Selection into Financial Literacy Programs: Evidence from a Field Study

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper presents results of a field study linking individual decisions to acquire financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Terms of use: Documents inOur results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.JEL Classifications: D14, D91, C93

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“…Researchers have hypothesized that those who discount the future more heavily may be less willing to invest resources in acquiring financial knowledge, since such an investment has a delayed payoff. For instance, a recent study found that it is disproportionately those who are patient who self-select into financial education programs (Meier and Sprenger 2007). As a proxy for time preference in this study, we used an indicator of whether a respondent had ever smoked.…”

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“…It is worth noting that several scholars who have published recent studies about financial literacy have not explicitly defined the concept (Chen and Volpe 2002; Meier and Sprenger 2007; Morton 2005; Servon and Kaestner 2008). This further confirms the need for a synthesized definition.…”