Providing Financial Education: A General Equilibrium Approach

43 Pages Posted: 17 Jul 2013

See all articles by Mario Padula

Mario Padula

University "Ca' Foscari" of Venice; CSEF

Yuri Pettinicchi

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Date Written: July 2013

Abstract

Since the early 2000s, the importance of financial literacy for safe financial behaviors has increased in public debate and has been the motivation for several national and international institutions to launch and promote financial education initiatives. Although discussion on the effects of such education programs remains open, it is generally presumed that higher levels of financial literacy are associated with more stable financial markets. The present paper challenges this assumption and provides a model of heterogeneous agents which differ according to the level of their cognitive abilities. The model allows us to discuss the implications for asset pricing of policies aimed at increasing levels of financial literacy, and shows that general equilibrium effects cause market price volatility and the share of literate individuals to vary in a non-monotonic way with financial education.

Keywords: Asset pricing, Cognitive ability, Financial literacy, Heterogeneous agents, Market stability

JEL Classification: D82, G12, G14, G18

Suggested Citation

Padula, Mario and Pettinicchi, Yuri, Providing Financial Education: A General Equilibrium Approach (July 2013). CEPR Discussion Paper No. DP9556. Available at SSRN: https://ssrn.com/abstract=2294815

Mario Padula (Contact Author)

University "Ca' Foscari" of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy
+390412349181 (Phone)
+390412349176 (Fax)

CSEF

Via Don Melillo I
Fisciano, Salerno, 84084
Italy

Yuri Pettinicchi

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

Amalienstrasse 33
Munich, 80799
Germany
+49-89-38602-301 (Phone)

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