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American Economic Review: Vol. 102 No. 3 (May 2012)

AER Volume. 102, Issue 3 | Previous ArticleNext Article

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How Financial Literacy Affects Household Wealth Accumulation

Article Citation

Behrman, Jere R., Olivia S. Mitchell, Cindy K. Soo, and David Bravo. 2012. "How Financial Literacy Affects Household Wealth Accumulation." American Economic Review, 102(3): 300-304.

DOI: 10.1257/aer.102.3.300

Abstract

This study isolates the causal effects of financial literacy and schooling on wealth accumulation using a new household dataset and an instrumental variables (IV) approach. Financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, whereas the IV estimates reveal even more potent effects of financial literacy. They also indicate that the schooling effect only becomes positive when interacted with financial literacy. Estimated impacts are substantial enough to imply that investments in financial literacy could have large wealth payoffs.

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Authors

Behrman, Jere R. (U PA)
Mitchell, Olivia S. (U PA)
Soo, Cindy K. (U PA)
Bravo, David (Centro de Microdatos, U Chile)

JEL Classifications

D31: Personal Income, Wealth, and Their Distributions
O12: Microeconomic Analyses of Economic Development
D14: Personal Finance
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance