Unpacking the causal chain of financial literacy

Fenella Carpena, Shawn Cole, Jeremy Shapiro and Bilal Zia

No 5798, Policy Research Working Paper Series from The World Bank

Abstract: A growing body of literature examines the causal impact of financial literacy on individual, household, and firm level outcomes. This paper unpacks the mechanism of impact by focusing on the first link in the causal chain. Specifically, it studies the experimental impact of financial literacy on three distinct dimensions of financial knowledge. The analysis finds that financial literacy does not immediately enable individuals to discern costs and rewards that require high numeracy skills, but it does significantly improve basic awareness of financial choices and attitudes toward financial decisions. Monetary incentives do not induce better performance, suggesting cognitive constraints rather than lack of attention are a key barrier to improving financial knowledge. These results illuminate the strengths and limitations of financial literacy training, which can inform the design and anticipated effects of such programs.

Keywords: Financial Literacy; Education For All; Access&Equity in Basic Education; Access to Finance; Primary Education (search for similar items in EconPapers)
Date: 2011-09-01
New Economics Papers: this item is included in nep-cbe
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Citations: View citations in EconPapers (64)

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