Economic Condition and Financial Cognition
60 Pages Posted: 24 Jun 2019 Last revised: 28 Dec 2020
Date Written: June 18, 2019
Are poor individuals trapped by being unable to make good financial decisions? We use a randomized controlled survey experiment to examine how prompting individuals to think about their personal economic condition (priming) affects their scores on a subsequent financial literacy quiz. We find that the marginal effect of poverty on financial literacy scores is 3.7 times higher for primed (treated) respondents compared to nonprimed ones. We also show that higher anxiety and shame are key explanations for our baseline results, and that no effects are observed for general cognitive abilities unrelated to financial management. Our findings shed light on how economic condition affects financial cognition, especially with regard to cognitive impediments led by negative emotions.
Keywords: Financial effects of poverty; Financial literacy; Priming; Cognitive impediment; Financial anxiety; Shame of poverty; Survey experiment
JEL Classification: G40; D90; D91; C83
Suggested Citation: Suggested Citation