Author Abstract
Household financial market participation affects asset prices and household welfare. Yet, our understanding of this decision is limited. Using an instrumental variables strategy and dataset new to this literature, we provide the first precise, causal estimates of the effects of education on financial market participation. We find a large effect, even controlling for income. Examining mechanisms, we demonstrate that cognitive ability increases participation; however, and in contrast to previous research, financial literacy education does not affect decisions. We conclude by discussing how education may affect decision-making through: personality, borrowing behavior, discount rates, risk-aversion, and the influence of employers and neighbors.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: December 2008, revised February 2009
- HBS Working Paper Number: 09-071
- Faculty Unit(s): Finance