Incentivized Time Preferences, Level of Education in a Household and Financial Literacy: Laboratory Evidence

Calvin Mudzingiri; John W. Muteba Mwamba; Jacobus Nicolaas Keyser

doi:10.22610/jebs.v10i2(J).2220

Author

Calvin Mudzingiri
- University of the Free State - Qwaqwa Campus, Phuthaditjhaba, South Africa
- South Africa
John W. Muteba Mwamba
- School of Economics, University of Johannesburg, South Africa
- South Africa
Jacobus Nicolaas Keyser
- University of the Free State, South Africa
- South Africa

Abstract

This study investigates the impact of financial literacy, level of education in a household and gender differences on time preferences of students at a university in South Africa. The study relies on a convenient sample of (N=85, female=48%) pursuing a financial literacy course. The study uses a questionnaire, a financial literacy test and a simple binary choice experimental game that elicited individual time discount rate to gather data. Ten percent of the participants were paid (in South African rands) for their time preference choices by way of quota random sampling. Female university students’ individual time discount rate was found to be on average higher than that of their male counterparts, indicating that female university students are generally impatient, especially those with low levels of financial literacy. Our results (using a Negative Binomial Regression analysis and Ordinary Least Squares regression analysis) show that time preferences of university students aresignificantly influenced by highest level of education in the household. The OLS regression model shows that financial literacy, measured using financial literacy test, significantly influence time preferences for all subjects. The study concluded that patience levels among male university students increase as financial literacy increases. Gender, income, age and family size significantly influence time preferences of university students. Highest level of education in a household, financial literacy and gender differences have a bearing on individual time preferences.

Keywords

References

Adan, A. & Natale, V. (2002). Gender differences in morningness-eveningness preference. Chronobiology International, 19(4), 709–720. https://doi.org/10.1081/CBI-120005390
Ajzen, I. (2011). The theory of planned behaviour: Reactions and reflections. Psychology & Health, 26(9), 1113–1127. https://doi.org/10.1080/08870446.2011.613995
Alan, S. & Ertac, S. (2015). Patience, self-control and the demand for commitment: Evidence from a large-scale field experiment. Journal of Economic Behavior & Organization, 115, 111–122.
Andersen, S., Harrison, G. W., Lau, M. I. & Rutström, E. E. (2006). Elicitation using multiple price list formats. Experimental Economics,9(4), 383–405.
Andersen, S., Harrison, G. W., Lau, M. I. & Rutström, E. E. (2008). Eliciting risk and time preferences. Econometrica, 76(3), 583–618. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0262.2008.00848.x/abstract
Andreoni, J., Kuhn, M. A. & Sprenger, C. (2015). Measuring time preferences: A comparison of experimental methods. Journal of Economic Behavior & Organization, 116, 451–464. https://doi.org/10.1016/j.jebo.2015.05.018
Andreoni, J. & Sprenger, C. (2012). Estimating Time Prefernces from Convex Budgets. American Economic Review, 102(7), 3333–3356. https://doi.org/10.1257/aer.102.7.3333
Angerer, S., Lergetporer, P., Glätzle-Rützler, D. & Sutter, M. (2015). How to measure time preferences in children: a comparison of two methods. Journal of the Economic Science Association, 1(2), 158–169. https://doi.org/10.1007/s40881-015-0016-0
Argent, J., Finn, A., Leibbrandt, M. & Woolard, I. (2009). Poverty: Analysis of the NIDS Wave 1 dataset. National Income Dynamics Study, NiDS Discussion Paper, (12).
Ariely, D., Loewenstein, G. & Prelec, D. (2003). Coherent arbitrariness: Stable demand curves without stable preferences. The Quarterly Journal of Economics, 118(1), 73–106. Retrieved from http://qje.oxfordjournals.org/content/118/1/73.short
Ariely, D.& Wertenbroch, K. (2002). Procrastination, Deadlines, and Performance: Self-Control by Precommitment. Psychological Science, 13(3), 219–224. Retrieved from http://pss.sagepub.com/content/13/3/219.short4
Ausubel, L. M. (1999). Adverse Selection in the Credit Card Market, (C), 1–52. Retrieved from http://weber.ucsd.edu/~aronatas/conference/adverse.pdf
Bajtelsmit, V. (1999). Gender differences in defined contribution pension decisions. Financial Services Review, 8(1), 1–10. https://doi.org/10.1016/S1057-0810(99)00030-X
Banks, J., o’Dea, C.& Oldfield, Z. (2010). Cognitive Function, Numeracy and Retirement Saving Trajectories. The Economic Journal, 120(548), F381–F410. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2010.02395.x/pdf
Batty, M., Collins, J.& Odders-White, E. (2015). Experimental Evidence on the Effects of Financial Education on Elementary School Students’ Knowledge, Behavior, and Attitudes. Journal of Consumer Affairs, 49(1), 69–96. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/joca.12058/full
Beal, D. J.& Delpachitra, S. B. (2003). Financial Literacy Among Australian University Students.Centre for Australian Financial Institutions (CAFI) at the University of Southern Queensland, 1–15. https://doi.org/10.1111/j.1759-3441.2003.tb00337.x
Becchetti, L., Caiazza, S.& Coviello, D. (2013). Financial education and investment attitudes in high schools: evidence from a randomized experiment. Applied Financial Economics, 23(10), 817–836.
Benjamin, D. J., Brown, S. A.& Shapiro, J. M. (2013). WHO is “behavioral”? Cognitive ability and anomalous preferences. Journal of the European Economic Association, 11(6), 1231–1255. https://doi.org/10.1111/jeea.12055
Benzion, U., Rapoport, A.& Yagil, J. (1989). Discount rates inferred from decisions: An experimental study. Management Science, 35(3), 270–284. Retrieved from http://pubsonline.informs.org/doi/abs/10.1287/mnsc.35.3.270
Bernheim, B. D., Garrett, D. M.& Maki, D. M. (2001). Education and saving:: The long-term effects of high school financial curriculum mandates. Journal of Public Economics, 80(3), 435–465. Retrieved from http://www.sciencedirect.com/science/article/pii/S0047272700001201
Booth, A. L.& Katic, P. (2013). Cognitive Skills, Gender and Risk Preferences. Economic Record, 88(284), 19–30. https://doi.org/10.1111/1475-4932.12014
Capuano, A.& Ramsay, I. (2011). What causes suboptimal financial behaviour? An exploration of financial literacy, social influences and behavioural economics. An Exploration of Financial Literacy, Social Influences and Behavioural Economics (March 23, 2011). U of Melbourne Legal Studies Research Paper, (540). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1793502
Carlin, B. I.& Robinson, D. T. (2010). What Does Financial Literacy Training Teach Us? https://doi.org/http://www.nber.org/papers/w16271.pdf
Castillo, M., Ferraro, P. J., Jordan, J. L.& Petrie, R. (2011). The today and tomorrow of kids: Time preferences and educational outcomes of children. Journal of Public Economics, 95(11), 1377–1385. Retrieved from http://www.sciencedirect.com/science/article/pii/S0047272711001381
Chabris, C. F., Laibson, D., Morris, C. L., Schuldt, J. P.& Taubinsky, D. (2008). Individual laboratory-measured discount rates predict field behavior. Journal of Risk and Uncertainty, 37(2–3), 237–269. Retrieved from http://link.springer.com/article/10.1007/s11166-008-9053-x
Charness, G.& Gneezy, U. (2012). Strong Evidence for Gender Differences in Risk Taking. Journal of Economic Behavior and Organization, 83(1), 50–58. https://doi.org/10.1016/j.jebo.2011.06.007
Charness, G., Gneezy, U.& Imas, A. (2013). Experimental methods: Eliciting risk preferences. Journal of Economic Behavior & Organization, 87, 43–51. Retrieved from http://www.sciencedirect.com/science/article/pii/S016726811200282X
Chen, H.& Volpe, R. P. (1998). An analysis of personal financial literacy among college students. Financial Services Review, 7(2), 107–128. Retrieved from http://www.sciencedirect.com/science/article/pii/S1057081099800067
Croson, R.& Gneezy, U. (2009). Gender Differences in Preferences. Journal of Economic Literature, 47(2), 448–474. https://doi.org/10.1257/jel.47.2.448
Cull, M.& Whitton, D. (2011). University Students’ Financial Literacy Levels: Obstacles and Aids. Economic and Labour Relations Review, 22(1), 99–114. https://doi.org/http://search.informit.com.au/browseJournalTitle;res=IELBUS;issn=1035-3046
DellaVigna, S. (2009). Psychology and Economics: Evidence from the Field. Journal of Economic Literature, 47(2), 315–372. Retrieved from http://www.ingentaconnect.com/content/aea/jel/2009/00000047/00000002/art00001
Eckel, C. C. & Grossman, P. J. (2008). Men, Women and Risk Aversion: Experimental Evidence. Handbook of experimental economics results, McGraw-Hill, New York. https://doi.org/10.1016/S1574-0722(07)00113-8
Epper, T., Fehr-Duda, H.& Bruhin, A. (2009). Uncertainty Breeds Decreasing Impatience : The Role of Risk Preferences in Time Discounting Uncertainty Breeds Decreasing Impatience : The Role of Risk Preferences in Time Discounting. University of Zurich Working Paper, 412(412). https://doi.org/10.2139/ssrn.1416007
Etikan, I. (2016). Comparison of Convenience Sampling and Purposive Sampling. American Journal of Theoretical and Applied Statistics, 5(1), 1. https://doi.org/10.11648/j.ajtas.20160501.11
Frederick, S. (2005). Cognitive Reflection and Decision Making. Journal of Economic Perspectives, 19(4), 25–42. https://doi.org/10.1257/089533005775196732
Frederick, S., Loewenstein, G.& Donoghue, T. O. (2007). Time Discounting and Time Preference : A Critical Review. Journal of Economic Literature, 40(2), 351–401. Retrieved from http://www.jstor.org/stable/2698382
Frederick, S., Loewenstein, G.& O’donoghue, T. (2002). Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature, 40(2), 351–401. https://doi.org/10.1257/jel.40.2.351
Fuchs, V. (1980). Time Preference and Health: An Exploratory Study. https://doi.org/10.3386/w0539
Gallery, N., Newton, C.& Palm, C. (2011). Framework for assessing financial literacy and superannuation investment choice decisions. Australasian Accounting, Business and Finance Journal, 5(2), 3–22. Retrieved from http://search.proquest.com/openview/8e76d19fc343a195363e67d46d82d982/1?pq-origsite=gscholar&cbl=38872
Giné, X., Goldberg, J., Silverman, D.& Yang, D. (2011). Revising Commitments: Time Preference and Time Inconsistency in the Field. Working Paper. Retrieved from http://cega.berkeley.edu/assets/cega_events/17/Revising_Commitments-_Time_Preference_and_Time_Inconsistency_in_the_Field.pdf
Güth, W. (2004). Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice. The Journal of Socio-Economics, 33(4), 519–521. https://doi.org/10.1016/j.socec.2004.04.003
Hilmer, C.E.& Hilmer, M. J. (2014). Practical econometrics. data collection, analysis and application.McGrall-Hill, New York. https://doi.org/9780071318518
Hoch, S. J.& Loewenstein, G. F. (1991). Time-inconsistent preferences and consumer self-control. Journal of Consumer Research, 4, 492–507. Retrieved from http://www.jstor.org/stable/2626842
Huston, S. J. (2010). Measuring financial literacy. Journal of Consumer Affairs, 44(2), 296–316. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01170.x/full
Imrohoroglu, A., Imrohoroglu, S.& Joines, D. H. (2003). Time-Inconsistent Preferences and Social Security. The Quarterly Journal of Economics, 118(2), 745–784. https://doi.org/10.1162/003355303321675509
Kennedy, B. P. (2013). The theory of planned behavior and financial literacy: A predictive model for credit card debt? ProQuest Dissertations and Theses, 84. https://doi.org/Paper 480
Kim, S., Dueker, G. L., Hasher, L.& Goldstein, D. (2002). Children’s time of day preference: Age, gender and ethnic differences. Personality and Individual Differences, 33(7), 1083–1090. https://doi.org/10.1016/S0191-8869(01)00214-8
Kotrlik, J.& Higgins, C. (2001). Organizational research: Determining appropriate sample size in survey research appropriate sample size in survey research. Information Technology, Learning, and Performance Journal, 19(1), 43. https://doi.org/10.1109/LPT.2009.2020494
LaBorde, P. M.& Mottner, S. W. (2013). Personal Financial Literacy: Perceptions of Knowledge, Actual Knowledge and Behavior of College Students. Journal of Financial Education, 39(3/4), 1–30. Retrieved from http://www.jstor.org/stable/23608645
Lawrance, E. (1991). Poverty and the rate of time preference: evidence from panel data. Journal of Political Economy. Retrieved from http://www.journals.uchicago.edu/doi/abs/10.1086/261740
Loewenstein, G., Read, D.& Baumeister, R. F. (2003). Time and Decision: Economic and Psychological Perspectives of Intertemporal Choice. Russell Sage Foundation, New York.
Loewenstein, G.& Thaler, R. H. (1989). Anomalies: intertemporal choice. The Journal of Economic Perspectives, 3(4), 181–193. Retrieved from http://www.jstor.org/stable/1942918
Lusardi, A.& Mitchell, O. S. (2005). Financial literacy and planning: Implications for retirement wellbeing. Michigan Retirement Research Center Research Paper No. WP, 108. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=881847
Lusardi, A.& Mitchell, O. S. (2011). Financial literacy around the world: an overview. Journal of Pension Economics and Finance, 10(4), 497–508. Retrieved from http://journals.cambridge.org/abstract_S1474747211000448
Lusardi, A., Mitchell, O. S.& Curto, V. (2010). Financial literacy among the young. Journal of Consumer Affairs, 44(2), 358–380. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01173.x/full
Mandell, L. (2008). Financial education in high school. Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, 257–279. Retrieved from http://books.google.co.za/books?hl=en&lr=&id=1M3RUvoG6l4C&oi=fnd&pg=PA257&dq=Financial+literacy,+Boyce,+Danes+(2004)+&ots=v4D1OObhXV&sig=G-2wRq_GrPZba9ZA44yagKMp7oY
Mandell, L.& Klein, L. S. (2009). The Impact of Financial Literacy Education on Subsequent Financial Behavior. Journal of Financial Counseling & Planning, 20(1), 15–24. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=43915999&site=ehost-live
Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). The principal–agent problem,”. Microeconomic Theory, 447–510. Oxford University Press, Oxford.
Meier, S.& Sprenger, C. D. (2013). Discounting financial literacy: Time preferences and participation in financial education programs. Journal of Economic Behavior & Organization, 95, 159–174. Retrieved from http://www.sciencedirect.com/science/article/pii/S0167268112000625
Mitchell, O. S. (2009). Financial Literacy Among the Young.Journal of Consumer Affairs, 44(2), 358–380. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2010.01173.x/full
Németh, K. H. D. B. (2014). An Empirical Study of Financial Literacy versus Risk Tolerance Among Higher Education Students. Public Finance Quarterly,4, 445. Retrieved from http://www.asz.hu/public-finance-quarterly-articles/2014/an-empirical-study-of-financial-literacy-versus-risk-tolerance-among-higher-education-students/a-huzdik-beres-nemeth-2014-4.pdf
Norum, P. (2008). The role of time preference and credit card usage in compulsive buying behaviour. International Journal of Consumer Studies, 32(3), 269–275. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1470-6431.2008.00678.x/full
Oanea, D. C.& Dornean, A. (2012). Defining and Measuring Financial Literacy. New Evidence from Romanian’ Students of the Master in Finance. Annals of the Alexandru Ioan Cuza University - Economics, 59(2), 113–129. https://doi.org/10.2478/v10316-012-0036-3
Parker, A. M.& Fischhoff, B. (2005). Decision-making competence: External validation through an individual-differences approach. Journal of Behavioral Decision Making, 18(1), 1–27. https://doi.org/10.1002/bdm.481
Powell, M.& Ansic, D. (1997). Gender differences in risk behaviour in financial decision making, an experiment analysis. Journal of Economic Psychology, 18(6), 605-628. https://doi.org/10.1016/S0167-4870(97)00026-3
Rabin, M. (2002). A perspective on psychology and economics. European Economic Review, 46(4), 657–685. Retrieved from http://www.sciencedirect.com/science/article/pii/S0014292101002070
Rae, J.& Mixter, C. W. (1905). The sociological theory of capital. Macmillan Company.
Sabri, M. F., MacDonald, M., Hira, T. K.& Masud, J. (2010). Childhood Consumer Experience and the Financial Literacy of College Students in Malaysia. Family & Consumer Sciences Research Journal, 38(4), 455–467. https://doi.org/10.1111/j.1552-3934.2010.00038.x
Sayinzoga, A., Bulte, E. H.& Lensink, R. (2016). Financial Literacy and Financial Behaviour: Experimental Evidence from Rural Rwanda. Economic Journal, 126(594), 1571–1599. https://doi.org/10.1111/ecoj.12217
Schagen, S.& Lines, A. (1996). Financial literacy in adult life: a report to the Natwest Group Charitable Trust. NFER. Retrieved from https://www.nfer.ac.uk/publications/91091/91091.pdf
Shambare, R.& Rugimbana, R. (2012). Financial Literacy Among the Educated : An Exploratory Study of Selected University Students in South Africa By. Feature Article, 4425(4), 581–590. https://doi.org/10.1002/tie
Smith, C.& Barboza, G. (2014). The Role of Trans-Generational Financial Knowledge and Self-Reported Financial Literacy on Borrowing Practices and Debt Accumulation of College Students. Journal of Personal Finance, 13(2), 28. Retrieved from http://search.proquest.com/openview/5c7378f8f8e46cd7d823ba9e979975aa/1?pq-origsite=gscholar
Tang, N.& Peter, P. C. (2015). Financial knowledge acquisition among the young: The role of financial education, financial experience, and parents’ financial experience. Financial Services Review, 24(2), 119. Retrieved from http://search.proquest.com/openview/ba4d2750e5e4c38a618e0fa26ece9a1a/1?pq-origsite=gscholar
Van der Pol, M. (2011). Health, education and time preference. Health Economics, 20(8), 917–929. https://doi.org/http://dx.doi.org/10.1002/hec.1655
Wagland, S. P.& Taylor, S. (2009). When it comes to financial literacy, is gender really an issue? Australasian Accounting, Business and Finance Journal, 3(1), 3. Retrieved from http://ro.uow.edu.au/aabfj/vol3/iss1/3/

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Mudzingiri, C., Mwamba, J. W. M., & Keyser, J. N. (2018). Incentivized Time Preferences, Level of Education in a Household and Financial Literacy: Laboratory Evidence. Journal of Economics and Behavioral Studies, 10(2(J), 103-119. https://doi.org/10.22610/jebs.v10i2(J).2220

Share this article

License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Incentivized Time Preferences, Level of Education in a Household and Financial Literacy: Laboratory Evidence

Download the full text

Author

Abstract

Keywords

References

Downloads

How to Cite

Share this article

License

Keywords

Section

Published in

Published

Submissions