Quantifying the Causal Effect of Financial Literacy Courses on Financial Health

TL;DR

This paper demonstrates that financial literacy courses have a significant positive causal impact on individuals' financial health, as measured by a comprehensive score, with robust results across various estimation methods.

Contribution

It provides the first robust causal evidence linking financial literacy education to improved financial health using multiple causal inference techniques.

Findings

Financial literacy courses significantly improve financial health scores.

Results are consistent across different causal estimation methods.

The effect size is positive but relatively small, indicating room for further research.

Abstract

In this study, we investigate the causal effect of financial literacy education on a composite financial health score constructed from 17 self-reported financial health and distress metrics ranging from spending habits to confidence in ability to repay debt to day-to-day financial skill. Leveraging data from the 2021 National Financial Capability Study, we find a significant and positive average treatment effect of financial literacy education on financial health. To test the robustness of this effect, we utilize a variety of causal estimators (Generalized Lin's estimator, 1:1 propensity matching, IPW, and AIPW) and conduct sensitivity analysis using alternate health outcome scoring and varying caliper strengths. Our results are robust to these changes. The robust positive effect of financial literacy education on financial health found here motivates financial education for all individuals and holds implications for policymakers seeking to address the worsening debt problem in the U.S, though the relatively small magnitude of effect demands further research by experts in the domain of financial health.