Know More, Spend More? The Impact of Financial Literacy on Household Consumption

Milena Dinkova, Adriaan Kalwij and Rob Alessie
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Milena Dinkova: Utrecht University

De Economist, 2021, vol. 169, issue 4, No 5, 469-498

Abstract: Abstract This paper examines the relationship between household consumption and financial literacy. The economic framework is a simple life-cycle model of consumption in which financial literacy affects the rate of return on assets. The theoretical predictions are that, for plausible values of the intertemporal elasticity of substitution, financial literacy is positively related to both the level of consumption and consumption growth. We empirically test these theoretical predictions with Dutch data from the LISS household panel. Our results provide evidence in favour of a positive association between non-durable consumption, and in particular food consumption, and financial literacy. No evidence is, however, found in favour of an association between consumption growth and financial literacy.

Keywords: Life-cycle model; Financial literacy; Self-assessed financial literacy; Household consumption (search for similar items in EconPapers)
JEL-codes: D14 D91 E21 G11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:decono:v:169:y:2021:i:4:d:10.1007_s10645-021-09391-4

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DOI: 10.1007/s10645-021-09391-4

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