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| Is Financial Education Effective？ |
| WU Kun, WU Weixing, WANG Shennan
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School of Economics, Beijing Wuzi University;
Research Center for Applied Finance, University of International Business and Economics;
Editorial Board/School of International Economics and Management, Beijing Technology and Business University |
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Abstract Financial products, especially financial technology, have become increasingly sophisticated and complicated with the growth of the digital economy. Financial products are deeply embedded in the investment and consumption behavior of individuals. The popularization and spread of financial literacy can help to improve asset allocation efficiency and prevent debt risks, which are important for the prosperity of all people. Since the 2008 global financial crisis, financial education has become an important topic of discussion, and governments around the world are incorporating it into their national strategy and creating conditions to enable it through legislation and institutional development. In the process of building a modern financial system, the financial market may break the “rigid payment” and the financial market may “break the net”, and the shortcomings of households lacking financial literacy may be amplified more quickly. Hence, targeted intervention measures are urgently needed for a scientific evaluation of the effect of financial education.
This study systematically reviews the cognitive differences between different academic groups on the effectiveness of financial education using data from the 2012 survey of Chinese urban households by the China Center for Financial Studies of Tsinghua University and the 2015 China Household Finance Survey. Using the propensity score matching (PSM) and instrumental variable (IV) methods, this study empirically investigates the effect of financial education on the financial investment behavior of Chinese households and the moderating role of social interaction. The results show that financially literate households have a more diversified asset portfolio and higher Sharpe ratio than financially illiterate households. Financially literate households are also more likely to engage in financial planning over a longer planning horizon, and to ask for help when their equity suffers. Furthermore, increased social interaction increases the optimization effect of financial education. This study provides positive evidence that financial education helps optimize household investment behavior. Although the work in this study is a preliminary exploration compared with the complex evaluation framework used by studies conducted abroad, it has important practical and policy implications.
First, there should be a greater focus on the spread of financial literacy, and the process should be expedited through legislation and the establishment of dedicated institutions. The strategic importance of financial education should be examined from the perspective of improving the financial well-being of people. Second, diverse financial education programs should be implemented by category to strengthen the overall effect of financial education. As people become more financially literate, the program should guide them to increase their social interactions simultaneously so as to enhance the effect of financial education. Finally, there should be active exploration of an evaluation framework for effective innovative financial education using an optimal combination of policy tools. Various alternatives should be identified for different objectives, and a policy evaluation system of “objectives-solutions (alternatives)-cost benefit evaluation” must be established; this will help to evaluate the effectiveness of financial education, clarify its feasibility, and determine the optimal mode and level of financial education.
This study makes the following three contributions. First, this study considers household portfolio diversification, portfolio effectiveness and financial planning, and consumer protection as indicators of the effectiveness of financial education, thus extending the measurement category of the domestic literature on financial education intervention. Second, we comprehensively use the PSM and IV methods to scientifically deal with possible endogeneity, such as self-selection, and use different questionnaires for empirical analysis. The results of this study are more reliable than those of similar studies in China. Third, this study deeply discusses the heterogeneous effect of social interaction on the effect of financial education, especially the key role played by social interaction in less financially literate families, which enriches the research dimensions of the domestic literature on financial education effect evaluation. Although there are some limitations in the evaluation methods used by this study compared with studies conducted abroad, it makes an important contribution to the construction of a conceptual framework, selection of evaluation indicators and technical means, and expansion of research perspectives to evaluate the effectiveness of domestic financial education.
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Received: 04 November 2021
Published: 02 December 2022
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