The Causal Mechanism of Financial Education: Evidence From Mediation Analysis
44 Pages Posted: 24 Sep 2018
Date Written: September 5, 2018
This paper uses a field experiment in India with multiple financial education treatments to investigate the causal mechanisms between financial education and financial behavior. Focusing on the mediating role of financial literacy, we propose a broader definition of financial knowledge that includes three dimensions: numeracy skills, financial awareness, and attitudes towards personal finance. We then employ causal mediation analysis to investigate the proportion of the treatment effect that can be attributed to these three channels. Strikingly, we find that numeracy does not mediate any effects of financial education on household outcomes. For simple financial actions such as budgeting, both awareness and attitudes serve as critical pathways, while for more complex financial activities such as opening a savings account, attitudes play a more prominent role. These findings underscore the importance of changing perceptions about financial products and services as a vital mechanism for the success of financial education.
Keywords: Financial Education, Financial Literacy, Financial Knowledge, Causal Mediation Analysis, Mechanism of Impact, Impact Evaluation
JEL Classification: C93, D14, G21, O12
Suggested Citation: Suggested Citation