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Investment in financial literacy and saving decisions

Listed author(s):
  • Jappelli, Tullio
  • Padula, Mario

We present an intertemporal consumption model of investment in financial literacy. Consumers benefit from such investment because financial literacy allows them to increase the returns on wealth. Since literacy depreciates over time and has a cost in terms of current consumption, the model delivers an optimal investment in literacy. Furthermore, literacy and wealth are determined jointly, and are positively correlated over the life-cycle. The model drives our empirical approach to the analysis of the effect of financial literacy on wealth and saving and indicates that the stock of financial literacy early in life is a valid instrument in the regression of wealth on financial literacy. Using microeconomic and aggregate data, we find strong support for the model’s predictions.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378426613001623
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 8 ()
Pages: 2779-2792

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:2779-2792
DOI: 10.1016/j.jbankfin.2013.03.019
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  6. Jappelli, Tullio & Padula, Mario, 2013. "Investment in financial literacy, social security and portfolio choice," CFS Working Paper Series 2013/12, Center for Financial Studies (CFS).
  7. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob J. M., 2011. "Financial literacy, retirement planning, and household wealth," CFS Working Paper Series 2011/21, Center for Financial Studies (CFS).
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