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Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico

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  • Justine S. Hastings
  • Lydia Tejeda-Ashton

Abstract

We use responses to a survey and experiment with participants in Mexico's privatized social security system to examine how financial literacy impacts workers' choice behavior and how simplifying information on management fees may increase measures of price elasticity sensitivity among the financially illiterate. We find that by presenting fees in pesos instead of annual percentage rates, financially illiterate workers focus much more on fees when choosing between investment funds, selecting funds with lower average fees in hypothetical choice settings. Even though changes in information have small impacts on fees of the selected fund, holding fees constant, we show that changes in choice behavior imply a substantial increase in price sensitivity. Hence, the way in which information is presented to workers can have a substantial impact on optimal fees that firms can charge in the marketplace.

Suggested Citation

  • Justine S. Hastings & Lydia Tejeda-Ashton, 2008. "Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico," NBER Working Papers 14538, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14538
    Note: AG IO PE
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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