Dissertation project: As nationalist and protectionist sentiments across the world continue to increase, this dissertation explores the role that financial and economy literacy plays in shaping individual economic policy preferences. More specifically, financial and economic literacy affects the accuracy with which an individual can evaluate the short-term and long-term expected costs and benefits of a certain policy: financially literate individuals are more likely to more accurately predict the effect of a specific economic policy on their economic well-being. Conversely, financially and economically illiterate individuals are less likely to be accurate at estimating the effects of a policy on their economic well-being and, as a result, they may be more likely to rely on other factors, such as political ideology or cues from reference groups to make their policy decisions. To test my hypotheses, I use a multi-method approach that includes observational data from an existing survey, the British Election Survey (BES), original data collection in Italy, and a classroom experiment.
My dissertation will consist of four papers.
The first paper has been published here:
Magistro, B. (2020) Financial literacy and support for free trade in the U.K. The World Economy: https://doi.org/10.1111/twec.12951:
Recent events in Europe and the United States suggest that open economies are increasingly under stress as nationalist, protectionist, and populist political entrepreneurs are gaining significant ground across the Western world. Many theories have been formulated as to which factors are more likely to explain such policy preferences. The hypothesis tested in this paper is that financial literacy affects economic policy preferences. I analyze data from the British Election Study and test my theory on support for free trade in the United Kingdom. Findings suggest that financial literacy does affect economic policy preferences. On average, financially literate individuals are more likely to think that free trade is good for the British economy. Furthermore, this is true regardless of economic self‐interest, as both financially literate winners and losers from globalization are more likely to support free trade than their illiterate counterparts.
The second paper is available here:
The Effects of Financial and Economic Literacy on Policy Preferences in Italy (R&R)
As populist and protectionist sentiments across the world continue to increase, this paper explores the role that financial and economy literacy plays in influencing individual economic policy preferences. The theory suggests that financial and economic literacy affects individual economic policy preferences in a direct way and in an indirect manner, through discount rates. To test my hypotheses, I analyze original survey data collected in Italy. Findings show that financially and economically literate individuals, regardless of their economic condition, are more likely to prefer remaining in the Eurozone, to favor free trade, EU immigration, non-EU immigration, and the Fornero pension reform. Moreover, they also have significantly lower discount rates. The findings are robust to alternative specifications of the literacy measure, but not to education, suggesting that financial and economic literacy has distinctive features that more closely capture an individual’s ability to evaluate policies.
The third paper is available here:
Party cues or policy information? The differential influence of financial and economic literacy
This paper uses a survey experiment on price controls in Italy to examine what information voters rely on to make policy choices, conditional on their financial and economic literacy. I manipulate whether citizens receive party cues, policy information, or neither type of information. Findings show that financially and economically literate individuals are more likely to understand factual information concerning the costs and benefits of the policy under analysis, and to be responsive to it. This is not the case for financially and economically illiterate individuals, who instead are more receptive to party cues. These findings suggest that if citizens are not informed about the choices they make and blindly follow party cues, when such cues are misleading, they end up supporting policies that do not reflect their interests. Conversely, efforts to inform voters have the potential to successfully shift opinions, but only provided that citizens understand that information.
The fourth paper is available here
Becoming patient: A classroom experiment on the effect of financial literacy on time preference
Time preference, the ability to delay gratification, matters for a wide range of life outcomes. Patience is relevant in the psychological, economic, and political spheres, as it is shown to affect financial and political behavior. But little is known about factors that explain variation in the degree to which individuals’ discount future payoffs. This paper investigates whether financial literacy changes people’s time preferences. Existing empirical research is plagued by a classic endogeneity problem — do more patient people have a propensity to acquire financial literacy, or does financial literacy actually lower their discount rate? In this paper I address this fundamental question about time preferences by conducting a classroom experiment on a sample of 216 undergraduate students. The results indicate that financial literacy, through learning concepts such as the time value of money, inflation, and capital budgeting, lowers discount rates, and that there is not a selection effect into finance and economics. Furthermore, results show that more education in general does not change time preferences, only financial literacy does.