Working Paper: NBER ID: w16271
Authors: Bruce Ian Carlin; David T. Robinson
Abstract: This paper uses a quasi natural experiment to explore how financial education changes savings, investment, and consumer behavior. We use data from a Junior Achievement Finance Park to measure the effect of a financial literacy program on students who are assigned fictitious life situations and asked to create household budgets for these roles. The treatment effects of the financial literacy program are strong. Students who experienced training were somewhat better at making current-cost/current-benefit tradeoff decisions (spending more today versus spending less today). But the tendency to try to save more today often led them to make poor choices when they faced tradeoffs between current-costs and future-benefits today (i.e., when spending more today is cheaper in present value terms). Most importantly, students who had attended training showed greater up-take of decision support that was offered in the park. This indicates that decision support and financial literacy training are complements, not substitutes.
Keywords: financial literacy; consumer behavior; education; decision support
JEL Codes: A21; G18; H52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial literacy training (G53) | Higher completion rate in budget exercises post-training (A29) |
| Financial literacy training (G53) | Better understanding and application of financial concepts (G53) |
| Financial literacy training (G53) | Allocation of more funds towards housing, cars, and insurance (G52) |
| Financial literacy training (G53) | Increased likelihood of saving (D14) |
| Financial literacy training (G53) | Lower average savings due to budgeting exercise constraints (D14) |
| Financial literacy training (G53) | Increased uptake of decision support during park experience (Q26) |
| Financial literacy education + Timely decision support (G53) | Enhanced decision-making (D91) |