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Financial Literacy, Financial Education and Downstream Financial Behaviors (full paper and web appendix)
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A meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies finds that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples.Abstract:
Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers’ financial decisions over the last generation. We conduct a meta-analysis of the relationship of financial literacy and of financial education to financial behaviors in 168 papers covering 201 prior studies. We find that interventions to improve financial literacy explain only 0.1% of the variance in financial behaviors studied, with weaker effects in low-income samples. Like other education, financial education decays over time; even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention. Correlational studies that measure financial literacy find stronger associations with financial behaviors. We conduct three empirical studies and we find that the partial effects of financial literacy diminish dramatically when one controls for psychological traits that have been omitted in prior research or when one uses an instrument for financial literacy to control for omitted variables. Financial education as studied to date has serious limitations that have been masked by the apparently larger effects in correlational studies. We envisage a reduced role for financial education that is not elaborated or acted upon soon afterward. We suggest a real but narrower role for “just in time” financial education tied to specific behaviors it intends to help. We conclude with a discussion of the characteristics of behaviors that might affect the policy maker’s mix of financial education, choice architecture, and regulation as tools to help consumer financial behavior.read more
Citations
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References
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TL;DR: The General Model, Part I: Latent Variable and Measurement Models Combined, Part II: Extensions, Part III: Extensions and Part IV: Confirmatory Factor Analysis as discussed by the authors.
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TL;DR: In Nudge as discussed by the authors, Thaler and Sunstein argue that human beings are susceptible to various biases that can lead us to blunder and make bad decisions involving education, personal finance, health care, mortgages and credit cards, the family, and even the planet itself.
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Statistical Methods for Meta-Analysis.
TL;DR: In this paper, the authors present a model for estimating the effect size from a series of experiments using a fixed effect model and a general linear model, and combine these two models to estimate the effect magnitude.