IDEAS home Printed from https://ideas.repec.org/p/oml/wpaper/201803.html
   My bibliography  Save this paper

The Causal Mechanism of Financial Education: Evidence from Mediation Analysis

Author

Listed:
  • Fenella Carpena

    (Oslo Business School, Oslo Metropolitan University)

  • Bilal Zia

    (World Bank - Development Research Group (DECRG))

Abstract

This paper uses a field experiment in India with multiple financial education treatments to investigate the causal mechanisms between financial education and financial behavior. Focusing on the mediating role of financial literacy, we propose a broader definition of financial knowledge that includes three dimensions: numeracy skills, financial awareness, and attitudes towards personal finance. We then employ causal mediation analysis to investigate the proportion of the treatment effect that can be attributed to these three channels. Strikingly, we find that numeracy does not mediate any effects of financial education on household outcomes. For simple financial actions such as budgeting, both awareness and attitudes serve as critical pathways, while for more complex financial activities such as opening a savings account, attitudes play a more prominent role. These findings underscore the importance of changing perceptions about financial products and services as a vital mechanism for the success of financial education.

Suggested Citation

  • Fenella Carpena & Bilal Zia, 2018. "The Causal Mechanism of Financial Education: Evidence from Mediation Analysis," Working Papers 201803, Oslo Metropolitan University, Oslo Business School.
    • Handle: RePEc:oml:wpaper:201803
    DOI: 10.2139/ssrn.3244634
    as

    Download full text from publisher

    File URL: https://doi.org/10.2139/ssrn.3244634
    Download Restriction: no
    File URL: https://libkey.io/10.2139/ssrn.3244634?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Anderson, Michael L., 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1481-1495.
    2. Miriam Bruhn & David McKenzie, 2009. "In Pursuit of Balance: Randomization in Practice in Development Field Experiments," American Economic Journal: Applied Economics, American Economic Association, vol. 1(4), pages 200-232, October.
    3. Acharya, Avidit & Blackwell, Matthew & Sen, Maya, 2016. "Explaining Causal Findings Without Bias: Detecting and Assessing Direct Effects," American Political Science Review, Cambridge University Press, vol. 110(3), pages 512-529, August.
    4. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    5. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    6. Daniel Fernandes & John G. Lynch & Richard G. Netemeyer, 2014. "Financial Literacy, Financial Education, and Downstream Financial Behaviors," Management Science, INFORMS, vol. 60(8), pages 1861-1883, August.
    7. Gunhild Berg & Bilal Zia, 2017. "Harnessing Emotional Connections to Improve Financial Decisions: Evaluating the Impact of Financial Education in Mainstream Media," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 1025-1055.
    8. Imai, Kosuke & Keele, Luke & Tingley, Dustin & Yamamoto, Teppei, 2011. "Unpacking the Black Box of Causality: Learning about Causal Mechanisms from Experimental and Observational Studies," American Political Science Review, Cambridge University Press, vol. 105(4), pages 765-789, November.
    9. Holzmann, Robert, 2010. "Bringing financial literacy and education to low and middle income countries : the need to review, adjust, and extend current wisdom," Social Protection Discussion Papers and Notes 56501, The World Bank.
    10. Fearon, James D. & Laitin, David D., 2003. "Ethnicity, Insurgency, and Civil War," American Political Science Review, Cambridge University Press, vol. 97(1), pages 75-90, February.
    11. Miriam Bruhn & Luciana de Souza Leão & Arianna Legovini & Rogelio Marchetti & Bilal Zia, 2016. "The Impact of High School Financial Education: Evidence from a Large-Scale Evaluation in Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 8(4), pages 256-295, October.
    12. Rachel Glennerster & Kudzai Takavarasha, 2013. "Running Randomized Evaluations: A Practical Guide," Economics Books, Princeton University Press, edition 1, number 10085.
    13. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.
    14. Jonathan Cohen & Keith Marzilli Ericson & David Laibson & John Myles White, 2020. "Measuring Time Preferences," Journal of Economic Literature, American Economic Association, vol. 58(2), pages 299-347, June.
    15. Alberto Alesina & Paola Giuliano & Nathan Nunn, 2013. "On the Origins of Gender Roles: Women and the Plough," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 469-530.
    16. Margaret Miller & Julia Reichelstein & Christian Salas & Bilal Zia, 2015. "Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature," The World Bank Research Observer, World Bank, vol. 30(2), pages 220-246.
    17. Justine S. Hastings & Brigitte C. Madrian & William L. Skimmyhorn, 2013. "Financial Literacy, Financial Education, and Economic Outcomes," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 347-373, May.
    18. Emily Oster, 2019. "Unobservable Selection and Coefficient Stability: Theory and Evidence," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(2), pages 187-204, April.
    19. Lauren E. Willis, 2011. "The Financial Education Fallacy," American Economic Review, American Economic Association, vol. 101(3), pages 429-434, May.
    20. Raymond Hicks & Dustin Tingley, 2011. "Causal mediation analysis," Stata Journal, StataCorp LP, vol. 11(4), pages 605-619, December.
    21. Ahamed, M. Mostak & Mallick, Sushanta K., 2019. "Is financial inclusion good for bank stability? International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 403-427.
    22. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    23. Doi, Yoko & McKenzie, David & Zia, Bilal, 2014. "Who you train matters: Identifying combined effects of financial education on migrant households," Journal of Development Economics, Elsevier, vol. 109(C), pages 39-55.
    24. Kosuke Imai & Dustin Tingley & Teppei Yamamoto, 2013. "Experimental designs for identifying causal mechanisms," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 176(1), pages 5-51, January.
    25. Aussi Sayinzoga & Erwin H. Bulte & Robert Lensink, 2016. "Financial Literacy and Financial Behaviour: Experimental Evidence from Rural Rwanda," Economic Journal, Royal Economic Society, vol. 126(594), pages 1571-1599, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nancy Neoyame Chabaefe & Abubaker Qutieshat, 2024. "Financial Literacy, Financial Education and Financial Experience: Conceptual Framework," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 44-55, July.
    2. Nicole Jonker & Anneke Kosse, 2020. "The interplay of financial education, financial literacy, financial inclusion and financial, stability: Any lessons for the current Big Tech era?," Working Papers 692, DNB.
    3. Lusardi, Annamaria & Kaiser, Tim, 2024. "Financial literacy and financial education: An overview," CEPR Discussion Papers 19185, C.E.P.R. Discussion Papers.
    4. Kaiser, Tim & Menkhoff, Lukas, 2022. "Active learning improves financial education: Experimental evidence from Uganda," Journal of Development Economics, Elsevier, vol. 157(C).
    5. Sholevar, Maryam & Harris, Laurence, 2019. "Mind the gap: A discussion paper on Financial Literacy, Financial behaviour and Financial Education : Is there any Gender Gap?," OSF Preprints b7zd6, Center for Open Science.
    6. Kaiser, Tim & Lusardi, Annamaria & Menkhoff, Lukas & Urban, Carly, 2022. "Financial education affects financial knowledge and downstream behaviors," Journal of Financial Economics, Elsevier, vol. 145(2), pages 255-272.
    7. Delis, Manthos & Galariotis, Emilios & Monne, Jerome, 2021. "Economic condition and financial cognition," Journal of Banking & Finance, Elsevier, vol. 123(C).
    8. DELIS, Manthos & GALARIOTIS, Emilios & IOSIFIDI, Maria & MONNE, Jerome, 2023. "Poverty and seeking bank advice: Evidence from a survey experiment," Journal of Financial Stability, Elsevier, vol. 67(C).
    9. Dalton, Patricio & Rüschenpöhler, Julius & Uras, Burak & Zia, Bilal, 2019. "Local Best Practices for Business Growth," Other publications TiSEM fc650e2f-88cf-4d75-8257-f, Tilburg University, School of Economics and Management.
    10. Rakshit, Sonali & Sahoo, Soham, 2023. "Biased teachers and gender gap in learning outcomes: Evidence from India," Journal of Development Economics, Elsevier, vol. 161(C).
    11. Grohmann, Antonia & Hübler, Olaf & Kouwenberg, Roy & Menkhoff, Lukas, 2021. "Financial literacy: Thai middle-class women do not lag behind," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    12. Nicole Jonker & Anneke Kosse, 2022. "The interplay of financial education, financial inclusion and financial stability and the role of Big Tech," Contemporary Economic Policy, Western Economic Association International, vol. 40(4), pages 612-635, October.
    13. Mequanint B. Melesse & Amos Nyangira Tirra & Yabibal M. Walle & Michael Hauser, 2023. "Understanding the Determinants of Aspirations in Rural Tanzania: Does Financial Literacy Matter?," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(6), pages 1294-1321, December.
    14. Gerling, Lena & Kellermann, Kim Leonie, 2022. "Contagious populists: The impact of election information shocks on populist party preferences in Germany," European Journal of Political Economy, Elsevier, vol. 72(C).
    15. Boyd, Chris M. & Díez-Amigo, Sandro, 2023. "Effectiveness of free financial education provided by for-profit financial institutions: Experimental evidence from rural Peru," Economics of Education Review, Elsevier, vol. 97(C).
    16. Patrick Ring & Christoph A. Schütt & Dennis J. Snower, 2023. "Care and anger motives in social dilemmas," Theory and Decision, Springer, vol. 95(2), pages 273-308, August.
    17. Schütt, Christoph A., 2023. "The effect of perceived similarity and social proximity on the formation of prosocial preferences," Journal of Economic Psychology, Elsevier, vol. 99(C).
    18. Magda Bianco & Daniela Marconi & Angela Romagnoli & Massimiliano Stacchini, 2022. "Challenges for financial inclusion: the role for financial education and new directions," Questioni di Economia e Finanza (Occasional Papers) 723, Bank of Italy, Economic Research and International Relations Area.
    19. Panu Kalmi & Gianluca Trotta & Andrius Kažukauskas, 2021. "Energy‐related financial literacy and electricity consumption: Survey‐based evidence from Finland," Journal of Consumer Affairs, Wiley Blackwell, vol. 55(3), pages 1062-1089, September.
    20. Auzepy, Alix & Bannier, Christina E. & Gärtner, Florian, 2024. "Looking beyond ESG preferences: The role of sustainable finance literacy in sustainable investing," CFS Working Paper Series 719, Center for Financial Studies (CFS).
    21. Karla María Orozco-Orozco & Osvaldo García-Mata & Eduardo Arango-Herrera, 2024. "Financial Literacy and Financial Well-Being Among Businesspersons from Victoria, Tamaulipas, Mexico," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 19(1), pages 1-25, Enero - M.
    22. Mathew, Nanditha & Napolitano, Lorenzo & Rizzo, Ugo, 2020. "The role of domestic-firm knowledge in foreign R&D collaborations: Evidence from co-patenting in Indian firms," MERIT Working Papers 2020-044, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaiser, Tim & Menkhoff, Lukas, 2022. "Active learning improves financial education: Experimental evidence from Uganda," Journal of Development Economics, Elsevier, vol. 157(C).
    2. Tim Kaiser & Lukas Menkhoff, 2017. "Does Financial Education Impact Financial Literacy and Financial Behavior, and If So, When?," The World Bank Economic Review, World Bank, vol. 31(3), pages 611-630.
    3. Fenella Carpena & Shawn Cole & Jeremy Shapiro & Bilal Zia, 2019. "The ABCs of Financial Education: Experimental Evidence on Attitudes, Behavior, and Cognitive Biases," Management Science, INFORMS, vol. 65(1), pages 346-369, January.
    4. Kaiser, Tim & Menkhoff, Lukas, 2018. "Active Learning Improves Financial Education:," Rationality and Competition Discussion Paper Series 131, CRC TRR 190 Rationality and Competition.
    5. Lusardi, Annamaria & Kaiser, Tim, 2024. "Financial literacy and financial education: An overview," CEPR Discussion Papers 19185, C.E.P.R. Discussion Papers.
    6. Kaiser, Tim & Lusardi, Annamaria & Menkhoff, Lukas & Urban, Carly, 2022. "Financial education affects financial knowledge and downstream behaviors," Journal of Financial Economics, Elsevier, vol. 145(2), pages 255-272.
    7. Tim Kaiser & Lukas Menkhoff, 2018. "Active Learning Fosters Financial Behavior: Experimental Evidence," Discussion Papers of DIW Berlin 1743, DIW Berlin, German Institute for Economic Research.
    8. Kaiser, Tim & Menkhoff, Lukas, 2020. "Financial education in schools: A meta-analysis of experimental studies," Economics of Education Review, Elsevier, vol. 78(C).
    9. Entorf, Horst & Hou, Jia, 2018. "Financial education for the disadvantaged? A review," SAFE Working Paper Series 205, Leibniz Institute for Financial Research SAFE.
    10. Gerrans, Paul, 2021. "Undergraduate student financial education interventions: Medium term evidence of retention, decay, and confidence in financial literacy," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    11. Paul Gerrans & Richard Heaney, 2019. "The impact of undergraduate personal finance education on individual financial literacy, attitudes and intentions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(1), pages 177-217, March.
    12. Orazio Attanasio & Matthew Bird & Lina Cardona-Sosa & Pablo Lavado, 2019. "Freeing Financial Education via Tablets: Experimental Evidence from Colombia," NBER Working Papers 25929, National Bureau of Economic Research, Inc.
    13. Nicole Jonker & Anneke Kosse, 2020. "The interplay of financial education, financial literacy, financial inclusion and financial, stability: Any lessons for the current Big Tech era?," Working Papers 692, DNB.
    14. Nicole Jonker & Anneke Kosse, 2022. "The interplay of financial education, financial inclusion and financial stability and the role of Big Tech," Contemporary Economic Policy, Western Economic Association International, vol. 40(4), pages 612-635, October.
    15. Barua, Rashmi & Shastry, Gauri Kartini & Yang, Dean, 2020. "Financial education for female foreign domestic workers in Singapore," Economics of Education Review, Elsevier, vol. 78(C).
    16. De Beckker, Kenneth & De Witte, Kristof & Van Campenhout, Geert, 2021. "The effect of financial education on students’ consumer choices: Evidence from a randomized experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 962-976.
    17. Kjetil Bjorvatn & Alexander W. Cappelen & Linda Helgesson Sekei & Erik Ø. Sørensen & Bertil Tungodden, 2020. "Teaching Through Television: Experimental Evidence on Entrepreneurship Education in Tanzania," Management Science, INFORMS, vol. 66(6), pages 2308-2325, June.
    18. Hakizimfura, Emmanuel & Randall, Douglas & Zia, Bilal, 2020. "Decentralized delivery of financial education: Experimental evidence from Rwanda," Journal of Development Economics, Elsevier, vol. 144(C).
    19. Sholevar, Maryam & Harris, Laurence, 2019. "Mind the gap: A discussion paper on Financial Literacy, Financial behaviour and Financial Education : Is there any Gender Gap?," OSF Preprints b7zd6, Center for Open Science.
    20. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.

    More about this item

    Keywords

    Financial Education; Financial Literacy; Financial Knowledge; Causal Mediation Analysis; Mechanism of Impact; Impact Evaluation;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oml:wpaper:201803. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Eirik Hanssen (email available below). General contact details of provider: https://edirc.repec.org/data/ohioano.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.