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Title: Smart Money: The Effect of Education, Cognitive Ability, and Financial Literacy on Financial Market Participation

Citation Type: Miscellaneous

Publication Year: 2009

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Abstract: Household ?nancial market participation aects asset prices and household welfare. Yet,our understanding of the participation decision is limited. Using an instrumental variablesstrategy and dataset new to this literature, we provide the ?rst precise, causal estimates ofthe eects of education on ?nancial market participation. We ?nd a large eect, even con-trolling for income. Examining mechanisms, we demonstrate that cognitive ability increasesparticipation; however, and in contrast to previous research, ?nancial literacy education doesnot aect decisions. We conclude by discussing how education may aect decision-makingthrough: personality, borrowing behavior, discount rates, risk-aversion, and the in?uence ofemployers and neighbors.

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Authors: Shastry, Gauri K.; Cole, Shawn

Publisher: Harvard Business School

Data Collections: IPUMS USA

Topics: Education, Labor Force and Occupational Structure, Poverty and Welfare

Countries: United States