Gender- and Education-Related Effects of Financial Sophistication on Wealth Accumulation: Evidence from Heteroscedasticity-Based Instruments

Posted: 16 Oct 2017

See all articles by Christina E. Bannier

Christina E. Bannier

Justus-Liebig-University Giessen

Milena Schwarz

Justus-Liebig University Giessen

Multiple version iconThere are 2 versions of this paper

Date Written: October 16, 2017

Abstract

This study examines two dimensions of financial sophistication, actual and perceived, (i.e., financial literacy and confidence) and their effects on financial wealth accumulation. We employ a novel identification strategy introduced by Lewbel (2012) which utilizes a heteroscedastic covariance restriction to construct instrumental variables. This allows us to estimate causal effects in a setting where conventional instruments are frequently weak and unlikely to satisfy the exclusion criterion. We find strong gender- and education-related differences in the distribution of financial literacy and confidence that moderate their influence on financial wealth: Women's wealth increases particularly strongly in their financial literacy. Higher formal education strengthens this effect, but reduces it for men. Men's wealth rises strongly in (excess) confidence, regardless of their education, while women show a much weaker confidence effect. For highly-educated women, this even turns into a negative impact in case of overconfidence. Programs intended for improving financial literacy will hence be particularly helpful to raise women's wealth levels. Surprisingly, closer alignment between perceived and actual financial sophistication appears less relevant.

Keywords: Household Finance, Financial Literacy, Confidence, Wealth, Gender, Education

JEL Classification: D91, G11, D83, J26

Suggested Citation

Bannier, Christina E. and Schwarz, Milena, Gender- and Education-Related Effects of Financial Sophistication on Wealth Accumulation: Evidence from Heteroscedasticity-Based Instruments (October 16, 2017). CFS Working Paper, No. 585, 2017, Available at SSRN: https://ssrn.com/abstract=3053873

Christina E. Bannier (Contact Author)

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gie├čen, 35394
Germany
+49 641 99 22551 (Phone)

Milena Schwarz

Justus-Liebig University Giessen ( email )

Licher Str. 62
Banking and Finance
Giessen, 35394
Germany

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