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Culture and Adult Financial Literacy: Evidence from the United States

Author

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  • Davoli, Maddalena

    (Goethe University Frankfurt)

  • Rodríguez-Planas, Núria

    (Queens College, CUNY)

Abstract

Using a US nationally representative sample of over 6,000 adults from 26 countries of ancestry, we find a strong association between their financial literacy in the US and the financial literacy level in their self-reported country of ancestry. More specifically, if an individual from a country of ancestry with "average" financial literacy had instead come from a country with financial literacy one-standard deviation above the mean, his or her likelihood of answering correctly basic financial literacy questions regarding inflation, risk diversification, and interest rate in the US would have increased by 4 percentage points, a 9% increase relative to the average financial literacy in our sample of 43%. The cultural components behind this observed association include a strong emphasis on patience, long-term orientation and risk-aversion in the country of ancestry. We also find that the association is driven by financial literacy on risk diversification and interest compounding.

Suggested Citation

  • Davoli, Maddalena & Rodríguez-Planas, Núria, 2020. "Culture and Adult Financial Literacy: Evidence from the United States," IZA Discussion Papers 13349, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13349
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    Cited by:

    1. Victor Gay, 2023. "Culture: An Empirical Investigation of Beliefs, Work, and Fertility. A Verification and Reproduction of Fernández and Fogli (2009)," Post-Print hal-04194417, HAL.
    2. Davoli, Maddalena & Rodríguez-Planas, Núria, 2022. "Culture, Gender, and Financial Literacy," IZA Discussion Papers 15054, Institute of Labor Economics (IZA).
    3. Ooi, Elizabeth, 2023. "Culture and confidence in financial knowledge testing," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    4. Bredtmann, Julia & Otten, Sebastian, 2023. "Natives' gender norms and the labor market integration of female immigrants," Ruhr Economic Papers 1042, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Andriy Tsapin & Oleksandr Faryna, 2024. "The Role of Financial Literacy in Anchoring Inflation Expectations: The Case of Ukraine," Working Papers 02/2024, National Bank of Ukraine.
    6. Davoli, Maddalena & Rodríguez-Planas, Núria, 2021. "Preferences, Financial Literacy, and Economic Development," IZA Discussion Papers 14759, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    economic decisions; culture; epidemiological approach; financial literacy;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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