The Causal Mechanism of Financial Education: Evidence from Mediation Analysis

46 Pages Posted: 23 Oct 2018 Last revised: 24 Oct 2018

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: October 22, 2018

Abstract

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, the paper proposes a broader definition of financial knowledge that includes three dimensions: numeracy skills, financial awareness, and attitudes toward personal finance. The analysis then employs causal mediation analysis to investigate the proportion of the treatment effect that can be attributed to these three channels. Strikingly, 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.

Suggested Citation

Carpena, Fenella and Zia, Bilal, The Causal Mechanism of Financial Education: Evidence from Mediation Analysis (October 22, 2018). World Bank Policy Research Working Paper No. 8619. Available at SSRN: https://ssrn.com/abstract=3271437

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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