Economic condition and financial cognition

Manthos Delis (), Emilios Galariotis and Jerome Monne

Journal of Banking & Finance, 2021, vol. 123, issue C

Abstract: Are low-income individuals trapped because they are unable to make good financial decisions? We use a randomized controlled survey experiment to examine how prompting individuals to think about their personal economic condition (priming) affects their scores on a financial literacy quiz. We find that the marginal effect of poverty on financial literacy scores is 3.7 times higher for primed (treated) respondents compared to nonprimed ones. Priming not only worsens the financial literacy scores of low-income individuals, but also improves the scores of high-income individuals. Anxiety and shame are key explanations for our baseline results. Our findings shed light on how economic condition affects financial cognition, especially with regard to cognitive impediments resulting from negative emotions.

Keywords: Financial effects of poverty; Financial literacy; Priming; Cognitive impediment; Financial anxiety; Shame of poverty; Survey experiment (search for similar items in EconPapers)
JEL-codes: C83 D90 D91 G40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:123:y:2021:i:c:s037842662030296x

DOI: 10.1016/j.jbankfin.2020.106035

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