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Financial literacy and financial education: The role of irreversible costs

Author

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  • Bellocchi, Alessandro
  • Travaglini, Giuseppe

Abstract

Financial literacy is a specific “asset” and its achievement may imply irreversible costs. These elements affect the household’s decision to invest in financial education. To explore the issue we use a stochastic dynamic model of portfolio choice in which the cost of financial education is sunk. We show that education costs, uncertainty and irreversibility affect household’s choice to either exercise the option or defer to the future the decision to invest in financial education. This result may provide an explanation to the so-called ‘financial literacy paradox’.

Suggested Citation

  • Bellocchi, Alessandro & Travaglini, Giuseppe, 2025. "Financial literacy and financial education: The role of irreversible costs," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000102
    DOI: 10.1016/j.econlet.2025.112173
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    More about this item

    Keywords

    Financial literacy; Financial education; Irreversibility;
    All these keywords.

    JEL classification:

    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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