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Discussion Paper Details

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Title: Providing financial education: a general equilibrium approach

Author(s): Mario Padula and Yuri Pettinicchi

Publication Date: July 2013

Keyword(s): Asset pricing, Cognitive ability, Financial literacy, Heterogeneous agents and Market stability

Programme Area(s): Financial Economics, Labour Economics and Public Economics

Abstract: Since the early 2000s, the importance of financial literacy for safe financial behaviors has increased in public debate and has been the motivation for several national and international institutions to launch and promote financial education initiatives. Although discussion on the effects of such education programs remains open, it is generally presumed that higher levels of financial literacy are associated with more stable financial markets. The present paper challenges this assumption and provides a model of heterogeneous agents which differ according to the level of their cognitive abilities. The model allows us to discuss the implications for asset pricing of policies aimed at increasing levels of financial literacy, and shows that general equilibrium effects cause market price volatility and the share of literate individuals to vary in a non-monotonic way with financial education.

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Bibliographic Reference

Padula, M and Pettinicchi, Y. 2013. 'Providing financial education: a general equilibrium approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9556