Three essays on household finance

Sintou, Christiana Marina (2020) Three essays on household finance. PhD thesis, University of Glasgow.

Abstract

The thesis consists of three independent essays in financial literacy and decision making, an introduction and conclusion. The generic introduction provides a review of the literature on financial literacy, which is the common thread for the three essays that follow (chapter 1), and the conclusion summarizes the findings and discusses futures avenues for research (chapter 5).

The first essay examines the relationship between financial literacy and life insurance demand across Europe (chapter 2). For this purpose, the study uses panel data from the 2004-2015 Survey of Health, Ageing and Retirement in Europe and employs three distinct measures of life insurance demand, capturing overall participation, the invested amount given participation and the transitions into the market. In order to pick up savings intentions which are not directed towards pure bequest motives, the analysis focuses exclusively on whole life insurance policies. The results show that: (a) financial literacy is positively related to life insurance market participation; (b) the invested amount in life insurance policies increases with respect to higher level of financial knowledge and (c) individuals with higher financial literacy are significantly more likely to enter the market. When regression slope coefficients are allowed to vary between countries, the results indicate that in Nordic countries, financial literacy becomes highly significant and has a big positive effect on the amount invested in life insurance policies; on the other hand, in Southern, Eastern, and Western Europe, the effect of financial literacy on the amount invested in life insurance policies becomes insignificant. The findings are robust, even after accounting for a rich set of variables - including risk tolerance and time preferences - and after controlling for potential endogeneity issues.

The second essay examines the role of financial literacy on individuals' political attitudes
in the wake of the financial crisis in Europe (chapter 3). The study uses panel data from the Survey of Health, Ageing and Retirement in Europe and employs a measure of political orientation, capturing individuals' self-placements on the left-right axis. The results show that financial literacy decreases extreme left political attitudes by about 4.5% and extreme right political attitudes by about 6%. Moreover, financially literate individuals are about 7.5%-9.5% more likely to have moderate political views. Financially literate individuals are also about 30% less likely to report that they do not know their political orientation. When regression slope coefficients are allowed to vary between countries, the results indicate that in the North, West and South of Europe, financial literacy becomes highly significant and has a big negative effect on extreme political views. However, the relationship between financial literacy and extreme political attitudes becomes insignificant in countries belonging to the Central-Eastern Europe. The results are robust, even after controlling for an important number of potential predictors of political orientation, including both economic and social variables, such as trust, religion, risk preferences and attitudes towards immigration. Overall, it should be noted that despite our efforts to eliminate potential sources of endogeneity, certain endogeneity issues could still arise and, therefore, the observed association between financial literacy and political attitudes cannot be interpreted as causal.

The last essay investigates the heterogeneous effects of financial literacy across the unconditional wealth distribution and its implications for wealth inequality (chapter 4). Using data from the Survey of Health, Ageing and Retirement in Europe, the study employs an IV generalized quantile regression approach to identify the causal relationship between financial literacy and household wealth at different points of the wealth distribution. The empirical results suggest a robust stylised fact: Financial literacy affects individuals differently over the unconditional wealth distribution, and these effects deviate considerably from those documented in the literature so far. While financial literacy increases the level of wealth holdings across all quantiles, it has substantially higher returns at the lower quantiles of the wealth distribution. This suggests that (a) those who benefit most from additional financial knowledge are individuals at the lower quantiles of wealth and (b) as more individuals become financially literate, overall wealth inequality decreases.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Keywords: financial literacy, life insurance demand, political attitudes, wealth inequality, European panel data.
• Subjects: H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School
• Supervisor's Name: Vagenas-Nanos, Dr. Evangelos and Spaliara, Dr. Marina Eliza
• Date of Award: 2020
• Embargo Date: 12 May 2023
• Depositing User: Dr Christiana Marina Sintou
• Unique ID: glathesis:2020-81356
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 12 May 2020 12:35
• Last Modified: 12 May 2020 12:35
• URI: https://theses.gla.ac.uk/id/eprint/81356