Wealth, Financial Literacy and Schooling

February 2011
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New analysis reveals a stronger and larger effect of financial literacy on wealth than previously estimated. Prior studies have associated financial literacy and schooling with positive financial outcomes, but typically do not account for unobserved factors that might shape financial literacy and schooling, as well as wealth outcomes. The estimates presented here indicate that financial literacy is at least as important as schooling, if not more so, in affecting household wealth and pension contributions. The results are relevant for financial education policy since they suggest that enhanced financial literacy can make a significant difference in financial behavior, even after controlling for schooling. The estimates of the impact of financial literacy imply that investments in financial literacy could have high payoffs in terms of enhanced household wealth.