DP9882 Financial Literacy and Savings Account Returns

Author(s): Florian Deuflhard, Dimitris Georgarakos, Roman Inderst
Publication Date: March 2014
Keyword(s): Financial literacy, Household finance, Interest rates, Savings accounts
JEL(s): D12, E21, G11, G21
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9882

Savings accounts are owned by most households, but little is known about the performance of households? investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.