Financial Literacy and Perceived Economic Outcomes

Abstract

We explore the relationship between financial literacy and self-reported, reflective economic outcomes from respondents using survey data from the United States. Our dataset includes a large number of covariates from the National Financial Capability Study (NFCS), widely used by literacy researchers, and we use a new econometric technique developed by Hahn et al. (2018), designed specifically for causal inference from observational data, to test whether changes in financial literacy infer meaningful changes in self-perceived economic outcomes. We find a negative treatment parameter on financial literacy consistent with the recent work of Netemeyer et al. (2018) and contrary to the presumption in many empirical studies that associate standard financial outcome measures with financial literacy. We conclude with a discussion of heterogeneity of the financial literacy treatment effect on household income, gender and education level sub-populations. Our findings on the relationship between financial literacy and reflective economic outcomes also raise questions about its importance to an individual’s financial well-being.

Keywords: Financial Literacy, Economic Outcomes, Treatment Effect Estimation

JEL Classification: D1