How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors

Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement well-being would do well to consider the importance of these factors.

No Child Left Behind: Estimating the Impact on Choices and Student Outcomes

Several recent education reform measures, including the federal No Child Left Behind Act (NCLB), couple school choice with accountability measures to allow parents of children in under-performing schools the opportunity to choose higher-performing schools. We use the introduction of NCLB in the Charlotte-Mecklenburg School District to determine if the choice component had an impact on the schools parents chose and if those changed choices led to academic gains. We find that 16% of parents responded to NCLB notification by choosing schools that had on average 1 standard deviation higher average test scores than their current NCLB school. We then use the lottery assignment of students to chosen schools to test if changed choices led to improved academic outcomes. On average, lottery winners experience a significant decline in suspension rates relative to lottery losers. We also find that students winning lotteries to attend substantially better (above-median) schools experience significant gains in test scores. Because proximity to high-scoring schools drives both the probability of choosing an alternative school and the average test score at the school chosen, our results suggest that the availability of proximate and high-scoring schools is an important factor in determining the degree to which school choice and accountability programs can succeed at increasing choice and immediate academic outcomes for students at under-performing schools.

Information, School Choice, and Academic Achievement: Evidence from Two Experiments

We analyze two experiments that provided direct information on school test scores to lower-income families in a public school choice plan. We find that receiving information significantly increases the fraction of parents choosing higher-performing schools. Parents with high-scoring alternatives nearby were more likely to choose non-guaranteed schools with higher test scores. Using random variation from each experiment, we find evidence that attending a higher-scoring school increases student test scores. The results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and have good options to choose from.

Revisiting the Income Effect: Gasoline Prices and Grocery Purchases

This paper examines the importance of income effects in purchase decisions for every-day products by analyzing the effect of gasoline prices on grocery expenditures. Using detailed scanner data from a large grocery chain as well as data from the Consumer Expenditure Survey (CES), we show that consumers re-allocate their expenditures across and within food-consumption categories in order to offset necessary increases in gasoline expenditures when gasoline prices rise. We show that gasoline expenditures rise one-for-one with gasoline prices, consumers substitute away from food-away-from-home and towards groceries in order to partially offset their increased expenditures on gasoline, and that within grocery category, consumers substitute away from regular shelf-price products and towards promotional items in order to save money on overall grocery expenditures. On average, consumers are able to decrease the net price paid per grocery item by 5-11% in response to a 100% increase in gasoline prices. Our results show that consumers respond to permanent changes in income from gasoline prices by substituting towards lower-cost food at the grocery store and lower priced items within grocery category. The substitution away from full-priced items towards sale items has implications for microeconomic discrete-choice demand models as well as for macroeconomic inflation measures that typically do not incorporate frequently changing promotional prices.

Preferences, Information, and Parental Choice Behavior in Public School Choice

The incentives and outcomes generated by public school choice depend to a large degree on parents' choice behavior. There is growing empirical evidence that low-income parents place lower weights on academics when choosing schools, but there is little evidence as to why. We use a field experiment in the Charlotte-Mecklenburg Public School district (CMS) to examine the degree to which information costs impact parental choices and their revealed preferences for academic achievement. We provided simplified information sheets on school average test scores or test scores coupled with estimated odds of admission to students in randomly selected schools along with their CMS school choice forms. We find that receiving simplified information leads to a significant increase in the average test score of the school chosen. This increase is equivalent to a doubling in the implicit preference for academic performance in a random utility model of school choice. Receiving information on odds of admission further increases the effect of simplified test score information on preferences for test scores among low-income families, but dampens the effect among higher-income families. Using within-family changes in choice behavior, we provide evidence that the estimated impact of simplified information is more consistent with lowered information costs than with suggestion or saliency.

Preferences and Heterogeneous Treatment Effects in a Public School Choice Lottery

This paper combines a model of parental school choice with randomized school lotteries in order to understand the effects of being assigned to a first-choice school on academic outcomes. We outline a simple framework in which those who place the highest weight on academics when choosing a school benefit the most academically when admitted. Although the average student does not improve academically when winning a school lottery, this average impact conceals a range of impacts for identifiable subgroups of students. Children of parents whose choices revealed a strong preference for academic quality experienced significant gains in test scores as a result of attending their chosen school, while children whose parents weighted academic characteristics less heavily experienced academic losses. This differential effect is largest for children of parents who forfeit the most in terms of utility gains from proximity and racial match to choose a school with stronger academics. Depending on one's own race and neighborhood, a preference for academic quality can either conflict with or be reinforced by other objectives, such as a desire for proximity and same-race peers.

Parental Preferences and School Competition: Evidence from a Public School Choice Program

This paper uses data from the implementation of a district-wide public school choice plan in Mecklenburg County, North Carolina to estimate preferences for school characteristics and examine their implications for the local educational market. We use parental rankings of their top three choices of schools matched with student demographic and test score data to estimate a mixed-logit discrete choice demand model for schools. We find that parents value proximity highly and the preference attached to a school's mean test score increases with student's income and own academic ability. We also find considerable heterogeneity in preferences even after controlling for income, academic achievement and race, with strong negative correlations between preferences for academics and school proximity. Simulations of parental responses to test score improvements at a school suggest that the demand response at high-performing schools would be larger than the response at low-performing schools, leading to disparate demand-side pressure to improve performance under school choice.

How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors

Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement wellbeing would do well to consider the importance of both factors

The Effect of Randomized School Admissions on Voter Participation

There is little causal evidence on the effect of economic and policy outcomes on voting behavior. This paper uses randomized outcomes from a school choice lottery to examine if lottery outcomes affect voting behavior in a school board election. We show that losing the lottery has no significant impact on overall voting behavior; however, among white families, those with above median income and prior voting history, lottery losers were significantly more likely to vote than lottery winners. Using propensity score methods, we compare the voting of lottery participants to similar families who did not participate in the lottery. We find that losing the school choice lottery caused an increase in voter turnout among whites, while winning the lottery had no effect relative to non-participants. Overall, our empirical results lend support to models of expressive and retrospective voting, where likely voters are motivated to vote by past negative policy outcomes.

Fees, Framing, and Financial Literacy in the Choice of Pension Manager

A growing literature shows how consumers make mistakes in a variety of different settings pertinent to financial decision-making. Using data from a randomized experiment in Chile, we show how different ways of presenting pension management fees shape consumer choices, and how responses to pension fee information varies by level of financial literacy. Our results indicate that, in choosing pension funds, those with lower levels of education, income, and financial literacy rely more on employers, friends, and coworkers, than on fundamentals. We also find that such individuals are more responsive to information framing when interpreting the relative benefits of different investment choices