Skip to main content
SpringerLink
Log in

The Arrested Deployment Model of Financial Literacy

  • Chapter
  • First Online:
Psychological Perspectives on Financial Decision Making

Abstract

Findings concerning the circumstances in which financial literacy training is effective seem inconsistent. This chapter aims at bringing order to this vexing situation. Its central thesis is that people’s aptitude to deploy their financial literacy relies on their ability to use cognitive and mental resources. This depends on various factors, some endogenous (i.e., personality and cognitive traits such as intelligence and quality of self-control and executive functions) and some external. Among the external ones, we examine economic circumstances and the features of the financial task itself. Predictions from the model include that certain financial tasks, which are relatively simple and deliver prompt results, benefit from financial literacy training, whereas others, with less clear payoffs and only in a distant future, do not. People in straightened economic circumstances who experience scarcity have fewer resources and do not deploy what financial insights they acquired. Our predictions were all borne out by a study on an extensive program of financial training.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 139.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 179.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 179.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Ando, A., & Modigliani, F. (1963). The “life cycle” hypothesis of saving: Aggregate implications and tests. The American Economic Review, 53(1), 55–84.

    Google Scholar 

  • Atkinson, A., McKay, S., Collard, S., & Kempson, E. (2007). Levels of financial capability in the UK. Public Money and Management, 27(1), 29–36.

    Google Scholar 

  • Atkinson, A., & Messy, F. A. (2012). Measuring financial literacy: Results of the OECD/International Network on Financial Education (INFE) pilot study.

    Google Scholar 

  • Baumeister, R. F. (2002). Yielding to temptation: Self-control failure, impulsive purchasing, and consumer behavior. Journal of Consumer Research, 28(4), 670–676.

    Article  Google Scholar 

  • Carmel, E. (2018). Towards a dual process conception of the selective influence of financial literacy on economic behavior. Doctoral dissertation, Ben-Gurion University of the Negev, Beer Sheva, Israel.

    Google Scholar 

  • Chaiken, S., & Trope, Y. (1999). Dual-process theories in social psychology. New York, NY: Guilford Press.

    Google Scholar 

  • Chakravarti, D. (2006). Voices unheard: the psychology of consumption in poverty and development. Journal of Consumer Psychology, 16(4), 363–376.

    Google Scholar 

  • Clark, R. L., Morrill, M. S., & Allen, S. G. (2012). The role of financial literacy in determining retirement plans. Economic Inquiry, 50(4), 851–866.

    Article  Google Scholar 

  • Cole, S. A., & Shastry, G. K. (2009). Smart money: The effect of education, cognitive ability, and financial literacy on financial market participation. Boston, MA: Harvard Business School.

    Google Scholar 

  • De Meza, D., Irlenbusch, B., & Reyniers, D. (2008). Financial capability: A behavioural economics perspective. London, UK: Financial Services Authority.

    Google Scholar 

  • Drexler, A., Fischer, G., & Schoar, A. (2014). Keeping it simple: Financial literacy and rules of thumb. American Economic Journal: Applied Economics, 6(2), 1–31.

    Google Scholar 

  • Ericson, K. M. (2017). On the interaction of memory and procrastination: Implications for reminders, deadlines, and empirical estimation. Journal of the European Economic Association, 15(3), 692–719.

    Google Scholar 

  • Evans, J. S. B., Handley, S. J., & Bacon, A. M. (2009). Reasoning under time pressure: A study of causal conditional inference. Experimental Psychology, 56(2), 77.

    Article  PubMed  Google Scholar 

  • Fernandes, D., Lynch, J. G., Jr., & Netemeyer, R. G. (2014). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861–1883.

    Article  Google Scholar 

  • Finucane, M. L., Alhakami, A., Slovic, P., & Johnson, S. M. (2000). The affect heuristic in judgments of risks and benefits. Journal of Behavioral Decision Making, 13(1), 1.

    Article  Google Scholar 

  • Galai, D., & Sade, O. (2006). The “ostrich effect” and the relationship between the liquidity and the yields of financial assets. The Journal of Business, 79(5), 2741–2759.

    Article  Google Scholar 

  • Gollwitzer, P. M. (1999). Implementation intentions: Strong effects of simple plans. American Psychologist, 54(7), 493.

    Article  Google Scholar 

  • Haushofer, J., & Fehr, E. (2014). On the psychology of poverty. Science, 344(6186), 862–867.

    Google Scholar 

  • Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection between knowledge and behavior. Federal Reserve Bulletin, 89, 309.

    Google Scholar 

  • Huston, S. J. (2010). Measuring financial literacy. Journal of Consumer Affairs, 44(2), 296–316.

    Article  Google Scholar 

  • Kahneman, D. (2011). Thinking, fast and slow. New York, NY: Macmillan.

    Google Scholar 

  • Kaiser, T., & Menkhoff, L. (2017). Does financial education impact financial literacy and financial behavior, and if so, when? Washington, DC: The World Bank.

    Book  Google Scholar 

  • Karlan, D., McConnell, M., Mullainathan, S., & Zinman, J. (2016). Getting to the top of mind: How reminders increase saving. Management Science, 62(12), 3393–3411.

    Google Scholar 

  • Karlsson, N., Loewenstein, G., & Seppi, D. (2009). The ostrich effect: Selective attention to information. Journal of Risk and Uncertainty, 38(2), 95–115.

    Article  Google Scholar 

  • Leiser, D., & Shemesh, Y. (2018). How we misunderstand economics and why it matters: The psychology of bias, distortion and conspiracy. London, UK: Routledge.

    Book  Google Scholar 

  • Loewenstein, G., & Prelec, D. (1992). Anomalies in intertemporal choice: Evidence and an interpretation. The Quarterly Journal of Economics, 107(2), 573–597.

    Google Scholar 

  • Loibl, C. (2017). Living in poverty: Understanding the financial behaviour of vulnerable groups. Economic Psychology, 421–434.

    Google Scholar 

  • Lusardi, A., & Mitchell, O. (2007b). Financial literacy and retirement preparedness: Evidence and implications for financial education. Business Economics, 42(1), 35–44.

    Article  Google Scholar 

  • Lusardi, A., & Mitchell, O. S. (2007a). Baby boomer retirement security: The roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics, 54(1), 205–224.

    Article  Google Scholar 

  • Mani, A., Mullainathan, S., Shafir, E., & Zhao, J. (2013). Poverty impedes cognitive function. Science (New York, N.Y.), 341(6149), 976–980.

    Google Scholar 

  • Miller, M., Reichelstein, J., Salas, C., & Zia, B. (2015). Can you help someone become financially capable? A meta-analysis of the literature. The World Bank Research Observer, 30(2), 220–246.

    Article  Google Scholar 

  • Modigliani, F., & Brumberg, R. (1954). Utility analysis and the consumption function: An interpretation of cross-section data. Franco Modigliani, 1, 388–436.

    Google Scholar 

  • Mullainathan, S., & Shafir, E. (2013). Scarcity: Why having too little means so much Macmillan.

    Google Scholar 

  • Rabinovich, A., & Webley, P. (2007). Filling the gap between planning and doing: Psychological factors involved in the successful implementation of saving intention. Journal of Economic Psychology, 28(4), 444–461.

    Article  Google Scholar 

  • Rha, J., Montalto, C. P., & Hanna, S. D. (2006). The effect of self-control mechanisms on household saving behavior. Financial Counseling and Planning, 17(2), 3–16.

    Google Scholar 

  • Rosen, M. H., & Sade, O. (2017). Does financial regulation unintentionally ignore less privileged populations? Bank of israel research department. Jerusalem: Israel.

    Google Scholar 

  • Schmeichel, B. J., Vohs, K. D., & Baumeister, R. F. (2003). Intellectual performance and ego depletion: Role of the self in logical reasoning and other information processing. Journal of Personality and Social Psychology, 85(1), 33.

    Article  PubMed  Google Scholar 

  • Shah, A. K., Mullainathan, S., &Shafir, E. (2012). Some consequences of having too little. Science, 338(6107), 682–685.

    Google Scholar 

  • Shalvi, S., Eldar, O., & Bereby-Meyer, Y. (2012). Honesty requires time (and lack of justifications). Psychological Science, 23(10), 1264–1270.

    Article  PubMed  Google Scholar 

  • Shapiro, G. K., & Burchell, B. J. (2012). Measuring financial anxiety. Journal of Neuroscience, Psychology, and Economics, 5(2), 92.

    Article  Google Scholar 

  • Shefrin, H. M., & Thaler, R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, 26(4), 609–643.

    Article  Google Scholar 

  • Shefrin, H. M., & Thaler, R. H. (2004). Mental accounting, saving, and self-control. Advances in Behavioral Economics, 395–428.

    Google Scholar 

  • Sherraden, M. S. (2013). Building blocks of financial capability. In J. Birkenmaier, J. Curley, & M. S. Sherraden (Eds.), Financial education and capability: Research, education, policy, and practice (pp. 3–44). Oxford, UK: Oxford University Press.

    Chapter  Google Scholar 

  • Sherraden, M. S., & Ansong, D. (2016). Financial literacy to financial capability: Building financial stability and security. In C. Aprea, E. Wuttke, K. Breuer, N. K. Koh, P. Davies, B. Greimel-Fuhrmann, & J. S. Lopus (Eds.), International handbook of financial literacy (pp. 83–96). Singapore, Singapore: Springer.

    Chapter  Google Scholar 

  • Simon, H. A. (1972). Theories of bounded rationality. Decision and Organization, 1(1), 161–176.

    Google Scholar 

  • Stanovich, K. E., & West, R. F. (2000). Individual differences in reasoning: Implications for the rationality debate? Behavioral and Brain Sciences, 23(5), 645–665.

    Article  PubMed  Google Scholar 

  • Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199–214.

    Article  Google Scholar 

  • Thaler, R., & Sunstein, C. (2008). Nudge: Improving decisions about health, wealth, and happiness. New Haven, CT: Yale University Press.

    Google Scholar 

  • Thaler, R. H., & Shefrin, H. M. (1981). An economic theory of self-control. Journal of Political Economy, 89(2), 392–406.

    Article  Google Scholar 

  • Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science (New York, N.Y.), 185(4157), 1124–1131.

    Article  PubMed  Google Scholar 

  • Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science (New York, N.Y.), 211(4481), 453–458.

    Article  PubMed  Google Scholar 

  • Van Raaij, W. F. (2016). Understanding consumer financial behavior: Money management in an age of financial illiteracy. New York, NY: Springer.

    Google Scholar 

  • Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449–472.

    Google Scholar 

  • Vohs, K. D. (2013). Psychology. The poor’s poor mental power. Science (New York, N.Y.), 341(6149), 969–970.

    Google Scholar 

  • Webb, T. L., Chang, B. P., & Benn, Y. (2013). ‘The ostrich problem’: Motivated avoidance or rejection of information about goal progress. Social and Personality Psychology Compass, 7(11), 794–807.

    Google Scholar 

  • Willis, L. E. (2008). Against financial literacy education. Iowa Law Review, 94, 08–10.

    Google Scholar 

  • Willis, L. E. (2011). The financial education fallacy. The American Economic Review, 101(3), 429–434.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Center for Pensions, Insurance and Financial Literacy, Ben Gurion University of the Negev, Beersheba, Israel

    Eyal Carmel, David Leiser & Avia Spivak

Authors
  1. Eyal Carmel
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. David Leiser
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Avia Spivak
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to David Leiser .

Editor information

Editors and Affiliations

  1. Center for Research in Economic Behavior, SWPS University of Social Sciences and Humanities, Wroclaw, Poland

    Tomasz Zaleskiewicz

  2. Center for Research on Improving Decision Making, SWPS University of Social Sciences and Humanities, Wroclaw, Poland

    Jakub Traczyk

Rights and permissions

Reprints and permissions

Copyright information

© 2020 Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Carmel, E., Leiser, D., Spivak, A. (2020). The Arrested Deployment Model of Financial Literacy. In: Zaleskiewicz, T., Traczyk, J. (eds) Psychological Perspectives on Financial Decision Making. Springer, Cham. https://doi.org/10.1007/978-3-030-45500-2_5

Download citation

Publish with us

Policies and ethics

Search

Navigation