The Effect of Financial Literacy Training on Personal Financial Decision Making

Principal Researchers: Profs. Shawn Cole (Harvard Business School), Dr. Bilal Zia (World Bank) and Dr. Jeremy Shapiro (MIT)
Partner Organization: SAATH, Gujarat

Project Publications: TBD

Intuition, theory and empirical evidence suggest that access to and use of financial services, such as savings or investment mechanisms and insurance, can improve welfare by increasing levels and decreasing variability of consumption.  Yet a large body of evidence documents that many individuals fail to make use of the instruments available to them, or that they systematically make sub-optimal use of financial products on account of psychological or behavioral biases.  A probable cause for the failure to use financial services effectively, or at all, is that individuals do not fully understand such products.  If so, financial literacy training may be an effective way to encourage more, and more beneficial, use of financial services.

This project will conduct several randomized experiements designed to assess the impact of financial literacy training on the use of financial services and other individual financial decisions. One group, the treatment group, will be randomly selected to participate in a video-based financial literacy training course (covering savings, borrowing and other personal financial issues and small business operation). The remaning clients will compose the control and will not receive the financial literacy training course.

The project design will allow the research team to measure the impact of financial literacy training on savings and borrowing decisions (both as part of the formal and informal sector) and on the profits, revenues and operations of small enterprises.

CMF Senior Research Associate: Minakshi Ramji
CMF Research Associate: Stuti Tripathi