacher, Iain
    Abstract: Measures of financial literacy are widely used in research and underpin a wide range of policy interventions. The authors of “Financial literacy, financial education, and downstream financial behaviors" created a valid and reliable financial literacy questionnaire which has been widely used and frequently cited. However, we find that due to recent changes to legislation, the answer to one of their questions is now incorrect. This undermines the validity of the measure and will lead to incorrect usage if the questionnaire is not revalidated. We recommend that future researchers exclude this question. Item Response Theory analyses across five different datasets covering multiple time points and N=4959 participants were conducted to confirm that the scale remains reliable and measures the same construct without this item. The excluded question is also specific to the US, and its removal increases the international scope of the measure. We discuss the remaining limitations of this questionnaire.
    Date: 2023–02–06
  2. By: Albert Erasmus Grafe
    Abstract: Financial literacy is seen as root cause for false household portfolio choices and thus wealth and retirement discrepancies. However, the increasing literature on financial literacy fails to recognize the fundamental caveat of financial consumer protection: commissions based financial advice. Many countries such as the UK or the Netherlands have recognized the innate conflict of interest between financial advisors and their customers that comes with a commissions-based system. In response, commission bans were introduced. To analyze the effect of commission bans on portfolio choices we conduct a difference-in-difference panel regression utilizing data from countries that have and haven’t introduced commission bans. The results indicate that commission bans - unlike many forecasts - have not negatively impacted consumers and the financial industry.
    Keywords: Commission bans; Consumer financial protection; Financial literacy; Household portfolio choices
    JEL: R3
    Date: 2022–01–01
  3. By: Francesco Mazzola
    Abstract: This paper investigates how auction bidding formats affect U.S. mortgage foreclosure sales. Exploiting a staggered adoption of electronic bidding acrossadjoined counties in a “stacked” difference-in-differences design, I show that foreclosure auction success increases by 27%, and price discounts contract by42%. The effects are stronger in areas with more remote courthouses, and for properties in better conditions. Buyer composition of electronic foreclosureauctions shifts towards local non-professionals, who are less likely to buy-to-let and flip acquired properties ex-post. This evidence suggests that technologicalmodernizations in real estate markets can lead to better matching, deepen liquidity and foster financial inclusion.
    Keywords: Credit Market; Electronic Marketplace; Mortgage Foreclosures; Online Auction
    JEL: R3
    Date: 2022–01–01
  4. By: Lin William Cong; Ke Tang; Yanxin Wang; Xi Zhao
    Abstract: Web3 and DeFi are widely advocated as innovations for greater financial inclusion and democratization. We assemble the most comprehensive dataset to date on the largest Web3 ecosystem and use large-scale computing to conduct an initial investigation. We describe Ethereum’s network structure, time trends, and distributions of transactions, mining, and ownership. Mining income and Ether ownership are concentrated in exchanges and a few individual nodes. Network activities evolve from peer-to-peer to user-DApps/DeFi interactions, with significantly more transactions by large players. Moreover, high percentage transaction fees, congestion-induced fluctuation of gas prices, suboptimal reserve setting, and large return volatility of tokens present particular challenges for small, poor, unsophisticated, and new nodes, not to mention that the high failure rates hurt all users. Finally, we present suggestive causal evidence that base-fee burning mechanisms (e.g., EIP-1559) and airdrop programs (e.g., OmiseGo Airdrop) facilitate inclusion through token monetary redistribution.
    JEL: D63 E50 G29 H23 L14
    Date: 2023–02

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