Finantial literacy , schooling and wealth accumulation

(218 K)

Jere R. Behrman, Olivia S. Mitchell, Cindy Soo, David Bravo NBER Working Paper No. 16452 Issued in October 2010 NBER Program(s): AG The NBER Bulletin on Aging and Health provides summaries of publications like this. You can sign up to receive the NBER Bulletin on Aging and Health by email. Financial literacy and schooling attainment have been linked to household wealth accumulation. Yet prior findings may be biased due to noisy measures of financial literacy and schooling, as well as unobserved factors such as ability, intelligence, and motivation that could enhance financial literacy and schooling but also directly affect wealth accumulation. We use a new household dataset and an instrumental variables approach to isolate the causal effects of financial literacy and schooling on wealth accumulation. While financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, our approach reveals even stronger and larger effects of financial literacy on wealth. Estimated impacts are substantial enough to suggest that investments in financial literacy could have large positive effects on household wealth accumulation. This paper is available as PDF (218 K) or via email.