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Financial Literacy, Schooling, and Wealth Accumulation

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  • Jere R. Behrman
  • Olivia S. Mitchell
  • Cindy Soo
  • David Bravo

Abstract

Financial literacy and schooling attainment have been linked to household wealth accumulation. Yet prior findings may be biased due to noisy measures of financial literacy and schooling, as well as unobserved factors such as ability, intelligence, and motivation that could enhance financial literacy and schooling but also directly affect wealth accumulation. We use a new household dataset and an instrumental variables approach to isolate the causal effects of financial literacy and schooling on wealth accumulation. While financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, our approach reveals even stronger and larger effects of financial literacy on wealth. Estimated impacts are substantial enough to suggest that investments in financial literacy could have large positive effects on household wealth accumulation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16452.

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Date of creation: Oct 2010
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Publication status: published as Behrman, Jere, Olivia S. Mitchell, Cindy Soo, and David Bravo. (2012). “Financial Literacy, Schooling, and Wealth Accumulation.” American Economic Review P&P. 102(3): 300–304.
Handle: RePEc:nbr:nberwo:16452

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References

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  1. Alberto Arenas de Mesa & David Bravo & Jere R. Behrman & Olivia S. Mitchell & Petra E. Todd, 2006. "The Chilean Pension Reform Turns 25: Lessons From the Social Protection Survey," NBER Working Papers 12401, National Bureau of Economic Research, Inc.
  2. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jurgen Schupp & Gert Wagner, 2005. "Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey," Framed Field Experiments 00140, The Field Experiments Website.
  3. Catherine Eckel & Cathleen Johnson & Claude Montmarquette, 2004. "Saving Decisions of the Working Poor: Short-and Long-Term Horizons," CIRANO Working Papers 2004s-45, CIRANO.
  4. repec:feb:framed:0019 is not listed on IDEAS
  5. Behrman, Jere R & Rosenzweig, Mark R & Taubman, Paul, 1994. "Endowments and the Allocation of Schooling in the Family and in the Marriage Market: The Twins Experiment," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1131-74, December.
  6. John Ameriks & Andrew Caplin & John Leahy, 2003. "Wealth Accumulation And The Propensity To Plan," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1007-1047, August.
  7. David Bravo Urrutia & Olivia S. Mitchell & Petra Todd, 2007. "Learning from the Chilean Experience: The Determinants of Pension Switching," Working Papers wp266, University of Chile, Department of Economics.
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Cited by:
  1. Justine S. Hastings & Olivia S. Mitchell, 2011. "How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors," NBER Working Papers 16740, National Bureau of Economic Research, Inc.
  2. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2012. "Financial Sophistication in the Older Population," NBER Working Papers 17863, National Bureau of Economic Research, Inc.
  3. Christelis, Dimitris & Dobrescu, Loretti I. & Motta, Alberto, 2011. "Early life conditions and financial risk-taking in older age," CFS Working Paper Series 2011/28, Center for Financial Studies (CFS).
  4. Jappelli, Tullio & Padula, Mario, 2013. "Consumption Growth, the Interest Rate, and Financial Literacy," CEPR Discussion Papers 9406, C.E.P.R. Discussion Papers.
  5. Angela Romagnoli & Maurizio Trifilidis, 2013. "Does financial education at school work? Evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 155, Bank of Italy, Economic Research and International Relations Area.
  6. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 497-508, October.
  7. Theresa Kuchler, 2013. "Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown," Discussion Papers 12-025, Stanford Institute for Economic Policy Research.
  8. Annamaria Lusardi & Carlo de Bassa Scheresberg, 2013. "Financial Literacy and High-Cost Borrowing in the United States," NBER Working Papers 18969, National Bureau of Economic Research, Inc.
  9. Binswanger, J. & Carman, K.G., 2010. "The Miracle of Compound Interest: Does our Intuition Fail?," Discussion Paper 2010-137, Tilburg University, Center for Economic Research.
  10. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy and retirement planning in the United States," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 509-525, October.
  11. Solange Berstein & Olga Fuentes & Nicolás Torrealba, 2011. "La Importancia de la Opción por Omisión en los Sistemas de Pensiones de Cuentas Individuales," Working Papers 44, Superintendencia de Pensiones, revised Jan 2011.
  12. Christopher B. Bumcrot & Judy Lin & Annamaria Lusardi, 2011. "The Geography of Financial Literacy," Working Papers 893, RAND Corporation Publications Department.
  13. Xu, Lisa & Zia, Bilal, 2012. "Financial literacy around the world : an overview of the evidence with practical suggestions for the way forward," Policy Research Working Paper Series 6107, The World Bank.
  14. Klapper, Leora & Lusardi, Annamaria & Panos, Georgios A., 2012. "Financial literacy and the financial crisis," Policy Research Working Paper Series 5980, The World Bank.
  15. Jere R. Behrman & Maria Cecilia Calderon & Olivia S. Mitchell & Javiera Vasquez & David Bravo, 2011. "First-Round Impacts of the 2008 Chilean Pension System Reform," Working Papers wp245, University of Michigan, Michigan Retirement Research Center.

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