The effects of a financial literacy intervention on the financial and economic knowledge of high school students

The authors taught financial concepts to students in 12th-grade economics classes, where one treatment was intensive in money management (MM) topics and the other was intensive in financial investment (FI) topics. Two control groups, consisting of 11th-grade students with no exposure to economics and 12th-grade economics students, received no treatment. Both treatment groups showed a 13 percentage point increase in test scores from pretest to posttest, while neither control group showed gains. Neither treatment group outperformed the other in the financial literacy test.     

Social welfare issues of financial literacy and their implications for regulation

Financial literacy has become a prominent item on the public agenda worldwide, with its relevance very much underlined by the high-profile role played by consumer finance in global credit crises from 2007 onwards. Assumptions about the level of consumers’ financial literacy frequently influence the formulation of regulatory policy, whether tacitly or explicitly and many national governments are actively engaged in financial education programs of various sorts. Indeed since at least 2003 the OECD has actively developed and encouraged such efforts. An underlying supposition of these initiatives is that more financial literacy is socially preferable to less. We examine that supposition in a formal analytic framework and demonstrate plausible conditions under which it is not true. We discuss implications of this for policy-makers and regulators alike.     

National culture and financial literacy: international evidence

ABSTRACT

We examine to what extent (aspects of) national culture can explain cross-country variations in financial literacy. Our results, for a sample of 92 countries, show that Hofstede’s dimensions of power distance and individualism explain, respectively, over 40 and 60 per cent – which is substantially more than national cognitive scores and standard economic variables. In particular, we find that financial literacy is lower in countries where power distance is high, and that the opposite is true for individualism. Uncertainty avoidance would seem be negatively related with financial literacy, but the evidence is not so strong. For masculinity, indulgence, and long-term orientation we find no significant impact. Overall, our results highlight the need for additional (interdisciplinary) theories that can improve our understanding of the determinants of financial literacy and better guide policies in this area.     

Education and saving:: The long-term effects of high school financial curriculum mandates

Over the last 40 years, a majority of states have adopted consumer education policies, and a sizable minority have mandated that high school students receive instruction on topics related to household financial decision-making. In this paper, we attempt to determine whether these mandates have had any effect on subsequent decisions. We exploit the variation in requirements both across states and over time to identify the effects of interest. The evidence indicates that mandates have raised both exposure to financial curricula and subsequent asset accumulation once exposed students reached adulthood. The estimated effects are gradual, probably due to implementation lags.     

财富不平等会抑制金融素养对家庭借贷行为的作用效果吗*——基于CHFS数据的经验分析

本文基于2013年中国家庭金融调查（CHFS）数据,选用工具变量法,考察了金融素养对城乡家庭借贷行为影响的差异性,并验证了财富不平等扩大会抑制金融素养对家庭借贷行为的影响。研究发现：（1）金融素养是影响家庭借贷行为的重要因素。户主金融素养水平的改善显著提高了家庭发生借贷的概率与家庭借贷规模。（2）金融素养对城乡家庭借贷行为的影响存在明显差异,金融素养的提高对信贷约束较为严重的农村家庭借贷行为的促进作用更大。（3）财富不平等对家庭借贷行为存在明显的抑制作用,财富不平等的扩大减少了家庭借贷需求,降低了家庭发生借贷的概率和家庭负债规模。（4）随着家庭财富不平等程度的扩大,金融素养对家庭借贷行为的促进作用受到抑制。基于以上结论,政府应该大力开展消费者金融素养教育,注重家庭收入分配合理性,从而推动我国消费金融市场的健康发展。     

Financial literacy and use of payday loans in the United States

Using the 2012 National Financial Capability Study, this study investigated the relationship between financial literacy and payday loan use. An instrumental variable approach was employed to address a possible endogeneity issue using a newly developed instrument of financial literacy based on the community network effect. Results from linear regressions indicated that financial literacy was associated negatively with the use of payday loans, and its effect was greater with the use of the instrument.     

The impact of financial constraints on firm survival and growth

We propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over the 1996–2004 period, we find that (1) financial constraints significantly increase the probability of exiting the market, (2) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and employment, (3) financial constraints are positively related with productivity growth in the short-run. We interpret this last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial markets.     

What You Think You Know: The Effects of Prior Financial Education and Readability on Financial Disclosure Processing

Disclosures in advertising and other forms of marketing communication have been examined as a means to help consumers understand complex financial information and make more informed decisions regarding financial products and services. The authors extend inquiry into this supposition by looking at the readability of disclosures in relation to consumer financial literacy. In an experiment, it was found that while highly readable disclosures facilitate more accurate information processing for those with prior financial education, such disclosures might actually inhibit accurate processing for those without prior financial education. This suggests that policy cannot rely on mandated disclosure in marketing communications alone. Rather, disclosures in financial product or services communication can only be effective if such disclosures are paired with other forms of education leading to greater financial literacy.     

Overall effects of financial liberalization: financial crisis versus economic growth

ABSTRACT

The contribution of this work consists firstly in decomposing the effect of financial liberalization into a global direct positive effect on growth and an indirect negative effect via financial fragility and crisis. We show that the aggregate positive effect of financial liberalization outweighs the negative partial or temporary effect. Secondly, contrary to previous works, we distinguish many types of financial reforms. We found that equity market liberalization is the most important component in reducing economical costs associated with financial crisis. Thus, equity market liberalization is the most important favoring growth. Interest rate liberalization enhances significantly the probability of crisis leading to a short-run indirect effect more important than other financial reforms. Thirdly, we improved our work by addressing model uncertainty using Bayesian Model Averaging techniques to choose appropriate indicators for model crisis specification.     

Perspectives on evaluation in financial education: Landscape,issues, and studies

This review discusses the heterogeneity in the effectiveness of financial education programs that occurs because of the unique conditions for programs and methods to evaluate them. The authors define six groups served by financial education: children, youth, college students and young adults, working adults, military personnel, and low-income consumers. They then discuss research and evaluation literature for each group with a critical eye on program purpose, content, and evaluation. They also present findings affecting multiple groups on four issues: student loans, homeownership, retirement planning, and financial advising. The accumulated evidence on the effectiveness of financial education is positive, although the results are nuanced and sometimes limited. The authors argue that understanding this broad landscape in studying financial education is critical for future research and evaluation.     

Household financial vulnerability: An empirical analysis

Using survey data, we investigate household financial distress. Specifically, we propose an indicator of financial vulnerability to jointly analyse different features of household financial distress, analysing its socio-demographic and economic determinants. A total number of 3102 Italian households make up the sample.The empirical analysis highlights that for the median level of the financial vulnerability index households already exhibit some important symptoms of financial vulnerability, such as problems in getting to the end of the month or an inability to face unexpected expenses. As regards the determinants of the financial vulnerability index, three findings need to be pointed out. First, the level of debt servicing is positively related to financial vulnerability and the effect is stronger for households holding unsecured debt, i.e. consumer credit. Second, financial vulnerability also increases for impulsive individuals, who may adopt impatient, short-sighted behaviour patterns which make it difficult for them to be fully aware of the consequences of their financial and spending decisions. Third, a higher level of education helps to reduce financial fragility.     

Remittances and the human capital of children: New evidence from Kyrgyzstan during revolution and financial crisis, 2005–2009

We analyze the effect of the receipt of remittances on the education and health of children in Kyrgyzstan during a volatile period of their recent history, 2005–2009. The country experienced revolution in 2005 and the global financial crisis beginning in 2008. Both events impact human capital investment, and the changes vary by region of the country. We use fixed effects estimation and fixed effects, instrumental variables estimation to isolate the effects of remittances and other events on human capital. We find that boys aged 14–18 in remittances’ receiving households are less likely to be enrolled in school than other children. We also find that girls in remittances’ receiving households are more likely to be malnourished (thin). Both effects are relatively small. Remittances do not improve the human capital of children left behind. However, we do find an overall positive improvement in school enrollment among young children between 2005 and 2009 but a negative trend in enrollment among older boys and girls. Nutrition improves over time. Regional differences are apparent in these trends in nutrition and education.     

ICT for financial access: Mobile money and the financial behavior of rural households in Uganda

Mobile money usage has expanded tremendously in Uganda, reaching over 40% of the adult population within 8 years of inception. We use data from 820 rural households to examine the effect of this financial innovation on their financial behavior. We find that using mobile money services increases the likelihood of saving, borrowing, and receiving remittances. The corresponding amounts of each service are also significantly higher among mobile money user households relative to their nonuser counterparts. We demonstrate that the mechanism of this impact is a reduction in transaction costs—a combination of transportation fares and service charges—associated with household proximity to mobile money agents. To illustrate the convenience of service proximity, we demonstrate that the household's likelihood and frequency of using mobile money services reduces with the distance to the nearest mobile money agent. This distance variable is then used to instrument for the potentially endogenous mobile money adoption. We finally perform propensity score matching to reinforce the robustness of our results; our results are consistent across all these specifications. The results imply that developing and enhancing access to and usage of pro‐poor financial products could be a first step to achieving greater financial inclusion.     

The effect of public financial aid on dropout from and completion of university education: evidence from a student grant reform

There is limited and uncertain evidence on how financial aid affects dropout from or the completion of higher education. A large-scale reform of the Danish student grant and loan system that among others increased student grants by up to $3,000 per year (57 %) was used to identify causal effects of financial aid on outcomes for university students. Estimates were obtained from year-of-study specific models for students observed just before and after the reform, controlling for student, parental and labour-market characteristics. The estimates indicate that the reform lowered dropout rates, but had no overall effect on completion rates, although with substantial variation across population subgroups. The impact on dropout rates was found to be higher for students from a lower socio-economic background and the impact on completion rates was found to be higher three years after the designated study time to completion. The reform seems to have performed as intended by increasing the take-up of student grants and lowering work hours while studying.     

The nonlinear effect of financial literacy on wealth: evidence from Germany

Empirica - This paper investigates the nonlinearity in the relationship of financial literacy and wealth and addresses the potentially inadequate measurement of financial literacy. Using data from...     

Does bank competition promote financial inclusion? A cross-country evidence

The idea of financial inclusion has recently been discussed as one of the key strategies to enhance economic development (World Bank 2014). We move this discussion forward by examining if bank competition is a crucial component enforcing financial inclusion, which is arguably a finance supply-side driven process. In this study, we compute the financial inclusion index built on Sarma (2008) approach to better reflect banks’ willingness and capability to provide financial services. Applying System Generalized Method of Moments to the panel of 93 countries, we find that bank competition promotes financial inclusion.     

The impact of financial regulation on current account balances

Both global imbalances and financial market deregulation feature prominently among the potential causes of the global financial crisis, but they have been largely discussed separately. In this paper, we take a different angle and investigate the relationship between financial market regulation and current account balances, an area for which limited empirical evidence exists. We use a panel of countries over the period 1980–2010 and employ a novel empirical approach which allows us to simultaneously account for model uncertainty, current account persistence and unobserved heterogeneity. We find robust evidence that financial market regulations affect current account balances and that different aspects of these regulations can have opposing effects on the current account. In particular we find that easing bank entry barriers is negatively associated with the current account balance. In contrast, bank privatization and securities market deregulation tend to raise current account balances. Our results also highlight the importance to control for persistence and unobserved heterogeneity. Once we control for these factors, we find robust evidence for a wide range of current account theories in contrast to previous studies accounting for model uncertainty.     

Institutions and the financial development–economic growth nexus in sub-Saharan Africa

Using a sample splitting approach that does not impose an exogenous quadratic term, we examine the effect of financial development on economic growth in sub-Saharan Africa by allowing the link to be mediated by the level of institutions. Our findings reveal a disproportionate growth-enhancing effect of finance, given countries’ distinct level of institutional quality. More specifically, when the International Country Risk Guide-based measure of institutions is used as the threshold variable, below the optimal level of institutional quality, financial development does not significantly promote economic growth. For countries with institutional quality above the threshold, higher finance is associated with growth. However, when institutions are measured by World Governance Indicators proxy, we find a significant effect of financial development, irrespective of whether a country is below or above the threshold. Interestingly, the growth-enhancing effect of finance is greater for low-institution countries relative to high-institution countries. Thus, through its ability to provide some crucial roles, the well-developed financial sector may also perform the function of sound institutions in influencing economic growth.     

The role of domestic financial and economic development in financial integration

Using two-step system generalized method-of-moments on an unbalanced panel of 75 countries from 1996 to 2010, this study shows that financial development’s effect on the pace of a country’s financial integration is conditional on economic development. Indeed, the results validate the observation that greater financial development conditioned on similar levels of economic development should precede closer financial integration.     

Crash for cash: Offshore financial destinations and IMF programs

A growing body of literature scrutinizes the harmful consequences of capital flight to offshore financial destinations. While financial integration is a well-known facilitator of capital flight, we shed light on an under-appreciated determinant—the availability of an IMF bailout. Expanding on previous literature analyzing moral hazard in the context of IMF programs, we introduce a socially even more destructive mechanism that we label the ‘crash for cash’ effect. We argue that by drawing on the IMF, elites can benefit from accumulating excessive debt to extract rents and hide these safely in offshore financial destinations while steering their countries into financial disaster. To test this mechanism, we show that elite wealth in offshore bank accounts has a first-order impact on a captured government’s willingness to draw on a lender of last resort. From a policy perspective, our analysis underscores the importance of closing financial loopholes to mitigate the devastating socio-economic effects of sophisticated financial engineering in a financially integrated global economy.