Research: Working Paper Series

Through the G53 Network Working Paper Series, our members can share their research findings and make them available prior to publication in academic journals. In this section, you can find the research that Network members are developing. The aim of the series is to tackle the most pressing questions and to provide rigorous evidence-based research.

The Financial Capability of the Youth in Greece

Vasiliki A. Tzora, Nikolaos D. Philippas and Georgios A. Panos

Abstract: We conduct the first nationally representative measurement of the financial capability of 15- year-old students in Greece. We find discrepancies between the core, the islands, and the periphery of the country. Female students score lower in terms of all knowledge, behaviour, and attitudes. Students in experimental schools, the better performing ones, and those with more educated parents are more financially capable, reflecting the absence of a dedicated personal-finance curriculum. Awareness of household finances is positively related to financial capability. Local economic conditions matter, with students in regions affected more by the crisis exhibiting lower financial capability.

Disparities in Financial Literacy, Pension Planning, and Saving Behavior

Tabea Bucher-Koenen, Andreas Hackethal, Johannes Kasinger, and Christine Laudenbach

Abstract: Financial literacy affects wealth accumulation, and pension planning plays a key role in this relationship. In a large field experiment, we employ a digital pension aggregation tool to confront a treatment group with a simplified overview of their current pension claims across all pillars of the pension system. We combine survey and administrative bank data to measure the effects on actual saving behavior. Access to the tool decreases pension uncertainty for treated individuals. Average savings increase — especially for the financially less literate. We conclude that simplification of pension information can potentially reduce disparities in pension planning and savings behavior.

Accounting and Finance Literacy and Entrepreneurship: An Exploratory Study

Marco Trombetta

Abstract: The aim of this study is to investigate whether the level of financial literacy differs significantly among entrepreneurs in three European countries: Italy, Spain, and the UK. Moreover, I analyze whether financial literacy fosters or hinders entrepreneurial resilience and success. I find that the level of basic financial literacy is significantly lower among entrepreneurs in the UK. I provide an explanation based on job opportunities arguing that basic financial literacy increases the chances of survival of a business, whereas advanced financial literacy decreases it. I propose a taxonomy linking levels of financial literacy with different approaches to financial management. I conclude that a “conservative” approach to financial management (cash based, debt-averse and diversified) is more likely to guarantee survival even if it is not necessarily the best way to maximize firm value.

Financial Literacy in the Age of Green Investment

Anders Anderson and David T. Robinson

Abstract: We survey a large sample of Swedish households and connect the responses to administrative data to relate pro-environmental attitudes and values to actual investment decisions. Pro-environment households are not more likely to hold proenvironment portfolios. This results from financial disengagement: they are less likely to own stocks, check pension balances, or make green active retirement planning choices. Green financial engagement is stronger in settings where financial literacy is higher or where informational hurdles are lower. Informational barriers appear to prevent financial market prices and returns from fully reflecting household environmental preferences.

Evaluating Deliberative Competence: A Simple Method with an Application to Financial Choice

Sandro Ambuehl, B. Douglas Bernheim, and Annamaria Lusardi

Abstract: We examine methods for evaluating opportunity-neutral interventions designed to improve the quality of decision making in settings where people imperfectly comprehend consequences. In an experiment involving financial education, conventional outcome metrics (financial literacy and directional changes in behavior) imply that two interventions, one with practice and feedback, one without, are equally beneficial even though only the first reduces average bias. We trace these evaluative failures to violations of implicit assumptions. We propose a simple intuitive outcome metric that properly differentiates between the interventions, and that is robustly interpretable as a measure of welfare loss even when consumers suffer from other biases.

Improving Financial Literacy by Mitigating Behavioural Biases: A Causal Mediation Analysis on the Effects of Behavioural-Based Financial Education

Francisco Pitthan and Kristof De Witte

Abstract: Financial illiteracy affects considerably the decision-making of individuals, leading to sub-optimal outcomes and lower financial welfare in the society. Although financial education has been demonstrated to improve financial knowledge, evidence of long-term effects is limited. This could be due to the presence of cognitive biases such as myopia, which have also been linked to poor decision-making. We propose a new behavioural-mediated mechanism of financial education in improving financial literacy not only directly, but also indirectly by increasing awareness of cognitive biases. In a randomized controlled trial among 814 secondary school students in Belgium, we tested the effectiveness of course materials that aim to explicitly mitigate the myopic bias while teaching children about financial matters. The results suggested that the intervention groups had significantly better results for both the financial literacy (up to 0.67 sd) and myopia (up to 0.39 sd) post-test scores in comparison to the control condition that did not receive the materials. Using causal mediation analysis, we showed that the significant indirect effects of behaviouralbased courses on financial literacy were mediated by better awareness of myopia, which was not observed in traditional courses.

The Evolution of Financial Literacy over Time and its Predictive Power for Financial Outcomes: Evidence from Longitudinal Data

Marco Angrisani, Jeremy Burke, Annamaria Lusardi, and Gary Mottola

Abstract: We administered the FINRA Foundation’s National Financial Capability Study questionnaire to members of the RAND American Life Panel in 2012 and 2018. Using this unique, longitudinal data set, we investigate the evolution of financial literacy over time and shed light on the effect of financial knowledge on financial outcomes. Over a six-year period, financial literacy appears to be rather stable, with a slight tendency to decline at older ages. Importantly, financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline outcomes and a wide set of demographics and individual characteristics that influence financial decision making.

Crowdsourcing Peer Information to Change Spending Behavior

Francesco D’Acunto, Alberto G. Rossi, and Michael Weber

Abstract: Consumers might overestimate optimal spending if forming beliefs based on others’ spending, because others’ conspicuous consumption is more visible than the rest of their consumption. If true, information about others’ overall spending should change beliefs and choice. For a test, we provide crowdsourced information about anonymous “peer groups” to users of a FinTech app. Users converge to peers, especially when peer groups are more informative. For identification, we compare similar users matched to different peers based on sharp thresholds. A randomized control trial on a non-selected population supports external validity. Our results inform the design of robo-advisors for spending.

Is School-Based Financial Education Effective? Immediate and Long-Lasting Impacts on Students and Teachers

Veronica Frisancho

Abstract: This paper studies the potential of school-based financial education. Relying on a large-scale experiment in Peru, the study identifies significant improvements on financial skills. Novel credit bureau data uncovers long-lasting effects on financial behavior: three years later, treated students are less likely to have negative records due to unpaid/delinquent bills or credit card statements. Teachers accrue financial literacy gains that double those identified among students and they become more likely to save, particularly through formal channels. Two years after the intervention, teachers borrow more from banks and reduce their delinquency rates, while parents transition away from expensive sources of credit.