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

35 Pages Posted: 5 Jun 2008

See all articles by Stephan Meier

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Charles Sprenger

University of California, San Diego (UCSD)

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: financial literacy, time preferences, selection, field experiment

JEL Classification: D14, D91, C93

Suggested Citation

Meier, Stephan and Sprenger, Charles, Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs. , Vol. , pp. -, . Available at SSRN: https://ssrn.com/abstract=1139877 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Stephan Meier (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Charles Sprenger

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

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