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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)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp3507

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Related research
Keywords: financial literacy time preferences selection field experiment

Other versions of this item:

Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutstrom & Melonie B. Williams, 2005. "Eliciting Risk and Time Preferences Using Field Experiments: Some Methodological Issues," Artefactual Field Experiments 0054, The Field Experiments Website. [Downloadable!]
  2. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December. [Downloadable!] (restricted)
  3. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
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  4. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, UCLA Department of Economics. [Downloadable!]
  5. Daniel J. Benjamin & James J. Choi & A. Joshua Strickland, 2007. "Social Identity and Preferences," NBER Working Papers 13309, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, vol. 2(2), pages 107-127, December. [Downloadable!] (restricted)
  7. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, 05. [Downloadable!] (restricted)
  8. Lalith Munasinghe & Nachum Sicherman, 2006. "Why Do Dancers Smoke? Smoking, Time Preference, and Wage Dynamics," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 595-616, Fall. [Downloadable!]
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This page was last updated on 2008-10-6.

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