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Economic condition and financial cognition

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  • Delis, Manthos
  • Galariotis, Emilios
  • Monne, Jerome

Abstract

Are low-income individuals trapped because they are unable to make good financial decisions? We use a randomized controlled survey experiment to examine how prompting individuals to think about their personal economic condition (priming) affects their scores on a financial literacy quiz. We find that the marginal effect of poverty on financial literacy scores is 3.7 times higher for primed (treated) respondents compared to nonprimed ones. Priming not only worsens the financial literacy scores of low-income individuals, but also improves the scores of high-income individuals. Anxiety and shame are key explanations for our baseline results. Our findings shed light on how economic condition affects financial cognition, especially with regard to cognitive impediments resulting from negative emotions.

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  • Delis, Manthos & Galariotis, Emilios & Monne, Jerome, 2021. "Economic condition and financial cognition," Journal of Banking & Finance, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:jbfina:v:123:y:2021:i:c:s037842662030296x
    DOI: 10.1016/j.jbankfin.2020.106035
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    Cited by:

    1. DELIS, Manthos & GALARIOTIS, Emilios & IOSIFIDI, Maria & MONNE, Jerome, 2023. "Poverty and seeking bank advice: Evidence from a survey experiment," Journal of Financial Stability, Elsevier, vol. 67(C).
    2. Delis, Manthos & Galariotis, Emilios & Monne, Jerome, 2021. "Financial vulnerability and seeking expert advice: Evidence from a survey experiment," MPRA Paper 107095, University Library of Munich, Germany.

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    More about this item

    Keywords

    Financial effects of poverty; Financial literacy; Priming; Cognitive impediment; Financial anxiety; Shame of poverty; Survey experiment;
    All these keywords.

    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods

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