Culture and adult financial literacy: Evidence from the United States |
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| Affiliation: | 1. Goethe University Frankfurt-RuW, Theodor W. Adorno Platz 4, Frankfurt am Main, 60629, Germany;2. Queens College CUNY, Economics Department, City University of New York (CUNY), Powdermaker Hall, 65-30 Kissena Blvd., Queens, New York 11367, USA;1. University of Virginia, Charlottesville, VA 22904, United States;2. United States Military Academy, West Point, NY 10996, United States;3. The College of William & Mary, Williamsburg, VA 23187, United States;1. Division of Social Science, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong;2. Institute for Economic and Social Research, Jinan University, Guangzhou, China;1. Social Research Institute, UCL Institute of Education, 20 Bedford Way, London, WC1H 0AL, United Kingdom;2. Institute of Economics, Centre for Economic and Regional Studies, Toth Kalman u. 4, 1097 Budapest, Hungary;3. Institute of Labor Economics (IZA), Schaumburg-Lippe-Str. 5-9, D-53113 Bonn, Germany |
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| Abstract: | Using a US nationally representative sample of over 6000 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. |
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