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Learning by doing: the role of financial experience in financial literacy

Published online by Cambridge University Press:  21 November 2013

Bart Frijns
Affiliation:
Department of Finance, Auckland University of Technology, New Zealand E-mail: bfrijns@aut.ac.nz
Aaron Gilbert
Affiliation:
Department of Finance, Auckland University of Technology, New Zealand E-mail: agilbert@aut.ac.nz
Alireza Tourani-Rad
Affiliation:
Department of Finance, Auckland University of Technology, New Zealand E-mail: tourani@aut.ac.nz

Abstract

In this paper, we examine the impact of financial experience on financial literacy. Exploiting a unique feature of New Zealand, whereby domestic students can obtain interest-free student loans and can fully participate in the national retirement scheme while international students cannot, we employ an instrumental variables approach to identify the causal effect of financial experience on financial literacy. We conduct surveys on a sample of 338 business students and find that there is a positive and causal effect of financial experience on financial literacy. Our results have important implications for financial education programmes and may explain why many of these programmes to date have had limited success.

Type
Research Article
Copyright
Copyright © Cambridge University Press 2013 

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