Financial Literacy and Savings Account Returns

• DOI: 10.1093/jeea/jvy003
• Publication Date: 2018-04-23T04:04:29Z
• Authors: Florian Deuflhard; Dimitris Georgarakos; Roman Inderst
• Keywords: 330; E21 - Consumption; financial literacy,savings accounts,interest rates,household finance; jel:E21; savings accounts; G11 - Portfolio Choice; jel:G21; household finance; financial literacy; financial literacy, household finance, interest rates, savings accounts; 0502 economics and business; ddc:330; D12; G11; Depository Institutions; Wealth; Investment Decisions; Saving; ddc:330; 05 social sciences; 1. No poverty; jel:D12; Financial literacy; savings accounts; interest rates; household finance; interest rates; Micro Finance Institutions; jel:G11; Mortgages; D12 - Consumer Economics: Empirical Analysis; Financial literacy; 8. Economic growth; Financial literacy; Household finance; Interest rates; Savings accounts; G21; G21 - Banks; E21

Savings accounts are owned by most households, but little is known about the performance of households’ investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.