Financial Literacy and Academic Outcomes
69 Pages Posted: 20 Apr 2022
Date Written: April 7, 2022
Outstanding student debt has almost doubled in the past decade to over $1.7 trillion. Delayed graduation contributes to the student debt burden by increasing tuition payments without any additional wage premium. Behavioral theory suggests that young adults are prone to biases limiting their ability to connect short-run actions with long-run outcomes. We attempt to correct these biases using a low-touch financial literacy intervention within a randomized encouragement design at a large public university. We randomly invite and incentivize first-year students to participate in an online tutorial connecting short-run academic success to long-run debt obligations and examine differences in academic outcomes. The intervention increases credits earned and GPA: treated students earn 0.55 more credits per semester and GPAs increase by 0.08. We also find substantially larger effects for underrepresented minorities and less-prepared students. The intervention puts these at-risk students on track to graduate on time, where they would otherwise fall behind. Applying a simply benefit-cost formula, our results suggest that spending one dollar incentivizing financial literacy in this context leads to tuition savings of $115.
Keywords: financial literacy, academic outcomes, randomized encouragement
JEL Classification: D14, G53, I21, I23
Suggested Citation: Suggested Citation