Wharton Pension Research Council Working Papers

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Working Paper

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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.

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Copyright/Permission Statement

Opinions and errors are solely those of the authors and not of the institutions providing funding for this study or with which the authors are affiliated. ©2010 Behrman, Mitchell, Soo, and Bravo. All rights reserved.


The authors acknowledge support provided by the TIAA-CREF Institute, the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania, and NIH/NIA grant AG023774-01(P.I. Petra Todd) on “Lifecycle health, work, aging, insurance and pensions in Chile.” They also thank Luc Arrondel, Alex Gelber, Jeremy Tobacman, Javiera Vasquez, and participants in the Wharton Applied Economics doctoral workshop as well as the 2010 LBS TransAtlantic Doctoral Conference for helpful comments, and Richard Derrig for sharing his PRIDIT code.

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Date Posted: 07 August 2019