Education and financial literacy: Evidence from compulsory schooling law in China

In this paper, we explore whether educational attainment affects financial literacy. Exploiting the exogenous variation in the implementation of the Compulsory Schooling Law in China, we estimate the causal effects of education on financial knowledge acquisition and explore the potential mechanisms. Using urban household data from the 2018 China Family Panel Studies, we find that educational attainment is associated with higher levels of financial literacy, and this relationship is likely causal. Further analysis reveals that math skills and sociability are two factors underlying the education-financial literacy nexus. Moreover, the positive effects of education on financial literacy are robust to several robustness checks, such as placebo tests, alternative measures of financial literacy, and sample restrictions. Finally, we show that educational attainment significantly improves basic literacy but exerts a trivial effect on advanced financial literacy. Our findings shed lights on how to improve financial literacy among a broad population.