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http://hdl.handle.net/10419/57354
  
Title:Investment in financial literacy and saving decisions PDF Logo
Authors:Jappelli, Tullio
Padula, Mario
Issue Date:2011
Series/Report no.:CFS Working Paper 2011/07
Abstract:We present an intertemporal consumption model of consumer investment in financial literacy. Consumers benefit from such investment because their stock of financial literacy allows them to increase the returns on their wealth. Since literacy depreciates over time and has a cost in terms of current consumption, the model determines an optimal investment in literacy. The model shows that financial literacy and wealth are determined jointly, and are positively correlated over the life cycle. Empirically, the model leads to an instrumental variables approach, in which the initial stock of financial literacy (as measured by math performance in school) is used as an instrument for the current stock of literacy. Using microeconomic and aggregate data, we find a strong effect of financial literacy on wealth accumulation and national saving, and also show that ordinary least squares estimates underestate the impact of financial literacy on saving.
Subjects:Financial Literacy
Cognitive Abilities
Human Capital
Saving
JEL:E2
D8
G1
J24
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-92954
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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