Experiment studied in an in²uential paper by

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experiment studied in an in²uential paper by Bernheim, Garrett, and Maki (2001), we test whether ±nancial literacy education a/ects participation. Using a sample several orders of magnitude larger than theirs, with a more ²exible speci±cation, we ±nd in fact that high school ±nancial literacy programs did not a/ect participations. A second possibility is that education a/ects cognitive ability, which in turn increases par- ticipation. By exploiting within-sibling group variation in cognitive ability, we show that indeed higher levels of cognitive ability leads to greater ±nancial market participation. Importantly, these estimates are not confounded by unobserved background and family characteristics. Finally, we explore other ways in which education might a/ect ±nancial behavior, including e/ects on personality, borrowing behavior, discount rates, risk-aversion, and the in²uence of 2
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employers and neighbors. This paper adds to a growing literature on the correlates and determinants of ±nancial participation. Participation is important for many reasons. For the household, participation facilitates asset accumulation and consumption smoothing, with potentially signi±cant e/ects on welfare. For the ±nancial system as a whole, the depth and breadth of participation are important determinants of the equity premium and the volatility of markets, and household expenditure (Mankiw and Zeldes, 1991; Heaton and Lucas, 1999; Vissing-Jorgensen, 2002; and Brav, Constantinides, and Gezcy, 2002). Participation may also a/ect the political economy of ±nancial regulation, as those holding ±nancial assets may have di/erent attitudes towards corporate and investment income tax policy than those without such assets, as well as di/erent attitudes towards risk-sharing and redistribution. The 2004 Survey of Consumer Finances indicates that the share of households holding stock, either directly or indirectly, was only 48.6% in 2004, down three percentage points from 2001 (Bucks, Kennickell, and Moore, 2006). Some view this limited participation as a puzzle: Haliassos and Bertaut (1995) consider and reject risk aversion, belief heterogeneity, and other potential ex- planations, instead favoring ³departures from expected-utility maximization.´Guiso, Sapienza, and Zingales (2008) ±nd that individuals lack of trust may limit participation in ±nancial mar- kets. Others argue that limited participation may be rationally explained, by small ±xed costs of participation. Vissing-Jorgensen (2002), using data from a household survey, estimates that an annual participation cost of $275 (in 2003 dollars) would be enough to explain the non- participation of 75% of households. This paper sheds some light on this debate by examining whether exogenous shifts in education, and cognitive ability, and ±nancial literacy training a/ect participation decisions.
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