Unpacking the Causal Chain of Financial Literacy

A growing body of literature examines the causal impact of financial literacy on individual, household, and firm level outcomes. This paper unpacks the mechanism of impact by focusing on the first link in the causal chain. Specifically, it studies the experimental impact of financial literacy on three distinct dimensions of financial knowledge. The analysis finds that financial literacy does not immediately enable individuals to discern costs and rewards that require high numeracy skills, but it does significantly improve basic awareness of financial choices and attitudes toward financial decisions. Monetary incentives do not induce better performance, suggesting cognitive constraints rather than lack of attention are a key barrier to improving financial knowledge. These results illuminate the strengths and limitations of financial literacy training, which can inform the design and anticipated effects of such programs.

Bibliographic Details

Main Authors:	Carpena, Fenella, Cole, Shawn, Shapiro, Jeremy, Zia, Bilal
Language:	English
Published:	2011-09-01
Subjects:	ACCESS TO FINANCE, ACCOUNTING, APR, ARITHMETIC, AVERAGE SCORE, BANK ACCOUNT, BASIC FINANCIAL LITERACY, BORROWING, BORROWING MONEY, BUDGETING, BUSINESS EDUCATION, BUSINESS SCHOOL, BUSINESS TRAINING, CALCULATIONS, CASH PAYMENT, CHECKS, CHILD CARE, CLASSROOM, CLASSROOM SESSION, CLASSROOM SESSIONS, CONSUMER, CONSUMER FINANCE, CONSUMER PROTECTION, CONSUMER PROTECTION MEASURES, CONSUMERS, CONTRIBUTION, DEBT, DECISION MAKING, DEMAND FOR SAVINGS, DEPOSIT, DEPOSIT INSURANCE, DEVELOPMENT BANK, DISCOUNT RATE, DISCOUNT RATES, DIVERSIFICATION, EARNINGS, ECONOMIC DECISIONS, ELEMENTARY SCHOOL, EMPLOYEE, EMPLOYEE BENEFITS, ENROLLMENT, ENTREPRENEURS, EXPENDITURE, EXPENDITURES, FARM ENTERPRISE, FINANCIAL ADVICE, FINANCIAL BEHAVIOR, FINANCIAL CHOICES, FINANCIAL CONCEPTS, FINANCIAL CURRICULUM, FINANCIAL DECISION, FINANCIAL DECISIONS, FINANCIAL EDUCATION, FINANCIAL EDUCATION PROGRAM, FINANCIAL EDUCATION PROGRAMS, FINANCIAL INCENTIVE, FINANCIAL INCENTIVES, FINANCIAL INSTRUMENTS, FINANCIAL KNOWLEDGE, FINANCIAL LITERACY, FINANCIAL LITERACY EDUCATION, FINANCIAL LITERACY PROGRAM, FINANCIAL LITERACY PROGRAMS, FINANCIAL LITERACY SURVEYS, FINANCIAL LITERACY TRAINING, FINANCIAL MANAGEMENT, FINANCIAL MATTERS, FINANCIAL OPTIONS, FINANCIAL OUTCOMES, FINANCIAL PRODUCT, FINANCIAL PRODUCTS, FINANCIAL PROVIDERS, FINANCIAL REFORM, FINANCIAL SERVICES, FINANCIAL SOPHISTICATION, FORMAL FINANCIAL SERVICES, GENDER, GENERAL POPULATION, HEALTH EDUCATION, HEALTH INSURANCE, HEALTH TRAINING, HIGH SCHOOL, HOUSEHOLD FINANCE, HOUSEHOLD INCOME, HOUSEHOLDS, HUSBAND, INCOMES, INFLATION, INFORMAL SAVINGS, INFORMED FINANCIAL CHOICES, INHERITANCE, INSTALLMENT, INSURANCE, INSURANCE POLICY, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERVENTIONS, INVESTING, KNOWLEDGE TEST, LENDER, LIFE INSURANCE, LIFE INSURANCE POLICY, LIMITED FINANCIAL LITERACY, LITERACY LEVELS, LITERACY TEST, LOAN, LOAN PROCESSING, LOAN REPAYMENT, LOW-INCOME, MATH, MATHEMATICS, MEDICAL INSURANCE, MFI, MICRO-ENTREPRENEURS, MICROFINANCE, MONETARY INCENTIVES, MONEY LENDER, MONEYLENDER, MONEYLENDERS, MONTHLY INCOME, MORTGAGE, MORTGAGE CHOICE, NUMERACY, PAYDAY LOAN, PEOPLES, PREGNANT WOMEN, PROBABILITY, PUBLIC ECONOMICS, RENTS, REPAYMENT, RETIREMENT, RETIREMENT PLAN, RETIREMENT READINESS, RETIREMENT SAVINGS, RETIREMENT SAVINGS ACCOUNTS, RISK AVERSION, SAVING MONEY, SAVINGS, SAVINGS ACCOUNT, SAVINGS BEHAVIOR, SAVINGS INSTRUMENTS, SAVINGS OPTION, SAVINGS PRODUCT, SCHOOLING, SECONDARY SCHOOL, SMALL LOAN, SOCIAL PROCESSES, STOCK MUTUAL FUND, SUPPLY OF CREDIT, TEACHING, TRAINING CENTER, TRAINING PROGRAM, URBAN DEVELOPMENT, VALUE OF MONEY, VITAMIN A,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110919154530 https://hdl.handle.net/10986/3562
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