Unpacking the Causal Chain of Financial Literacy

36 Pages Posted: 20 Apr 2016  

Fenella Carpena

University of California, Berkeley

Shawn Allen Cole

Harvard Business School

Jeremy Shapiro

University of California, Berkeley

Bilal Zia

World Bank - Development Research Group (DECRG)

Date Written: September 1, 2011

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

Suggested Citation

Carpena, Fenella and Cole, Shawn Allen and Shapiro, Jeremy and Zia, Bilal, Unpacking the Causal Chain of Financial Literacy (September 1, 2011). World Bank Policy Research Working Paper No. 5798. Available at SSRN: https://ssrn.com/abstract=1930818

Fenella Carpena (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Shawn Allen Cole

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Jeremy Shapiro

University of California, Berkeley

310 Barrows Hall
Berkeley, CA 94720
United States

Bilal Zia

World Bank - Development Research Group (DECRG) ( email )

MC3-445
1818 H Street, N.W.
Washington, DC 20433

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