Financial literacy and self‐employment

Preston, A. and Wright, R. E. (2023) Financial literacy and self‐employment. Economic Papers, (doi: 10.1111/1759-3441.12395) (Early Online Publication)

Abstract

This article uses individual-level data collected in the Household, Income and Labour Dynamics in Australia (HILDA) survey in 2016 to econometrically explore the direction of causation between financial literacy and self-employment. The empirical approach is based on applying instrumental variables (IV) analysis in a three-outcome labour supply model (i.e. self-employment, employee employment and non-employment) that controls for selection into employment. In keeping with a small number of studies, the analysis suggests that there is a positive relationship between financial literacy and self-employment. The analysis also suggests that the likely causal direction is from financial literacy to self-employment. However, this is also found for employee employment. Therefore, policies aimed at increasing financial literacy will likely not only increase self-employment but also employee employment. This suggests that financial literacy may be a form of “general human capital,” such as education, work experience or training. However, the impact of financial literacy on self-employment is not larger (more positive) for self-employment compared to employee employment. Clearly much more research is needed to understand the numerous relationships between financial literacy and other labour market outcomes.

• Item Type: Articles
• Additional Information: Open access publishing facilitated by The University of Western Australia, as part of the Wiley - The University of Western Australia agreement via the Council of Australian University Librarians.
• Keywords: Human capital, self‐employment, Australia, financial literacy.
• Status: Early Online Publication
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Wright, Dr Robert
• Authors: Preston, A., and Wright, R. E.
• College/School: College of Social Sciences > Adam Smith Business School; College of Social Sciences > School of Education
• Journal Name: Economic Papers
• Publisher: Wiley
• ISSN: 0812-0439
• ISSN (Online): 1759-3441
• Published Online: 08 June 2023
• Copyright Holders: Copyright © 2023 The Authors
• First Published: First published in Economic Papers 2023
• Publisher Policy: Reproduced under a Creative Commons License