Investment in financial literacy and saving decisions
- We present an intertemporal consumption model of consumer investment in financial literacy. Consumers benefit from such investment because their stock of financial literacy allows them to increase the returns on their wealth. Since literacy depreciates over time and has a cost in terms of current consumption, the model determines an optimal investment in literacy. The model shows that financial literacy and wealth are determined jointly, and are positively correlated over the life cycle. Empirically, the model leads to an instrumental variables approach, in which the initial stock of financial literacy (as measured by math performance in school) is used as an instrument for the current stock of literacy. Using microeconomic and aggregate data, we find a strong effect of financial literacy on wealth accumulation and national saving, and also show that ordinary least squares estimates underestate the impact of financial literacy on saving. JEL Classification: E2, D8, G1, J24 Keywords: Financial Literacy, Cognitive Abilities, Human Capital, Saving
| Author: | Tullio JappelliORCiDGND, Mario Padula |
|---|---|
| URN: | urn:nbn:de:hebis:30-92954 |
| Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2011,07 |
| Series (Serial Number): | CFS working paper series (2011, 07) |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2011 |
| Year of first Publication: | 2011 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2011/03/08 |
| Tag: | Cognitive Abilities; Financial Literacy; Human Capital; Saving |
| GND Keyword: | Privater Verbrauch; Kreditmarkt; Wissen; Sparen; Modell |
| Issue: | Version January 25, 2011 |
| Page Number: | 44 |
| HeBIS-PPN: | 234642947 |
| Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
