A03
Behavioral Biases, Financial Literacy and Borrowing Decisions
Discussion Papers

Discussion Paper No. 187
September 30, 2019

Financial Education in Schools: A Meta-Analysis of Experimental Studies

Author:

Kaiser, Tim (University of Koblenz-Landau & DIW Berlin)
Menkhoff, Lukas (DIW Berlin)

Abstract:

We study the literature on school financial education programs for children and youth via a quantitative meta-analysis of 37 (quasi-) experiments. We find that financial education treatments have, on average, sizeable impacts on financial knowledge (+0.33 SD), similar to educational interventions in other domains. Additionally, we document smaller effects on financial behaviors among students (+0.07 SD). When restricting the sample to 18 randomized experiments average effect sizes are estimated to be about 0.15 SD units on financial knowledge and 0.07 SD units on financial behaviors. These results are robust irrespective of the meta-analytic method used and when accounting for publication bias. Subgroup analyses show the beneficial effect of more intensive treatments, albeit with decreasing marginal returns.

Keywords:

financial education; financial literacy; financial behavior; meta-analysis

JEL-Classification:

I21; A21; D14

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Discussion Paper No. 186
September 19, 2019

Financial Literacy and Intra-Household Decision Making: Evidence from Rwanda

Author:

Grohmann, Antonia (DIW Berlin)
Schoofs, Annekathrin (University of Passau & RWI)

Abstract:

Research has consistently shown that women’s involvement in household decision making positively affects household outcomes such as nutrition and education of children. Is financial literacy a determinant for women to participate in intra-household decision making? Using data on savings groups in Rwanda, we examine this relationship and show that women with higher financial literacy are more involved in financial and expenditure decisions. Instrumental Variable estimations confirm a causal link. For this reason, we perform a decomposition analysis breaking down the gender gap in financial literacy into differences based on observed sociodemographic and psychological characteristics and differences in returns on these characteristics. Our results show high explanatory power by education, happiness, symptoms of depression, and openness, but also suggest that a substantial fraction can be explained by differences in returns. We argue that this results from a strong role of society and culture.

Keywords:

financial literacy; women empowerment; intra-household decision making

JEL-Classification:

D14; J16; G02

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Discussion Paper No. 185
September 18, 2019

Coupled Lotteries – A New Method to Analyze Inequality Aversion

Author:

Koch, Melanie (DIW Berlin)
Menkhoff, Lukas (HU and DIW Berlin)
Schmidt, Ulrich (University of Kiel and ifW Kiel)

Abstract:

We develop and implement a new measure for inequality aversion: two peers are endowed with identical binary lotteries and the only choice they make is whether they want to play out the lotteries independently or with perfect positive correlation (coupling). Coupling has no other e ect than preventing outcome inequality. We implement the method in a survey in rural Thailand as well as a supplemental sample in a lab in Germany. As theoretically expected, coupling is related to being more risk averse, to having social status concerns, and to relying more often on formal and informal insurance. However, coupling is not related to giving in the dictator game.

Keywords:

inequality aversion; correlated risk; social status concerns

JEL-Classification:

D63; D91; D81

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Discussion Paper No. 152
April 15, 2019

Earn More Tomorrow: Overconfident Income Expectations and Consumer Indebtedness

Authors:
Grohmann, Antonia (DIW Berlin)
Menkhoff, Lukas (DIW and HU Berlin)
Merkle, Christoph (Kühne Logistics University)
Schmacker, Renke (DIW Berlin)
Abstract:

This paper examines whether biased income expectations due to overconfidence lead to higher levels of debt-taking. In a lab experiment, participants can purchase goods by borrowing against their future income. We exogenously manipulate income expectations by letting income depend on relative performance in hard and easy quiz tasks. We successfully generate biased income expectations and show that participants with higher income expectations initially borrow more. Overconfident participants scale back their consumption after feedback. However, at the end of the experiment they remain with higher debt levels, which represent real financial losses. To assess the external validity, we nd further evidence for the link between overcondence and borrowing behavior in a representative survey (GSOEP-IS).

Keywords:
consumption; borrowing; overcondence; income expectations
JEL-Classification:
D14; D84; G40
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Discussion Paper No. 131
December 20, 2018

Active Learning Improves Financial Education:
Experimental Evidence

Authors:

Kaiser, Tim (University of Koblenz-Landau and DIW Berlin)
Menkhoff, Lukas (DIW Berlin)

Abstract:

We conduct a randomized field experiment to study the effects of two financial education interventions offered to small-scale retailers in Uganda. The treatments contrast "active learning" with "traditional lecturing" within standardized lesson-plans. We find that active learning has a positive and economically meaningful impact on savings and investment outcomes, in contrast to insignificant impacts of lecturing. These results are not conditional on prior education or financial literacy. Tentative evidence suggests that only active learning stimulates several cognitive and non-cognitive mechanisms; moreover, a social mechanism may be at play as treated individuals join social groups discussing financial matters.

Keywords:

financial behavior; financial literacy; active learning; lecturing; training method; field experiment

JEL-Classification:

I21; A20; D14; O16

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Discussion Paper No. 95
April 26, 2018

Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence

Authors:

Grohmann, Antonia (DIW Berlin)
Klühs, Theres (Leibniz Universität Hannover)
Menkhoff, Lukas (DIW Berlin and Humboldt Universität Berlin)

Abstract:

While financial inclusion is typically addressed by improving the financial infrastructure, we show that a higher degree of financial literacy also has a clear beneficial effect. We study this effect at the cross-country level, which allows us to consider institutional variation. Regarding "access to finance", financial infrastructure and financial literacy are mainly substitutes. However, regarding the "use of financial services", the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.

Keywords:

financial inclusion; financial literacy; financial institutions; financial development

JEL-Classification:

O01; G02

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Discussion Paper No. 37
June 8, 2017

Does Financial Education Impact Financial Literacy and Financial Behavior, and if so, When?

Authors:

Kaiser, Tim (DIW Berlin and University of Kiel)
Menkhoff, Lukas (DIW Berlin and Humboldt University Berlin)

Abstract:

In a meta-analysis of 126 impact evaluation studies, we find that financial education significantly impacts financial behavior and, to an even larger extent, financial literacy. These results also hold for the subsample of randomized experiments (RCTs). However, intervention impacts are highly heterogeneous: Financial education is less effective for low-income clients as well as in low and lower-middle income economies. Specific behaviors, such as the handling of debt, are more difficult to influence and mandatory financial education tentatively appears to be less effective. Thus, intervention success depends crucially on increasing education intensity and offering financial education at a 'teachable moment'.

Keywords:

financial education; financial literacy; financial behavior; meta-analysis; meta-regression; impact evaluation

JEL-Classification:

D14; I21

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