Smart money
Subtitle: the effect of education on financial behavior
By: Shawn Cole, Anna Paulson, Gauri Kartini Shastry
Contributors: Paulson, Anna; Shastry, Gauri Kartini; Harvard Business School
Edition: 3rd rev.
Series: Working paper / Harvard Business School -- 09-071; Working paper (Harvard Business School) -- 09-071.
Publisher: Harvard Business School
Published: 2011
Place of publication: [Boston]
Language: eng
Number of pages: 29
Description: Household financial decisions are important for both households and the greater economy. Yet, our understanding of the process of financial decision-making is limited. Applying standard and two-sample instrumental variables strategies to census and credit bureau data, we provide the first precise, causal estimates of the effects of education on financial behavior. Education has large effects on financial market participation and smaller, but statistically and economically significant effects on financial management. We find that education improves credit scores, and dramatically reduces the probability of declaring bankruptcy or suffering foreclosure during the financial crisis. Examining mechanisms, we show that cognitive ability increases financial participation, and discuss how education may affect decision-making through: attitudes, borrowing behavior, discount rates, risk-aversion, and the influence of coworkers and neighbors.
Notes: "December 2008, revised February 2009, April 2012" -- Publisher's website.

Previously published as "Smart money: the effect of education, cognitive ability, and financial literacy on financial market participation"

Includes bibliographical references.