PARC Working Paper Series

Document Type

Working Paper

Date of this Version

9-28-2010

Comments

Behrman, Jere R., Olivia S. Mitchell, Cindy Soo, and David Bravo. 2010. “Financial Literacy, Schooling, and Wealth Accumulation.” PARC Working Paper Series, WPS 10-06.

Abstract

Financial literacy and schooling attainment have been linked to household wealth accumulation. Yet prior findings may be biased due to noisy measures of financial literacy and schooling, as well as unobserved factors such as ability, intelligence, and motivation that could enhance financial literacy and schooling but also directly affect wealth accumulation. Here we use a new household dataset and an instrumental variables approach to isolate the causal effects of financial literacy and schooling on wealth accumulation. While financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, our approach reveals even stronger and larger effects of financial literacy on wealth. It also indicates no significant positive effects of schooling attainment conditional on financial literacy in a linear specification, but positive effects when interacted with financial literacy. Estimated impacts are substantial enough to suggest that investments in financial literacy could have large positive payoffs.

Keywords

Chile, Educational attainment, Financial literacy, Health and Retirement Study, Household wealth accumulation, Instrument variable estimates, Microeconomics, Ordinary least squares, Pensions, Personality, PRIDIT, Savings, Schooling, Self-esteem, Social Protection Survey, Wealth

 

Date Posted: 01 October 2010

This document has been peer reviewed.