Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs

Stephan Meier and Charles Sprenger

No 3507, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.

Keywords: field experiment; financial literacy; time preferences; selection (search for similar items in EconPapers)
JEL-codes: C93 D14 D91 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-05
New Economics Papers: this item is included in nep-edu and nep-exp
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Citations: View citations in EconPapers (17)

Published - revised version published in: Journal of Economic Behavior & Organization, 2013, 95, 159–174

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Journal Article: Discounting financial literacy: Time preferences and participation in financial education programs (2013)
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