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Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs

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Author Info

  • Meier, Stephan

    ()
    (Columbia University)

  • Sprenger, Charles

    ()
    (University of California, San Diego)

Abstract

Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3507.

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Length: 35 pages
Date of creation: May 2008
Date of revision:
Publication status: published in: Journal of Economic Behavior & Organization, 2012, [Online First]
Handle: RePEc:iza:izadps:dp3507

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Keywords: selection; time preferences; financial literacy; field experiment;

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References

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  2. Dohmen, Thomas J & Falk, Armin & Huffman, David & Schupp, Jürgen & Sunde, Uwe & Wagner, Gert Georg, 2006. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5517, C.E.P.R. Discussion Papers.
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  7. Bertrand, Marianne & Shafir, Eldar & Mullainathan, Sendhil, 2004. "A Behavioral Economics View of Poverty," Scholarly Articles 2907437, Harvard University Department of Economics.
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  9. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
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  14. Hanming Fang & Dan Silverman, 2009. "Time-Inconsistency And Welfare Program Participation: Evidence From The Nlsy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1043-1077, November.
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  16. Stephan Meier & Charles Sprenger, 2007. "Impatience and credit behavior: evidence from a field experiment," Working Papers, Federal Reserve Bank of Boston 07-3, Federal Reserve Bank of Boston.
  17. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers, University of Michigan, Michigan Retirement Research Center wp144, University of Michigan, Michigan Retirement Research Center.
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Cited by:
  1. Marianne Bertrand & Adair Morse, 2009. "Information Disclosure, Cognitive Biases and Payday Borrowing," Working Papers, Becker Friedman Institute for Research In Economics 2009-007, Becker Friedman Institute for Research In Economics.
  2. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(4), pages 593-608, August.
  3. Sutter, Matthias & Kocher, Martin G. & Rützler, Daniela & Trautmann, Stefan T., 2010. "Impatience and Uncertainty: Experimental Decisions Predict Adolecents' Field Behavior," Discussion Papers in Economics, University of Munich, Department of Economics 12114, University of Munich, Department of Economics.
  4. Meier, Stephan & Sprenger, Charles, 2009. "Present-Biased Preferences and Credit Card Borrowing," IZA Discussion Papers 4198, Institute for the Study of Labor (IZA).
  5. Benjamin Levinger & Marques Benton & Stephan Meier, 2011. "The Cost of Not Knowing the Score: Self-Estimated Credit Scores and Financial Outcomes," Journal of Family and Economic Issues, Springer, Springer, vol. 32(4), pages 566-585, December.
  6. Tatom, John, 2010. "Financial wellbeing and some problems in assessing its link to financial education," MPRA Paper 26411, University Library of Munich, Germany.

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