Unpacking the Causal Chain of Financial Literacy

Fenella Carpena, Shawn Cole, Jeremy Shapiro, Bilal Zia

2011

A growing body of literature examines the causal impact of financial literacy on individual, household, and firm level outcomes. This paper unpacks the mechanism of impact by focusing on the first link in the causal chain. Specifically, it studies the experimental impact of financial literacy on three distinct dimensions of financial knowledge. The analysis finds that financial literacy does not immediately enable individuals to discern costs and rewards that require high numeracy skills, but it does significantly improve basic awareness of financial choices and attitudes toward financial decisions.

Type

Policy Note

Thematic Area

Financial Inclusion