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  3. American Economic Review
  4. May 2012
  5. How Financial Literacy Affects Household Wealth Accumulation

How Financial Literacy Affects Household Wealth Accumulation

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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.

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

JEL Classification

  • 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