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Financial literacy, institutions and education: Lessons from the German reunification

Author

Listed:
  • Davoli Maddalena

    (Goethe University Frankfurt, RuW (Postbox 48), Theodor-W.-Adorno-Platz 4, 60629 Frankfurt am Main, Germany)

  • Hou Jia

    (China Center for Special Economic Zone Research, 47890 Shenzhen University, 518061 Shenzhen, China)

Abstract

A growing body of literature highlights the importance of financial literacy in affecting household choices. However, much fewer studies focus on understanding the determinants of different levels of financial literacy. Our paper contributes to filling this gap by analyzing a specific determinant, i. e., the educational system, to explain the heterogeneity of financial literacy scores across Germany. The results suggest that the lower financial literacy observed in East Germany can be partially attributed to the different institutional framework experienced during the Cold War, more specifically, to the socialist educational system experienced in East Germany, which affected specific cohorts of individuals. By exploiting the unique set-up of the German reunification, we identify education as a channel through which institutions and financial literacy are related in the German context. In support of this hypothesis, we find that individuals exposed to the Eastern educational system exhibit 12%12\hspace{0.1667em}\% to 21%21\hspace{0.1667em}\% lower financial literacy scores compared with the households in the control group, not exposed to such system.

Suggested Citation

  • Davoli Maddalena & Hou Jia, 2021. "Financial literacy, institutions and education: Lessons from the German reunification," German Economic Review, De Gruyter, vol. 22(4), pages 447-488, November.
    • Handle: RePEc:bpj:germec:v:22:y:2021:i:4:p:447-488:n:1
    DOI: 10.1515/ger-2020-0027
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    Citations

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    Cited by:

    1. Bondar Mariia & Fuchs-Schündeln Nicola, 2023. "Good Bye Lenin Revisited: East-West Preferences Three Decades after German Reunification," German Economic Review, De Gruyter, vol. 24(1), pages 97-119, February.
    2. Dräger, Lena & Nghiem, Giang, 2023. "Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277587, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    financial literacy determinants; socialist education; German reunification; DiD;
    All these keywords.

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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