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Numeracy, Financial Literacy, and Financial Decision Making

English title Numeracy, Financial Literacy, and Financial Decision Making
Applicant Brown Martin
Number 169433
Funding scheme Project funding (Div. I-III)
Research institution Schweizerisches Institut für Banken und Finanzen (s/bf-HSG) Universität St. Gallen
Institution of higher education University of St.Gallen - SG
Main discipline Economics
Start/End 01.10.2016 - 30.09.2018
Approved amount 130'066.00
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Keywords (3)

Financial Literacy; Financial decisions; Numeracy

Lay Summary (German)

Lead
Das Forschungsprojekt untersucht in einem ersten Teil inwiefern der kulturelle Hintergrund Finanzwissen und Finanzverhalten beeinflusst. Der zweite Teil untersucht den Einfluss von nummerischen Fähigkeiten auf Entscheidungen am Arbeitsplatz.
Lay summary

Über die letzten Jahre haben die Komplexität von individuellen Finanzentscheidungen zugenommen. Die Qualität dieser Entscheidungen hat einen grossen Einfluss auf das Wohlergehen von Konsumenten. In diesem Kontext ist die Bedeutung von Financial Literacy – das für informierte Entscheidungen nötige Finanzwissen - stark gestiegen. Jedoch weiss man bisher wenig zur Aneignung von Financial Literacy und inwiefern der kulturelle Hintergrund die Aneignung von Financial Literacy beeinflusst. Wir analysieren diese Forschungsfrage mit Survey-Daten von 700 Schülern an der Sprachgrenze im Kanton Freiburg.

Das Projekt strebt ein besseres Verständnis für den Einfluss des kulturellen Hintergrunds auf das Finanzwissen und -verhalten von Individuen an. Ein besseres Verständnis der mikroökonomischen Faktoren, welche Financial Literacy beeinflussen, ist von grosser Bedeutung für die Gestaltung von Förderungsmassnahmen zur Stärkung von Financial Literacy insbesondere für eine heterogene Zielgruppe.

Das zweite Teilprojekt fokussiert auf den Einfluss von numerischen Fähigkeiten auf das Entscheidungsverhalten am Arbeitsplatz. Es besteht ein breiter Konsens, dass mathematische Fähigkeiten der arbeitenden Bevölkerung von grosser Wichtigkeit sind für die Wettbewerbskraft einer Volkswirtschaft. Bisher gibt es jedoch wenig empirische Evidenz, welche den Einfluss von numerischen Fähigkeiten auf die Qualität der Entscheidungen am Arbeitsplatz belegt. Wir analysieren diese Fragestellung mit einzigartigen Daten zu Entscheidungen von Kreditberatern einer Bank. Der Datensatz kombiniert das Ergebnis eines standardisierten, nummerischen Tests mit den getroffenen Kreditentscheiden.

Das Projekt trägt zu einem besseren Verständnis von nummerischen Fähigkeiten auf das Entscheidungsverhalten unter Unsicherheit bei. Während bisherige Studien im Labor durchgeführt wurden, erlaubt unser Datensatz die Analyse von realen Entscheidungen am Arbeitsplatz.

Direct link to Lay Summary Last update: 26.09.2016

Responsible applicant and co-applicants

Employees

Name Institute

Publications

Publication
Culture and financial literacy: Evidence from a within-country language border
Brown Martin, Henchoz Caroline, Spycher Thomas (2018), Culture and financial literacy: Evidence from a within-country language border, in Journal of Economic Behavior & Organization, 150, 62-85.

Collaboration

Group / person Country
Types of collaboration
Zentrum für Europäische Wirtschaftsforschung Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
Department of Social Science/ University of Fribourg Switzerland (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
EEA Meetings 2018 Talk given at a conference Culture, Saving and Consumption: Evidence from the Youth 27.08.2018 Cologne, Germany Spycher Thomas;
EEA-ESEM 2018 Talk given at a conference Culture, Saving and Consumption: Evidence from the Youth 08.08.2018 Cologne, Germany Spycher Thomas;
SSES Annual Congress 2018 Talk given at a conference Culture, Saving and Consumption: Evidence from the Youth 14.06.2018 St.Gallen, Switzerland, Switzerland Spycher Thomas;
Harvard University, PhD Seminar Individual talk Culture, Saving and Consumption: Evidence from the Youth 08.02.2018 Cambridge, MA, United States of America Spycher Thomas;
Research Seminar University Glasgow Individual talk Culture and financial literacy: Evidence from a within-country language border” 07.02.2018 Glasgow, Great Britain and Northern Ireland Brown Martin;
SSES Annual Congress 2017 Talk given at a conference Culture and financial literacy: Evidence from a within-country language border. 08.06.2017 Lausanne, Switzerland Spycher Thomas;
3rd Cherry Blossom Financial Education Institute Talk given at a conference Culture and financial literacy: Evidence from a within-country language border” 07.04.2017 Washington DC, United States of America Spycher Thomas;
10th Swiss Winter Conference on Financial Intermediation Poster Numeracy and the Quality of On-the-Job Decisions: Evidence from Loan Officers 14.03.2017 Lenzerheide, Switzerland Spycher Thomas;
Finance Research Seminar,TU Munich Individual talk Numeracy and the Quality of On-the-Job Decisions: Evidence from Loan Officers 07.02.2017 Munich, Germany Brown Martin;
Research Seminar Uni Lausanne Individual talk Culture and financial literacy: Evidence from a within-country language border” 12.01.2017 Uni Lausanne, Switzerland Brown Martin; Spycher Thomas;
LMU Munich, Seminar Presentation Individual talk Culture and financial literacy: Evidence from a within-country language border” 20.12.2016 Munich, Germany Brown Martin;
Brown Bag Seminar ETH Zürich Individual talk Culture and financial literacy: Evidence from a within-country language border” 08.11.2016 Zurich, Switzerland Spycher Thomas; Brown Martin;


Knowledge transfer events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
Swiss National Bank Seminar Talk 23.06.2017 Zurich, Switzerland
Workshop KFW Entwicklungsbank Talk 25.01.2017 Frankfurt, Germany


Communication with the public

Communication Title Media Place Year
Media relations: print media, online media Deutschschweizer Schüler wissen mehr vom Geld NZZ German-speaking Switzerland 2017
New media (web, blogs, podcasts, news feeds etc.) Kultur und das Finanzwissen: Deutliche Unterschiede an der Schweizer Sprachgrenze Ökonomenstimme International German-speaking Switzerland 2017

Abstract

As financial markets become more sophisticated and the individual responsibility for retirement saving increases, the skillset required to perform sound financial decisions gains more and more attention. Recent research documents that financial literacy - the knowledge and understanding of financial matters - has a strong influence on personal financial decision making. Based on these findings, substantial resources are currently invested by public and private institutions towards improving financial literacy, especially of children and adolescents. The first objective of this project is to contribute to the understanding of how individuals develop financial literacy skills and how these skills affect economic decision making. We will examine how the cultural background of adolescents affects their financial literacy and financial decisions. We will analyze data from a recently performed survey with 710 secondary-school students at the language boarder in the canton of Fribourg. The survey provides information of financial decisions of 15-years old students as well as on financial literacy, social norms and preferences. The survey data will allow us to analyze the current level of financial literacy among adolescents in Switzerland and to relate it to financial behavior. Further, we are able to document the impact of a different cultural background (French vs. German Speaking) expressed in differences in norms and economic preferences on financial literacy and financial behavior due to the unique setting at the language boarder. Understanding microeconomic factors influencing financial literacy is essential for the design of policy to improve the overall level of financial literacy. There is also a broad consensus among policy makers that strong skills in mathematics and related fields is a crucial determinant of the economic competitiveness of a country. In line with this conjecture, recent policy initiatives aim at promoting these skills at primary and secondary school level. Existing evidence confirms that employers value numerical ability and that individuals with higher numerical skills are more successful in the labor market. Interestingly though, there is almost no evidence documenting how the level of numeracy influences the quality of employee decisions taken on-the-job. The second part of the project examines how numeracy influences on-the-job decision making. We exploiting a unique dataset including math test scores and credit file information for loan officers employed at one bank that typically lends to small and medium sized enterprises. This dataset allows for a detailed analysis of how loan officer numeracy influences their lending decisions. In a first step, we will study how differences in numeracy affect the decision to lend, the loan terms offered, and ex-post loan performance. In a second step, we will study how loan officers with different levels of numeracy react differently to worsening economic conditions after a lending boom. This project contributes to a better understanding of how numeracy influences economic decision making under uncertainty and how economic conditions influence real individual decisions in bank lending.This project will be implemented by Prof. Martin Brown together with a doctoral student, Thomas Spycher, at the University of St. Gallen. For the first part of this project (Culture, Financial Literacy and Financial Decision Making), we will collaborate with Dr. Caroline Henchoz from the Department of Social Sciences at the University of Fribourg. For the second part of the project (Numeracy and on-the-Job Decision Making) we will collaborate with Dr. Karolin Kirschenmann, who is currently an Assistant Professor at Aalto University in Helsinki.
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