Decoupling of General Formal Education and Specific Financial Literacy
Policy-makers and researchers often treat formal schooling completion as a proxy for household financial competence, assuming educated populations do not require foundational financial literacy training.
Picture this
Imagine a university graduate with a degree in literature who struggles to calculate monthly compound interest on a bank loan. General schooling equips individuals with reading and general skills, but practical financial calculation requires specialized instruction.
What the evidence says
Despite high general schooling attainment averaging 15.63 years completed, only 20.6% of household heads correctly answered both basic financial literacy questions at baseline.
- Who
- N = 1,808 household heads of transnational families in Cabanatuan City and surrounding localities, Philippines.
- How
- Cross-sectional baseline evaluation measuring completed formal schooling years alongside a 2-question test assessing basic interest rate and compound interest calculations.
What to do
Evaluate target populations using direct financial literacy assessments rather than relying on general educational attainment as a proxy for financial capability.
From the source
"Though average education levels are quite high (approximately 16 years of education), financial literacy scores at baseline are low. Only 20% of the sample answered both financial literacy questions in our survey correctly, suggesting a possible benefit of financial education."
Financial Education and Financial Access for Transnational Households: Field Experimental Evidence from the Philippines