The Causal Mechanism of Financial Education: Evidence From Mediation Analysis

72 Pages Posted: 24 Sep 2018 Last revised: 16 Apr 2020

See all articles by Fenella Carpena

Fenella Carpena

Oslo Business School

Bilal Zia

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: April 15, 2020

Abstract

This paper uses a field experiment in India and mediation analysis 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 financial outcomes. For simple financial actions such as budgeting, both awareness and attitudes serve as pathways, while for more complex financial activities such as opening a savings account, attitudes play a more prominent role---though these patterns appear to be sensitive to confounding. We also compare our mediation analysis results to other empirical techniques that have been typically used to study mechanisms, and we discuss how mediation analysis differs from these approaches.

Keywords: Causal Mediation Analysis, Mechanism of Impact, Financial Education, Financial Literacy, Financial Knowledge, Impact Evaluation, Randomized Control Trial

JEL Classification: C93, D14, G21, O12

Suggested Citation

Carpena, Fenella and Zia, Bilal, The Causal Mechanism of Financial Education: Evidence From Mediation Analysis (April 15, 2020). Available at SSRN: https://ssrn.com/abstract=3244634 or http://dx.doi.org/10.2139/ssrn.3244634

Fenella Carpena (Contact Author)

Oslo Business School ( email )

PO Box 4, St. Olavs plass
Oslo, 0130
Norway

HOME PAGE: http://www.ocf.berkeley.edu/~fcarpena

Bilal Zia

World Bank - Development Research Group (DECRG) ( email )

MC3-445
1818 H Street, N.W.
Washington, DC 20433

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