Working Paper: NBER ID: w28125
Authors: Marco Angrisani; Jeremy Burke; Annamaria Lusardi; Gary Mottola
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.
Keywords: financial literacy; financial outcomes; longitudinal data; predictive power
JEL Codes: D14; G51; G53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Literacy (G53) | Financial Outcomes (G29) |
| Financial Literacy (G53) | Household Satisfaction with Finances (G59) |
| Financial Literacy (G53) | Ability to Meet Unexpected Financial Needs (G51) |
| Financial Literacy (G53) | Retirement Planning (J26) |
| Financial Literacy Stability (G53) | Financial Outcomes Inequality (I14) |
| Financial Literacy (G53) | Financial Literacy Scores (2012 to 2018) (G53) |