Financial Literacy and Savings Account Returns

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 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 12% 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; savings accounts; interest rates; household finance

JEL Classification: D12, E21, G11, G21

Suggested Citation: Suggested Citation

Deuflhard, Florian and Georgarakos, Dimitris and Inderst, Roman, Financial Literacy and Savings Account Returns (September 29, 2015). ECB Working Paper No. 1852, Available at SSRN: https://ssrn.com/abstract=2666981 or http://dx.doi.org/10.2139/ssrn.2666981