Financial Literacy and Savings Account Returns
45 Pages Posted: 2 Jun 2014
Date Written: March 2014
Savings accounts are owned by most households, but little is known about the performance of households investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.
Keywords: Financial literacy, Household finance, Interest rates, Savings accounts
JEL Classification: D12, E21, G11, G21
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