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The blind leading the blind: social interactions in financial decision-making
Financial literacy around the world is very low. As an effort to increase financial literacy, financial education has been introduced as part of school curriculum and staff training programmes.
It has been shown that financial education has spillover effects beyond those who directly participate in the training programme (Duflo and Saez, 2003). However, it is not clear exactly how and through which channels financial education is transferred and to what extent communication and social interactions affect the financial knowledge.
The aim of this paper is to examine the extent to which social interactions (via face-to-face communication) affect the effectiveness of a financial education programme.
Specifically, we investigate whether social interactions make people more likely to ‘blindly’ copy the behaviours of others (regardless of their own preferences and/or private information) or whether social interactions enable people to learn from each other (conceptual learning) when the decision task requires cognitive effort (in this case, calculating compound interest rate).
The findings from this study will help us to identify the social channels underlying financial knowledge transfers and will help us design more effective financial education interventions.