Effects of Higher Education on the Unconditional Distribution of Financial Literacy

Abstract

In this paper, the effect of the higher-education ratio on the distribution of financial literacy in Taiwan is investigated with the unconditional quantile estimation suggested by Firpo et al. (2009). Our empirical data are obtained from three surveys conducted in 2007, 2009, and 2011 by the Financial Supervisory Commision, R.O.C. Using the method of factor analysis suggested by van Rooij et al. (2011), the financial literacy is measured from 18 questionnaires regarding the knowledge of management of cash, savings, credit, and loans. In total, 3,155 individuals were surveyed, namely, 1,005 in 2007, 919 in 2009, and 1,231 in 2011. Our empirical results conclude that an increase in higher education not only increases the acquisition of financial literacy (which is more significant at quantiles smaller than 0.52), but also reduces the dispersion of the financial literacy distribution. This conclusion provides evidence in support of the policy of higher education expansion. Given the positive effect of financial literacy on capital income and retirement plans, the level of financial literacy will be increased and its dispersion will be decreased with the expansion of higher education, so that income inequality as a result will be reduced.