Principal investigator: Bruno Benevit
Authors: Bryan C McCannon and Jeffrey Peterson
Original title: Born for Finance? Experimental Evidence of the Impact of Finance Education
Location of the Intervention: United States
Sample Size: 146 students
Sector: Education
Primary Variable of Interest: Pro-social behavior
Type of Intervention: Financial education
Summary
Several studies seek to identify the effects of financial education on student behavior. However, distinguishing between possible causal and selection effects among students who choose this type of education presents a challenge for such inference. In this sense, this article conducted an investment decision experiment to investigate the impact of financial education on students' pro-social investment behavior, differentiating the effect of the intervention from the self-selection effects of finance students. Using various econometric methods, the authors identified that students who choose to study finance have a predisposition towards non-reciprocity in investments, while financial education promotes the development of pro-social behaviors, confidence, and social choices that generate wealth.
- Policy Problem
As financial education provides new information, addressing topics such as wealth creation and the consequences of risk, exposure to such content can significantly influence individuals' behavior in a personal context. Thus, the conduct of students in this type of course, in relation to social preferences and values of trust and reciprocity, can be shaped.
Simultaneously, it is natural to assume that the decision to study finance involves endogenous selection, such that individuals who choose to study finance have a profile with specific pre-established values before coming into contact with this type of education. In this context, it becomes relevant to understand how the behavior of these students is shaped by finance education and the average profile of those who self-select this type of education, as well as the differentiation between these two factors in the behavior of these students.
- Policy Implementation Context
Research on the relationship between financial literacy and social behavior is limited. Although several studies indicate the impact of financial education on personal investment decisions (savings, risk, and debt), few studies have analyzed the impacts on social interactions in the private, non-professional sphere (McCannon and Peterson, 2015).
Regarding evidence related to student behavior, Meier and Frey (2004) identified that finance students tend to make fewer charitable donations. According to Allgood et al. (2012), individuals with a specialization in finance are more likely to join the Republican Party, are less likely to do volunteer work, and contribute fewer hours when they do. However, both studies do not establish a strong causal relationship, highlighting the gap in the literature related to the topic.
- Evaluation Details
Experiments were conducted with university students from a private university in upstate New York to analyze the relationship between financial literacy and behavior. The recruited participants were part of two groups: students in general education classes and students in whose major (major) was finance. Additionally, aiming to select students who had not had contact with finance subjects and those who had already had contact with these subjects, the study sought to select both first-year university students and students from subsequent years.
The first experiment used the Trust Game, in which participants were randomly paired, with one designated as “Player A” and the other as “Player B.” Player A received $5 in experimental dollars and chose how much to give (“invest”) to Player B ($0, $1, $2, $3, $4, or $5), knowing that any amount would be tripled for Player B, who could then choose to reciprocate to Player A. The experiments were conducted in separate sessions, varying the number of game rounds, random pairing, and presentation of instructions. To avoid biases based on gender, race, or other factors, participants' decisions were made without knowledge of their game partner or previous sessions. Before the start of the experiment, players were informed that they would receive more real dollars as they received more experimental dollars at the end of all rounds.
Furthermore, participants played the Dictator Game, where Player A decides how much to give to Player B, without the possibility of reciprocation from the latter, allowing for control of altruistic preferences and differentiation between altruistic donations and strategic investment.
- Method
To investigate the relationship between financial literacy and pro-social behaviors, the authors adopted an OLS model to estimate the amount invested by Player A to Player B. To correctly identify the impact of financial literacy, binary variables were considered to separately identify the effect associated with first-year students, finance students, and first-year finance students. The models considered covariates identifying origin (residents of New York and the United States), gender, voting status, business students, and identification of the game dictator. Additionally, regressions of two new models were performed considering the amount reciprocally received from Player B and the fixed effects of the game rounds.
Subsequently, the same OLS procedure was performed to estimate the amount reciprocally returned by players B to players A, adopting two models: with and without fixed effects of the game rounds. Finally, the study employed the Probit method to estimate the probability of players A investing the experimental amounts of $0 and $5 in players B. Similarly, the probability of players B, if they received $5 from player A, reciprocally donating at least the experimental amount of $5 to players A was also estimated. In the covariate vector, the same aspects as in the OLS models were controlled.
- Main results
The results of the OLS regressions indicated self-selection by finance students. For both outcome variables, amount invested and amount reciprocally returned, the isolated effect of first-year finance students indicated less altruistic behavior, investing and reciprocally returning fewer experimental dollars.
Conversely, the isolated effect of financial education implied an increase in the propensity to invest and to reciprocate. In both outcome variables, no significant effects were found for first-year students, reinforcing the hypothesis of self-selection of finance students when considering the isolated effect for this group.
Regarding the Probit model estimates, the results corroborated the previously found evidence. The effects associated with being a first-year finance student indicated a reduction in pro-social behaviors, showing significant reductions in the probabilities of investing $5 experimentally and reciprocally returning at least $5 experimentally, as well as a significant increase in the probability of investing $0 experimentally. Again, exposure to financial education showed an increase in altruistic behaviors when considering the three outcome variables.
- Lessons in Public Policy
This article investigated whether financial education promotes individualistic behaviors in the social behavior of its students. To this end, experiments were conducted with students from a private university in the United States in order to observe pro-social behavior in a simulation of reciprocal investment-donation between two players.
Through econometric methods, the results indicated that individuals who choose finance as their major exhibit less altruistic behavior. However, financial education promoted pro-social behaviors, inducing wealth-generating conduct; individuals with training in this area were more likely to offer wealth-generating investments, make larger investments, reciprocate investments, and provide more significant reciprocal returns to investors. This evidence provides new information for regulators related to finance and business and educational policymakers.
References
ALLGOOD, S. et al. Is Economics Coursework, or Majoring in Economics, Associated with Different Civic Behaviors? The Journal of Economic Education, v. 43, no. 3, p. 248–268, Jul. 2012.
MCCANNON, BC; PETERSON, J. Born for Finance? Experimental Evidence of the Impact of Finance Education. Journal of Behavioral Finance, v. 16, no. 3, p. 199–205, 3 Jul. 2015.
MEIER, S.; FREY, BS Do Business Students Make Good Citizens? International Journal of the Economics of Business, v. 11, no. 2, p. 141–163, Jul. 2004.
