Journal of Banking & Finance Vol. 123 2021
Economic condition and financial cognition
Abstract
Are low-income individuals trapped because they are unable to make good financial decisions? We use a randomized controlled survey experiment to examine how prompting individuals to think about their personal economic condition (priming) affects their scores on a financial literacy quiz. We find that the marginal effect of poverty on financial literacy scores is 3.7 times higher for primed (treated) respondents compared to nonprimed ones. Priming not only worsens the financial literacy scores of low-income individuals, but also improves the scores of high-income individuals. Anxiety and shame are key explanations for our baseline results. Our findings shed light on how economic condition affects financial cognition, especially with regard to cognitive impediments resulting from negative emotions.
- DOI
- 10.1016/j.jbankfin.2020.106035
- Volume
- 123
- Pages
- 106035
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex