Financial literacy and financial education: The role of irreversible costs

Alessandro Bellocchi and Giuseppe Travaglini

Economics Letters, 2025, vol. 247, issue C

Abstract: Financial literacy is a specific “asset” and its achievement may imply irreversible costs. These elements affect the household’s decision to invest in financial education. To explore the issue we use a stochastic dynamic model of portfolio choice in which the cost of financial education is sunk. We show that education costs, uncertainty and irreversibility affect household’s choice to either exercise the option or defer to the future the decision to invest in financial education. This result may provide an explanation to the so-called ‘financial literacy paradox’.

Keywords: Financial literacy; Financial education; Irreversibility (search for similar items in EconPapers)
JEL-codes: D14 D81 G11 G53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000102

DOI: 10.1016/j.econlet.2025.112173

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