Publication: The ABCs of Financial Education: Experimental Evidence on Attitudes, Behavior, and Cognitive Biases
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Date
2017-02
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2017-02
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Financial literacy - the ability to make informed decisions regarding money - plays a critical role in ensuring both the well-being of households and the stability of the financial system. Consequently, numerous private institutions, non-profit organizations, and governments have responded by implementing financial education programs. However, empirical evidence on the efficacy of such programs provides only mixed results, and little is known about which aspects of financial education initiatives successfully enhance financial behavior and financial outcomes. The authors combined financial education with cash incentives for learning, non-compulsory goal-setting, and personalized financial counseling services to study the attitudinal, behavioral, and cognitive constraints that can stymie the link between financial education and outcomes.
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“Carpena, Fenella; Cole, Shawn; Shapiro, Jeremy; Zia, Bilal. 2017. The ABCs of Financial Education: Experimental Evidence on Attitudes, Behavior, and Cognitive Biases. Finance and PSD Impact;No. 40. © World Bank. http://hdl.handle.net/10986/26068 License: CC BY 3.0 IGO.”
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These results illuminate the strengths and limitations of financial literacy training, which can inform the design and anticipated effects of such programs.Publication Liability Structure in Small-scale Finance : Evidence from a Natural Experiment(2010-09-01)Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans -- there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. The analysis finds compelling evidence that contract structure matters: for the same borrower, required monthly loan installments are 6 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 19 percent less likely to be missed under group liability contracts.Publication Liability Structure in Small-Scale Finance : Evidence from a Natural Experiment(Oxford University Press on behalf of the World Bank, 2013-09)Microfinance, the provision of small individual and business loans, has experienced dramatic growth, reaching over 150 million borrowers worldwide. Much of the success of microfinance has been attributed to attempts to overcome the challenges of information asymmetries in uncollateralized lending. However, very little is known about the optimal contract structure of these loans; and there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, the required monthly loan installments are 11 percent less likely to be missed under the group liability setting in comparison with individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts.Publication The Causal Mechanism of Financial Education(World Bank, Washington, DC, 2018-10)This paper uses a field experiment in India with multiple financial education treatments to investigate the causal mechanisms between financial education and financial behavior. Focusing on the mediating role of financial literacy, the paper proposes a broader definition of financial knowledge that includes three dimensions: numeracy skills, financial awareness, and attitudes toward personal finance. The analysis then employs causal mediation analysis to investigate the proportion of the treatment effect that can be attributed to these three channels. Strikingly, numeracy does not mediate any effects of financial education on household outcomes. For simple financial actions such as budgeting, both awareness and attitudes serve as critical pathways, while for more complex financial activities such as opening a savings account, attitudes play a more prominent role. These findings underscore the importance of changing perceptions about financial products and services as a vital mechanism for the success of financial education.
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