Advances in Economics, Management and Political Sciences
- The Open Access Proceedings Series for Conferences
Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
Series Vol. 65 , 28 December 2023
Open
Access | Article
Financial Literacy and Saving Behaviors of Households
* Author to whom correspondence should be addressed.
Abstract
This paper studies the relationship between financial/numeric literacy and household saving and investment behaviors using the New York Fed’s Survey of Consumer Expectations. Using a panel dataset and a regression analysis, the study finds that although overall propensities to save, measured by saving rate and savings-to-wealth ratio, does not show a significant correlation with literacy measures, individuals’ portfolio choices between risk-free and risky assets are indeed affected by both literacy measures. The research indicates that individuals who report higher self-rated financial literacy and attain higher numeracy scores tend to allocate a more substantial portion of their savings into stocks. By contrast, they are inclined to hold a smaller portion of their wealth in risk-free liquid assets, such as checking accounts. More particularly, individuals with higher numeracy scores tend to allocate approximately 5.384% greater portion of their investments into stocks while simultaneously reducing their investments in checking accounts by 4.251%. Similarly, those with higher financial literacy tend to demonstrate an average increase of 10.085% in stock investments, coupled with a decrease of 12.506% in checking account investments. Notably, these effects are separate from influences of other factors like education, gender, and income.
Keywords
Financial Literacy, Numeracy, Saving, Wealth, Stock Investment
References
1. Fagereng, A., Guiso, L., Malacrino, D., & Pistaferri, L. (2016). Heterogeneity in returns to wealth and the measurement of wealth inequality. American Economic Review, 106(5), 651-655.
2. Fagereng, A., Holm, M. B., Moll, B., & Natvik, G. (2019). Saving behavior across the wealth distribution: The importance of capital gains (No. w26588). National Bureau of Economic Research.
3. Armantier, O., Topa, G., Van der Klaauw, W., & Zafar, B. (2017). An overview of the survey of consumer expectations. Economic Policy Review, (23-2), 51-72.
4. Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial economics, 101(2), 449-472.
5. Lusardi, A. (2007). Household saving behavior: the role of literacy, information and financial education programs (No. 2007/28). CFS Working Paper.
6. Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. American Economic Journal: Journal of Economic Literature, 52(1), 5-44.
7. Lusardi, A., & Tufano, P. (2015). Debt literacy, financial experiences, and overindebtedness. Journal of Pension Economics & Finance, 14(4), 332-368.
8. Van Rooij, M. C., Lusardi, A., & Alessie, R. J. (2012). Financial literacy, retirement planning and household wealth. The Economic Journal, 122(560), 449-478.
9. Kubitza, C., Hofmann, A., & Steinorth, P. (2020). Financial literacy and precautionary insurance. Available at SSRN 3346477.
10. Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The quarterly journal of economics, 116(1), 261-292.
11. Almenberg, J., & Dreber, A. (2015). Gender, stock market participation and financial literacy. Economics Letters, 137, 140-142.
12. Barberis, N., Huang, M., & Thaler, R. H. (2006). Individual preferences, monetary gambles, and stock market participation: A case for narrow framing. American economic review, 96(4), 1069-1090.
13. Chen, M. K. (2013). The effect of language on economic behavior: Evidence from savings rates, health behaviors, and retirement assets. American Economic Review, 103(2), 690-731.
14. Malmendier, U., & Nagel, S. (2011). Depression babies: Do macroeconomic experiences affect risk taking?. The quarterly journal of economics, 126(1), 373-416.
15. Christelis, D., Jappelli, T., & Padula, M. (2010). Cognitive abilities and portfolio choice. European Economic Review, 54(1), 18-38.
16. Hong, H., Kubik, J. D., & Stein, J. C. (2004). Social interaction and stock‐market participation. The journal of finance, 59(1), 137-163.
Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. Authors who publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See Open Access Instruction).
- Volume Title
- Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
- ISBN (Print)
- 978-1-83558-239-8
- ISBN (Online)
- 978-1-83558-240-4
- Published Date
- 28 December 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/65/20231603
- Copyright
- 28 December 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited