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Culture and Adult Financial Literacy: Evidence from the United States

Author

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  • Davoli, Maddalena

    (Goethe University Frankfurt)

  • Rodríguez-Planas, Núria

    (Queens College, CUNY)

Abstract

Using a US nationally representative sample of over 6,000 adults from 26 countries of ancestry, we find a strong association between their financial literacy in the US and the financial literacy level in their self-reported country of ancestry. More specifically, if an individual from a country of ancestry with "average" financial literacy had instead come from a country with financial literacy one-standard deviation above the mean, his or her likelihood of answering correctly basic financial literacy questions regarding inflation, risk diversification, and interest rate in the US would have increased by 4 percentage points, a 9% increase relative to the average financial literacy in our sample of 43%. The cultural components behind this observed association include a strong emphasis on patience, long-term orientation and risk-aversion in the country of ancestry. We also find that the association is driven by financial literacy on risk diversification and interest compounding.

Suggested Citation

  • Davoli, Maddalena & Rodríguez-Planas, Núria, 2020. "Culture and Adult Financial Literacy: Evidence from the United States," IZA Discussion Papers 13349, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13349
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    More about this item

    Keywords

    epidemiological approach; culture; financial literacy; economic decisions;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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