The Impact of Financial Education on Adolescents’ Intertemporal Choices

Abstract

We study the impact of financial education on intertemporal choice in adolescence. The educational program was randomly assigned among high school students, and choices were measured using an incentivized experiment. Students who participated in the program make more time-consistent choices; are more likely to allocate payments to a single payment date, as opposed to spreading payment across two dates; and display increased consistency of choice with the law of demand. These findings suggest that financial education increases the quality of intertemporal decision-making and decreases narrow bracketing. (JEL C93, D14, D15, I21, J13)

The effect of economic situation on time and risk preferences: Does financial literacy matter?

“…Despite the increasing number of studies that focus on similar issues (e.g., the effect of financial education on financial behavior; for a meta-analysis of experimental studies see [10]), hitherto, a surprisingly small number of studies tackled the described problem either theoretically or empirically. To our knowledge, in the only empirical papers [11][12][13] directly combining income, financial literacy and economic decision-making, the authors found that financial literacy decreases time-discounting although the effects are rather small. Other than that, a recent review [5] presented a hypothesized complex model of a cognitive mechanism describing how can poverty affect economic preferences.…”

“…Many programs that aimed to increase financial literacy, and consequently to improve financial behavior had been proposed in the last years. However, the recent evidence [10][11][12]57,60] showed that financial education has only a small effect on financial literacy and almost negligible effect on real-life financial behavior. At the same time, the duration of these effects is very limited, often lasting no longer than one year [57,61].…”

Financial literacy among university students: A study in eight European countries

“…In a study conducted in the region of Madrid to assess intervention of financial education programme using data on 22 schools, it was found that the program increased treated students' financial literacy performance between one fourth and one third of a standard deviation (Hospido, Villanueva, & Zamarro, 2015). Luhrmann, Serra-Garcia, and Winter (2014) examined the impact of a financial education intervention on intertemporal choices in adolescence and found that the financial education intervention led to a significant increase in time consistency which could lead to better management of financial plans, less under-saving and over-borrowing.…”

Active Learning Fosters Financial Behavior: Experimental Evidence

“…With regard to the literature on the causal effects of financial education, Lührmann et al (2018) show that financial education can increase the quality of intertemporal decision-making. Similarly, Berg and Zia (2017) show that an intervention implemented into mainstream-media harnessing emotional connections also impacts financial behavior without necessarily impacting cognitive components of general financial literacy.…”