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Title: If You Are So Smart, Why Aren't You Rich? The Effects of Education, Financial Literacy and Cognitive Ability on Financial Market Participation

Citation Type: Working Paper

Publication Year: 2008

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Abstract: Household financial market participation affects asset prices and household welfare. Yet, our understanding of this decision is limited. Using an instrumental variables strategy and dataset new to this literature, we provide the first precise, causal estimates of the effects of education on financial market participation. We find a large effect, even controlling for income. Examining mechanisms, we demonstrate that cognitive ability increases participation; however, and in contrast to previous research, financial literacy education does not affect decisions. We conclude by discussing how education may affect decision-making through: personality, borrowing behavior, discount rates, risk-aversion, and the influence of employers and neighbors.

Url: http://www.afi.es/EO/FinancialLiteracy.pdf

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Authors: Cole, Shawn; Shastry, Gauri Kartini

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Publication Number: 09-071

Institution: Harvard Business School

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Data Collections: IPUMS USA

Topics: Education, Labor Force and Occupational Structure, Other

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