Unpacking the causal chain of financial literacy

By Fenella Carpena, Shawn Cole, Jeremy F. Shapiro, Bilal Zia. 2011

227 citations recorded by the source corpus.

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.

Subfields: Accounting, Demography, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f3295b6675abd8c60c7c24f493db3168c7baed5c

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Citations in the corpus

Financial Literacy and Financial Behaviour: Experimental Evidence from Rural Rwanda (2016, methodology): “In addition to the ﬁnancial literacy channel (theory of change), it may exert an impact on behaviour due to changed attitudes or different perceptions of the salience of ﬁnancial intermediation (Carpena et al. , 2011).”
Harnessing Emotional Connections to Improve Financial Decisions: Evaluating the Impact of Financial Education through Mainstream Media (2013, background): “The literature on careful evaluations of financial literacy is small but growing, and has moved away from classroom based interventions, such as Cole et al. (2011), to more innovative delivery mechanisms, such as videos and DVDs (Carpena et al.”
Childhood Roots of Financial Literacy (2015, background): “The standard Lusardi-Mitchell questions have been subject to criticism for being too focused on numeracy skills (Carpena et al., 2011).”
FINANCIAL LITERACY, FINANCIAL EDUCATION AND ECONOMIC OUTCOMES (2012, unknown): “Carpena et al. (2011) use amore convincing empirical methodology to get at the impact of financial education on financial literacy and financial outcomes.”
The Economic Importance of Financial Literacy: Theory and Evidence (2014, unknown): “One example, by Carpena et al. (2011), sought to disentangle how financial literacy programs influence financial behavior.”
Teaching teenagers in finance: does it work? (2015, background): “A large literature has focused on adults and small entrepreneurs and found mixed results, (e.g., Bruhn and Zia, 2011; Cole et al., 2011; Carpena et al., 2011; Collins, 2012; Drexler et al., 2010; Gibson et al., 2012; and Karlan and Valdivia, 2011).”
Offering Rainfall Insurance to Informal Insurance Groups: Evidence from a Field Experiment in Ethiopia (2012, unknown): “This is consistent with the documented role of financial literacy training in increasing awareness of, and changing attitudes towards, formal financial products (Carpena et al., 2011).”
High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses (2016, background): “Carpena et al. (2011) find that a financial education program in India improved product awareness and attitudes toward making decisions, but did not improve decisions that required numerical skills.”
Growing Markets through Business Training for Female Entrepreneurs: A Market-Level Randomized Experiment in Kenya (2017, result): “This is consistent with the financial literacy results of Carpena et al. (2011) who find that financial literacy training does not improve performance on questions involving numerical calculations.”