The Causal Mechanism of Financial Education: Evidence from Mediation Analysis
Journal article, Peer reviewed
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Original versionCarpena F, Zia B. The Causal Mechanism of Financial Education: Evidence from Mediation Analysis. Journal of Economic Behavior and Organization. 2020;177(September):143-184 https://dx.doi.org/10.1016/j.jebo.2020.05.001
This paper uses a ﬁeld experiment in India and mediation analysis to investigate the causal mechanisms between ﬁnancial education and ﬁnancial behavior. Focusing on the mediating role of ﬁnancial literacy, we propose a broader deﬁnition of ﬁnancial knowledge that includes three dimensions: numeracy skills, ﬁnancial awareness, and attitudes towards per sonal ﬁnance. We then employ causal mediation analysis to investigate the proportion of the treatment effect that can be attributed to these three channels. Strikingly, we ﬁnd that numeracy does not mediate any effects of ﬁnancial education on ﬁnancial outcomes. For simple ﬁnancial actions such as budgeting, both awareness and attitudes serve as pathways, while for more complex ﬁnancial activities such as opening a savings account, attitudes play a more prominent role—though these patterns appear to be sensitive to confounding. We also compare our mediation analysis results to other empirical techniques that have been typically used to study mechanisms, and we discuss how mediation analysis differs from these approaches.