Don't Let Them Fool You: Adolescents' Present-orientation and Inferior Financial Understanding

In the last 20 years, adolescents have gradually become very important clients for the banking industry. The current study investigates, using data collected in a survey, whether adolescents offered two options for investing in a saving certificate choose the financially preferable one and whether this choice is related to their time preference, after controlling for gender and bank account ownership. The participants were 270 adolescents from public high schools in Israel. The findings indicate that approximately 40 per cent made the inferior financial decision. However, those with a bank account were less likely to decide poorly, possibly indicating that having an account reduces financial illiteracy. Moreover, selecting the financially inferior choice correlates with a higher subjective discount rate (higher present-orientation). A gender effect is also found; girls have higher subjective discount rates, and this effect is stronger for girls with a bank account. Policy implications regarding financial education programmes are discussed.