Working Paper: NBER ID: w16452
Authors: Jere R. Behrman; Olivia S. Mitchell; Cindy Soo; David Bravo
Abstract: Financial literacy and schooling attainment have been linked to household wealth accumulation. Yet prior findings may be biased due to noisy measures of financial literacy and schooling, as well as unobserved factors such as ability, intelligence, and motivation that could enhance financial literacy and schooling but also directly affect wealth accumulation. We use a new household dataset and an instrumental variables approach to isolate the causal effects of financial literacy and schooling on wealth accumulation. While financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, our approach reveals even stronger and larger effects of financial literacy on wealth. Estimated impacts are substantial enough to suggest that investments in financial literacy could have large positive effects on household wealth accumulation.
Keywords: financial literacy; wealth accumulation; schooling; pension contributions
JEL Codes: G14; G23; I21; I3; J14; J24; J26; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial literacy (G53) | Wealth accumulation (E21) |
| Financial literacy (G53) | Pension wealth (H55) |
| Financial literacy (G53) | Net housing wealth (G51) |
| Financial literacy (G53) | Other forms of wealth (E21) |
| Schooling (I21) | Wealth accumulation (E21) |
| Financial literacy + Schooling (G53) | Wealth accumulation (E21) |