Could financial education be a universal social policy? A simulation of potential influences on inequality levels

Giovanni Gallo and Alessia Sconti

Center for the Analysis of Public Policies (CAPP) from Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi"

Abstract: This paper aims to identify the potential influence of financial literacy’s marginal change on households’ income (wealth) inequality levels both at the mean value and along with the distribution. Using data from the Bank of Italy Survey of Households Income and Wealth (SHIW)’s 2016 wave – which includes the Big Three questions, a widely used measure of financial literacy - we show that replacing 10% of respondents reporting no correct answers with respondents reporting two correct answers out of three would increase the mean value of the household equivalized disposable income by 0.8% (160€ per year). Additionally, it would increase by +1.5% (285€ per year) if we replace 10% of respondents reporting no correct answers with those reporting three correct answers. These results are not trivial. A lump sum leading to the same household income increase would cost on average EUR 4.1 to 7.3 billion per year in Italy. Finally, heterogeneous analysis reveals that an increase in financial literacy levels often engenders a greater reduction of inequality levels among the most vulnerable groups. Our preliminary cost analysis supports mandatory financial education in schools.

Keywords: Financial literacy; Financial education; Household finance; Inequality; RIF regressions. (search for similar items in EconPapers)
JEL-codes: D31 D63 G51 G53 (search for similar items in EconPapers)
Pages: pages 36
Date: 2023-05
New Economics Papers: this item is included in nep-fle
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Persistent link: https://EconPapers.repec.org/RePEc:mod:cappmo:0182

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