Financial Education and Households' Economic Decisions

This doctoral thesis is a collection of three empirical essays which explore the underlying factors affecting households’ financial decisions. We first investigate the relationship between financial education and a wide range of wealth decisions using DNB Household Survey data and a recent approach proposed by Lewbel (2012). We consider two channels of financial education: basic and advanced financial literacy acquired during adulthood, and money education received from the family during adolescence. We find that advanced financial literacy positively affects the ownership of financial and risky assets, whereas money education and the propensity to invest in risky assets and holding debt are negatively related. We also find evidence of a gender gap, with males’ wealth decisions more affected by higher levels of financial literacy. Overall, our results highlight the complementarity between the two channels, with financial literacy increasing the propensity to invest in risky assets and money education in safer assets. Our findings underline the importance of acquiring financial education not only through proper educational programs when adults, but also in the family environment during adolescence, where teens can learn positive attitudes towards money that are maintained throughout their life. In the second chapter, using Dutch data from the LISS Panel, we study the effect of financial satisfaction on multiple dimensions of individuals’ attitudes towards dishonesty, namely benefits fraud, tax evasion, fare evasion, stealing property and bribery. We use two indices of financial literacy as instruments to deal with the potential endogeneity of financial satisfaction. Financial satisfaction significantly affects the propensity to engage in cheating towards the government. However, other forms of dishonesty are mainly influenced by personal characteristics such as differences in risk aversion. We show that love of money and being trusting might also affect individuals’ ethical behavior, as they are significantly related with the acceptability of immoral conduct. Our results are useful to deepen our knowledge about the factors affecting attitudes towards cheating and, consequently, think of ways to limit it. The third chapter focuses on a specific dimension of financial behavior: saving decisions. This study examines the linkages between financial socialization and self-control in explaining saving behavior. Using novel household survey data from the United States, we decompose the effect of financial socialization in its direct and indirect components, mediated through self-control. In addition, we analyze the relationship between these two dimensions and the ownership of different financial products, as well as the decision to save through alternative saving strategies. Our results show that financial socialization received early in life is positively associated with general saving habits. Furthermore, we find that parents’ financial socialization influences the development of children’s self-control skills. However, their contribution differs depending on the type of financial product being analyzed.