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2018 Documento de Trabajo #343

Financial Education, Disclosure Policy and Credit Market Outcomes

We study the interaction between the policy of mandatory disclosure of annual percentage rate (APR) and the level of financial education of the borrowers. We use a detailed measure of financial education based on the economic content covered in the higher education programs enrolled by the borrowers. We combine our individual-level data of financial literacy with data on the universe of loans in Chile. We estimate difference-in-differences regressions to study the impact of the policy on interest rates, loan amounts and loan term of the financially educated consumer relative to uneducated consumers. Our findings suggest that the disclosure policy triggered a sizable gap in interest rates between the financially educated and uneducated of 90 basis points, that is about 5 percent of the average interest rate of the population.

JEL codes: D12 D14 D18 K2.

Ana Maria Montoya
Carlos Noton
Alex Solis

Keywords: Financial education financial literacy credit market information regulation disclosure policy.