Unpacking the causal chain of financial literacy

A growing body of literature examines the causal impact of financial literacy on individual, household, and firm level outcomes. This paper unpacks the mechanism of impact by focusing on the first link in the causal chain. Specifically, it studies the experimental impact of financial literacy on three distinct dimensions of financial knowledge. The analysis finds that financial literacy does not immediately enable individuals to discern costs and rewards that require high numeracy skills, but it does significantly improve basic awareness of financial choices and attitudes toward financial decisions. Monetary incentives do not induce better performance, suggesting cognitive constraints rather than lack of attention are a key barrier to improving financial knowledge. These results illuminate the strengths and limitations of financial literacy training, which can inform the design and anticipated effects of such programs.Financial Literacy,Education For All,Access&Equity in Basic Education,Access to Finance,Primary Education

The Effects of COVID-19 Policies on Consumer Spending in Norway

This paper examines the effect of COVID-19 policies on consumer spending using bank card transaction data from Norway. Taking advantage of variation in COVID-19 policies over time and across space in the four largest municipalities in the country, we investigate the heterogeneity of effects of policies in their number and type. First, we document that the number of restrictions is negatively correlated with spending and exhibits decreasing marginal effects. Second, restrictions do not affect all types of spending equally: restrictions tend to have larger impacts on the sector in which it is targeted. Finally, we find evidence from a difference-in-differences estimation that supports a causal interpretation of our results

Liability Structure in Small-Scale Finance: Evidence from a Natural Experiment

Microfinance, the provision of small individual and business loans, has witnessed dramatic growth, reaching over 150 million borrowers worldwide. Much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending. Yet, very little is known about the optimal contract structure of such loans―there is substantial variation across lenders, even within a particular setting. This paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in India, which shifted from individual to group liability lending. We find evidence that the lending model matters: for the same borrower, required monthly loan installments are 11 percent less likely to be missed under the group liability setting, relative to individual liability. In addition, compulsory savings deposits are 20 percent less likely to be missed under group liability contracts

How Do Droughts Impact Household Food Consumption and Nutritional Intake? A Study of Rural India

This paper investigates the impacts of droughts on food expenditure and macronutrient consumption among rural Indian households. To isolate causal effects, I exploit random year-to-year variation in a dry shock, defined as the absolute deviation of rainfall below its long-run mean. I find that the dry shock has a statistically significant and negative effect on household nutrition. For a median dry shock, I esti- mate that households spend 1 percent less per capita per month on food and consume up to 1.4 percent fewer calories, protein, and fat. Disaggregating the effects by food group, I demonstrate that household diets become less balanced as a result of droughts: the dry shock leads households to rely primarily on cereals and to purchase less vegetables, fruits, pulses, and animal-sourced foods. Hence, droughts neg- atively impact not only the quantity but also the quality of rural household diets. Finally, I explore the potential channels for these effects. I argue that rather than higher food prices, a decline in household market and non-market income is the primary reason for lower household food consumption and nutri- tion during droughts. Taken together, these findings suggest that attaining food security amid extreme weather conditions requires an integrated approach that focuses on food not only for survival but also for leading a healthy and active life

Essays on Development Economics

This dissertation is a collection of empirical essays on three critical microeconomic development issues in India---energy, financial education, and food security---spanning households in both rural and urban settings.In the first chapter, I examine the adverse consequences rural electrification. Electrification programs have increasingly attracted worldwide interest as a policy tool to boost economic growth and transform the lives of the poor. While some studies have shown that electricity provision brings positive impacts by, among others, increasing employment and improving health outcomes, the potential negative effects of electricity provision remain unclear. This chapter argues that electrification unfavorably affects consumers that do not adopt electricity despite its availability. I use a quasi-experimental setting provided by India's national rural electrification program to study the effects of electricity provision on the kerosene markets. I show that when electricity becomes available, the price of kerosene---a substitute good for lighting---increases by 5-10%. This price increase subsequently hurts consumers who do not take up electricity and continue to use kerosene. I present a model that explains why kerosene prices might increase, and I show that the decline in the kerosene market size is a potential channel through which electrification resulted in higher prices of kerosene.The second chapter considers urban India and household financial well-being. This chapter, co-authored with Shawn Cole, Jeremy Shapiro, and Bilal Zia, employs a large-scale field experiment to study the attitudinal, behavioral, and cognitive constraints that may stymie the link between financial education and financial outcomes. Our research design combines financial education with (1) monetary incentives for correct answers to a financial knowledge test; (2) financial goal setting; and (3) personalized financial counseling. We find no effects of cash incentives on participants' financial knowledge, but significant effects of both goal setting and counseling on real financial outcomes. In particular, combining goal setting with financial education encouraged relatively simple follow-up actions such as writing a budget or starting informal savings. Counseling, in turn, enabled the poor to undertake costlier or more difficult financial activities, including opening a formal bank savings account. Together, these findings identify important complements to financial education that may successfully bridge the gap between financial knowledge and behavior change. Finally, in the third chapter, I investigate the impact of dry rainfall shocks on food security among rural Indian households. Although a large literature has established that droughts lead to a significant decline in agricultural yields, much less is known about its effects on household nutrition. On the one hand, low levels of precipitation may reduce household food consumption, for instance, due to higher prices or lower income. But on the other hand, such harmful effects may not materialize because trade, food storage, or household savings may offset the impacts of low precipitation. My findings show that a dry rainfall shock negatively impacts households' diet quantity and quality considerably. These negative impacts are evident not only in households' aggregate expenditure, caloric, protein, and fat intake, but likewise when disaggregated across different types of food. Additionally, I find no statistically significant effect of a dry shock on prices. These results therefore suggest that prices may be unresponsive to precipitation in India, so that the negative impacts of drought on food consumption and nutrition more likely come through income rather than prices

Entertainment-Education for Better Health: Insights from a Field Experiment in India

Entertainment-education has been touted as a potent delivery channel for health education campaigns. Yet, there is little evidence of its causal effects. This paper aims to fill the gap in the literature by using a field experiment in India to study two questions on the efficacy of health entertainment-education. First, can health entertainment-education, particularly through films that show role models and draw on emotions, lead to lasting, positive change in health knowledge and behavior? Second, can financial incentives for ex-post health literacy boost the effectiveness of health entertainment-education? The results show that health entertainment-education successfully increased health knowledge (e.g. knowledge about cleanliness and hygiene) by 16 percent. These gains persist almost one year later, although there were no observed impacts on health behaviors. Further, financial incentives do not appear to have any effects. These insights contribute to our knowledge of what works for health education in low-income settings, so that future education campaigns can be crafted with more meaningful impact.</p