The Stability and Predictive Power of Financial Literacy: Evidence from Longitudinal Data

32 Pages Posted: 2 Dec 2020

See all articles by Marco Angrisani

Marco Angrisani

Center for Economic and Social Research (CESR)

Jeremy Burke

Center for Economic and Social Research (CESR)

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Gary R. Mottola

Research Director FINRA Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: November 2020

Abstract

We administered the FINRA Foundation's National Financial Capability Study questionnaire to members of the RAND American Life Panel (ALP) in 2012 and 2018. Using this unique, longitudinal data set, we investigate the evolution of financial literacy over time and shed light on the causal effect of financial knowledge on financial outcomes. Over a six-year observation period, financial literacy appears to be rather stable, with a slight tendency to decline at older ages. Moreover and importantly, financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline outcomes and a wide set of demographics and individual characteristics that influence financial decision making. This estimated relationship is significantly stronger for older individuals, for women, and for those with lower income than for their counterparts in the study. Altogether, our findings suggest that differences in the stock of financial knowledge may lead to increasing inequality over the life course.

JEL Classification: D14, G51, G53

Suggested Citation

Angrisani, Marco and Burke, Jeremy and Lusardi, Annamaria and Mottola, Gary R., The Stability and Predictive Power of Financial Literacy: Evidence from Longitudinal Data (November 2020). CEPR Discussion Paper No. DP15467, Available at SSRN: https://ssrn.com/abstract=3737600

Marco Angrisani (Contact Author)

Center for Economic and Social Research (CESR) ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States

Jeremy Burke

Center for Economic and Social Research (CESR) ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States

Annamaria Lusardi

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gary R. Mottola

Research Director FINRA Foundation ( email )

1735 K ST NW
Washington, DC 20006
United States

HOME PAGE: http://www.finrafoundation.org

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