Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico
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NBER Working Paper No. 14538
Issued in December 2008
NBER Program(s): AG IO PE
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We use responses to a survey and experiment with participants in Mexico's privatized social security system to examine how financial literacy impacts workers' choice behavior and how simplifying information on management fees may increase measures of price elasticity sensitivity among the financially illiterate. We find that by presenting fees in pesos instead of annual percentage rates, financially illiterate workers focus much more on fees when choosing between investment funds, selecting funds with lower average fees in hypothetical choice settings. Even though changes in information have small impacts on fees of the selected fund, holding fees constant, we show that changes in choice behavior imply a substantial increase in price sensitivity. Hence, the way in which information is presented to workers can have a substantial impact on optimal fees that firms can charge in the marketplace.
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