Munich Personal RePEc Archive

Financial Literacy and Savings Account Returns

Deuflhard, Florian and Georgarakos, Dimitris and Inderst, Roman (2014): Financial Literacy and Savings Account Returns.

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Abstract

Savings accounts are owned by most households, but little is known about the performance of households’ investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.

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