goal setting and counseling. In Carpena et al. (2017), we focus on the Average Treatment Effect (ATE) and find that financial education alone did not bring about large changes in financial behavior. However, financial education with goal setting encouraged relatively _simple_ follow-up activities (e.g., writing a budget), while financial education with counseling led individuals to undertake more _complex_ financial actions (e.g., opening a savings account).

In contrast to Carpena et al. (2017), this paper moves beyond the ATE and explores the underlying channels for the effects of financial education, goal setting, and counseling. We employ causal mediation analysis (e.g., Baron and Kenny, 1986; Imai et al., 2011; VanderWeele, 2015; Acharya, Blackwell, and Sen, 2016), an approach that allows us to quantify the extent to which the treatments influence outcomes through a specific mediating variable. To this end, our empirical method consists of two components. The first component concerns measurement of financial literacy, which represents our proposed mediator. Whereas the “Big Three” questions by Lusardi and Mitchell (2009) assess financial literacy using _specific_ topics such as diversification, we take a comprehensive approach that considers _general_ dimensions of financial knowledge. Thus, we conceptualize financial literacy into three broad categories: financial numeracy, financial awareness, and financial attitudes.

Through a series of questions in the endline survey, we designed each of these three dimensions to capture a different aspect of financial literacy. Financial _numeracy_ deals with calculating interest rates, summing expenses, and other similar computations. These skills may facilitate better fiscal management and more effective comparisons of financial products. Next, financial _awareness_ emphasizes fundamental financial concepts (e.g., household budgeting) as well as basic information about financial products (e.g., deposit insurance, loan fees). This type of knowledge may enable wider adoption of financial products and promote simple financial habits. Finally, financial _attitudes_ encompass individuals’ perspectives on the benefits of financial services. We view financial attitudes as an essential element of financial literacy because they may have critical consequences for financial behavior: for example, if one sees no advantage of savings, then one may be less inclined to set money aside for the future.

To understand how financial numeracy, awareness, and attitudes function as mediating variables, the second component of our study implements causal mediation analysis. In particular, we follow the framework outlined in Imai et al. (2011) to decompose the ATE into an Average Causal Mediation Effect (ACME), which represents the impact of a particular mechanism, and an Average Direct Effect (ADE), which represents all other pathways. We estimate the ACME empirically using coefficients from two regressions: one for the effect of the treatment on the mediator and another for the effect of the mediator on the outcome conditional on the treatment. Intuitively, the product of these two coefficients – the ACME – captures the portion of the ATE that can be attributed to the mediating variable. We then test the sensitivity of the ACME to the key identifying assumption that the observed mediator is statistically independent of the outcome variable, given 3