at home and in a bank account is that of forgoing interest (or safety) versus incurring the costs of bank trips. The higher the cash, the more the household loses from forgone interest, and the more risky it is too keep it at home in case of theft. We therefore expect a threshold of cash at home over which a bank account will be opened, with the associated decrease in cash kept at home, leading to a non linear relationship between cash and opening an account. This is indeed what we find: having more cash is associated with a higher probability of having an account, but as cash levels rise this relationship weakens.9 Next, adding education dummies (Column 3) explains an additional 2% of the variance. The correlation between education and having a bank account is positive, economically large and statistically significant. Having primary school education, for instance, increases the probability of having a bank account by 9 points, even when we control for consumption and assets. This is equivalent to an increase of USD 2,000 per year in per capita consumption.10 Note that these results hold when we control for branch fixed effects and dummies for the occupation of the household head (column(4)), implying that even if we compare households that live in the same location, have the same occupation, level of consumption and assets per capita, education is positively correlated with having a bank account.11 This correlation can be explained if households with more education are more aware of the benefits of having a bank account, or if it is easier for them to obtain and manage one. However, given that educational attainment is likely to be correlated with other things like cognitive ability and family background, the effect of education may not be causal but driven by a third omitted factor. For instance, households with higher sophistication or ability may study more and also derive more benefits from having an account. New research using US data suggests that while education plays a role in financial decision-making, this role involves more than just financial knowledge. For example, in a recent study which uses inter-state variation in compulsory education laws and data on sibling pairs to study the determinants of financial market participation, Cole and Shastry (2007) find evidence that greater cognitive ability and educational attainment increase financial participation, while financial literacy alone has no such effect.

Even our more parameterized regressions in Table 8 (Columns 4 and 5), which include demographics, occupation and location fixed effects, can only explain 7% of the banking status, 8% of the within-location variation and 9% of across-location variation, indicating that idiosyncratic factors at the household level play a quantitatively large role. Our interpretation of these regression results is that while low income and wealth do affect banking status by decreasing the net benefits of maintaining an account, this story is only part of the explanation. Other informational, attitudinal or cognitive attributes, such as lack of awareness of the benefits and costs of managing an account, may be important.

9 Note that the estimated coefficient on assets per capita is robust to dropping cash at home from the set of explanatory variables.

10The omitted category of education is “comercio”. Comercio is studied after secondary school and is a technical career. The data set contains 16% household heads with no primary, 28% with some primary, 23% with primary, 3% with some secondary, 15% with secondary, 14% with comercio, 7% with college or some college and .3% with graduate studies.

11Occupation dummies are jointly statistically different from zero, with a p-value of 0.02. There are 205 localities/branches in this regression.