The link between financial education and financial literacy: A cross-national analysis

Abstract

Financial literacy is a competence that extends to many aspects of everyday life. The Great Recession has recently highlighted its relevance and the importance of financial literacy training in the school curricula. The authors use PISA 2015 data to investigate the link between financial education and young people’s financial literacy across 15 countries using a student fixed-effects approach. Their results illustrate how financial education is still in its infancy within many countries and does not seem to improve young people’s ability to apply financial skills in real-world situations.

Keywords:

• Financial education
• financial literacy
• PISA 2015
• student fixed-effects

JEL CODES:

• C10
• I20
• I21
• I28

Conflict of interests

The authors state that they do not have any conflict of interest.

Notes

1 We can find plenty of examples in the media; for instance, in the BBC: https://www.bbc.com/news/business-45343236

2 PISA is an international large-scale assessment test that evaluates students’ competencies in reading, mathematics, and science and other competencies such as financial literacy or problem-solving.

3 This definition for adults states that “financial literacy is a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being” (OECD 2017b, 50).

4 As we will see in the data section, the use of this PISA 2012 may present some issues.

5 In PISA 2015, the countries that participated in the financial literacy assessment were 10 OECD countries—Australia, the Flemish Community of Belgium, 7 provinces in Canada, Chile, Italy, the Netherlands, Poland, the Slovak Republic, Spain, and the United States—and 5 partner countries—Brazil, China (Beijing-Shanghai-Jiangsu-Guangdong), Lithuania, Peru, and the Russian Federation.

6 Information on the booklets’ content and their administration procedure can be found for PISA 2015 in OECD (2017c).

7 The percentage of repeater students in the 10 OECD countries is Australia (8%), the Flemish Community of Belgium (31%), 7 provinces in Canada (5%), Chile (19%), Italy (14%), the Netherlands (20%), Poland (4%), the Slovak Republic (6%), Spain (27%), and the United States (11%). In the 5 partner countries: Brazil (38%), China—Beijing-Shanghai-Jiangsu-Guangdong—(18%), Lithuania (3%), Peru (25%), and the Russian Federation (2%).

8 This will be denoted from now on as a “cross-curricular” approach.

9 This index was created by the OECD socioeconomic variables (highest parental education, highest parental occupation, and home possessions) to have a mean of 0 and a standard deviation of 1. More information on the creation of this index can be found in OECD (2017c, 339–42).

10 For example, a student fixed-effects approach has been applied to go beyond correlation in research studies related to the influence of weekly instruction time on students’ academic performance (e.g., Lavy 2015; Rivkin and Schiman 2015) or the influence of teachers’ competencies on students’ competencies (e.g., Bietenbeck, Piopiunik, and Wiederhold 2018), among others.

11 Authors such as Skagerlund et al. (2018) or Ghazal, Cokely, and Garcia-Retamero (2014) indicated that numeracy skills are a central component of financial literacy.

12 PISA scores are originally reported in a scale with a mean of 500 and a standard deviation of 100. However, in order to make our results comparable with other international studies, we have standardized and reported them as effect sizes, i.e., they are interpreted in terms of standard deviations, so a higher value means a higher influence. Students’ scores have been standardized using the country mean and standard deviation for each subject (OECD 2016, 2017b).

13 Particularly for the financial literacy subject ($k=1$), this $FE$ variable takes the value “1” when the student received financial education and “0” when the student did not receive it; in the case of mathematics ($k=2$), it always takes the value “0.”

14 This robustness check has been performed to the extent that these competencies may present different education production functions and unobservables compared to the financial literacy competence.

15 It was also found in the literature that immigrant students may have lower financial literacy skills compared to native students (Gramațki 2017; Cordero, Gil, and Pedraja 2022; OECD 2020). However, the percentage of immigrant students present in PISA 2015 data for the financial literacy subsample does not allow splitting the sample by immigrant status for all the countries under analysis: in Australia, information about immigrant status is not available; in Belgium, 9.91% are immigrant students; 21.08% in Canada; 2.20% in Chile; 6.16% in Italy; 7.98% in the Netherlands; 0.25% in Poland; 0.82% in the Slovak Republic; 8.03% in Spain; 20.19% in the United States; 0.58% in Brazil; 0.10% in China; 2.53% in Lithuania; 0.53% in Peru; and 5.67% in the Russian Federation. Therefore, as the influence of financial education on students’ financial literacy skills cannot be analyzed by immigrant status for all countries, this analysis has not been included.

16 Unfortunately, the OECD does not release a full version of the PISA tests, to the extent that some questions are used in future PISA cycles in order to define trend results. Some examples of the financial literacy test questions can be found at OECD (2017b, 52–63). For instance, from these examples, question 2 of “AT THE MARKET” (OECD 2017b, 54) states “You can buy tomatoes by the kilogram or by the box” and indicates that tomatoes cost “2.75 zeds per kilogram” and “22 zeds for a 10 kilogram box” (zeds are the monetary units of Zedlandia, a country created for PISA questions). Then, students are asked “The box of tomatoes is better value for money than the loose tomatoes. Give a reason to support this statement.” According to PISA, the content of this question is “money and transactions,” the process is “analyse information in a financial context” and the context is “home and family.”

17 Estimations in table 4 have been replicated using only each one of the financial education variables in alternative specifications, and results do not change. These estimations will be provided upon request to the authors.

18 Booklet information for the sample of students who took the financial literacy test was not publicly available for Australia, so it was not included in these estimations.

Additional information

Funding

This work has been partly supported by FEDER funding (under Research Project PY20-00228-R); Ministerio de Ciencia e Innovación (under Research Project PID2020-119471RB-I00) and by the Andalusian Regional Government (SEJ-645).