Household finance and financial literacy — Jim Chen (Economics PhD seminar)

Abstract:

In recent years, households have become increasingly involved in financial markets and have access to increasing numbers of new financial products and services. Household’s financial literacy, however remains poor and the cost of financial mistakes can be high. This paper uses a new household data-set and a rich set of covariates to investigate the causal relationship between financial literacy and household saving and borrowing behaviour. Using both standard and extended financial literacy questions, this paper finds that literacy outcomes are largely comparable to other industrialised economies, and that higher financial literacy leads to improved financial decision-making.