Culture and Adult Financial Literacy: Evidence from the United States

46 Pages Posted: 15 Jun 2020 Last revised: 16 Jun 2020

See all articles by Maddalena Davoli

Maddalena Davoli

Goethe University Frankfurt, House of Finance (HoF), Graduate School of Economics, Finance and Management (GSEFM), Students

Núria Rodríguez-Planas

City University New York (CUNY), Queens College; IZA Institute of Labor Economics

Abstract

Using a US nationally representative sample of over 6,000 adults from 26 countries of ancestry, we find a strong association between their financial literacy in the US and the financial literacy level in their self-reported country of ancestry. More specifically, if an individual from a country of ancestry with "average" financial literacy had instead come from a country with financial literacy one-standard deviation above the mean, his or her likelihood of answering correctly basic financial literacy questions regarding inflation, risk diversification, and interest rate in the US would have increased by 4 percentage points, a 9% increase relative to the average financial literacy in our sample of 43%. The cultural components behind this observed association include a strong emphasis on patience, long-term orientation and risk-aversion in the country of ancestry. We also find that the association is driven by financial literacy on risk diversification and interest compounding.

Keywords: financial literacy, culture, epidemiological approach, economic decisions

JEL Classification: D14, E2, I22, Z10

Suggested Citation

Davoli, Maddalena and Rodriguez-Planas, Nuria, Culture and Adult Financial Literacy: Evidence from the United States. IZA Discussion Paper No. 13349, Available at SSRN: https://ssrn.com/abstract=3627050

Maddalena Davoli (Contact Author)

Goethe University Frankfurt, House of Finance (HoF), Graduate School of Economics, Finance and Management (GSEFM), Students ( email )

Grüneburgplatz 1
Frankfurt
Germany

Nuria Rodriguez-Planas

City University New York (CUNY), Queens College ( email )

65-30 Kissena Blvd
Flushing, NY 11367-1597
United States

HOME PAGE: http://https://sites.google.com/site/nuriarodriguezplanas/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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