The impact of education on savings and financial behavior

A TFI research project by Abdurrahman B. Aydemir
Posted on March 02, 2021

Although saving money may sound simple, it turns out to be difficult for many. There are many factors that explain people’s ability to save money, but does formal education have a causal relationship with a person’s saving propensity and their financial decision making ability? In this TFI research project, Abdurrahman B. Aydemir seeks to find out the relationship between education, savings, and financial behavior.

Download the report or read about the summary below to find out about the results


Our savings decisions shape our personal financial health. People with little savings get into trouble when faced with economic shocks or earnings losses, and risk accumulating insufficient assets to supplement their pension payments. Private savings also affect the aggregate financial capital available for financing investments and government borrowing. In general, a higher level of savings is good news for both the public and the economy. However, in many low- and middle-income countries, saving for the future still remains a challenge.

In this TFI research project, we focus on education, a factor with potentially important consequences for people’s financial health. We aim to establish the causal effect of years of formal education of people on their savings and other financial decisions. Education may affect savings and financial decisions through a number of channels. First, increased education may increase the earnings capacity. This may empower certain individuals to save, such as those who would otherwise have financial resources just enough to cover their consumption expenditures. Education may also change financial decisions by improving people’s cognitive skills. Each day, people face financial decisions that are increasingly complicated, and education equips them with the necessary quantitative and analytical skills.

Institutional context

What’s the impact of increased schooling on savings and financial decisions? Since education is not amenable to randomization and control, we study its effect on savings by leveraging an education reform which increased mandatory schooling by 3 years in Turkey. Turkey instituted this major education reform in 1997. Prior to the reform, children had to attend school for at least 5 years; afterwards, 8 years were compulsory. The reform had a large effect by increasing net enrolment rates and resulted in a drop-out decrease and a substantial increase in schooling levels.

The reform, implemented nationwide, was closely related to the political developments of the time but it did not depend on the macroeconomic context (Aydemir and Kırdar, 2017). This means that the increase in education levels provides a rare opportunity to explore the causal effects of education on financial behavior. Our empirical strategy – the instrumental variable estimation – rests on the comparison of birth cohorts which were affected by the 1997 reform with those which were not.

We use survey data from ING Tasarruf Eğilimleri Araştırması (TTEA, Turkey’s Saving Tendencies Survey) that samples individuals from 13 broad regions covering the whole of Turkey. The survey reports detailed education levels of household heads along with their age. The information on age allows us to distinguish who was bound by the reform from who was not. Reported education levels helps us quantify the rise in schooling as a result of exposure to the reform.

Do you have any personal savings at this time? We use the answers to this major question from the TTEA survey to analyse saving propensity. In particular, we study the effects on the savings amount and rates. The survey also delves into choices of financial products. Participation in the formal financial system and saving behavior for the long-term (through investment in retirement funds) can also be identified using this survey. We also analyse the effects of education on these outcomes, focusing on the differences in potential impacts for men and women. This distinction is important: education may have a particularly important role in empowering women, which may be reflected in their financial decisions.

Main results and recommendations

Our results indicate that the effect of schooling differs between men and women. For men, we find no effect of schooling on either their saving propensity, amount of savings, saving rate or choice of financial products. For women, however, we find evidence for significant effects of years of education on several dimensions. Saving propensity and monthly saving, for instance, increases with years of education for women. Moreover, women with more years of education are more likely to save in the formal financial system, implying that education increases their financial inclusion. We also find some suggestive evidence that women are more likely to save for the long term by increasing their tendency to save in retirement funds.

Our results have implications for policy-makers and financial institutions: education has the potential to change women’s financial behavior. Improving female education holds promise for greater financial inclusion. While most of the efforts by policymakers to promote greater financial inclusion focus on financial literacy education, our results underline the potential of formal education to directly improve financial inclusion. This is an important result, given the limited success that was booked in various countries to promote greater financial inclusion and better financial decision-making through financial literacy education (Lyons, 2005).

Our research also suggests that the effects of education on financial behavior are not solely driven through improved earnings, but also through other channels (think of better cognitive skills and improved access to information about the financial market). In a world with increasing and more complex financial products available, financial institutions can also play a significant role in improving the financial health of individuals. Information about alternative formal financial instruments could be tailored in a way that is easily accessible to a wide audience from a variety of socioeconomic backgrounds. Giving more information about the risks associated with informal savings and the benefits of channeling informal savings into formal ones can also be useful for attaining greater financial inclusion. Improving access of individuals to financial institutions, especially in less developed regions (where education levels and demand for formal financial services are more likely to rise in future) can be beneficial for improving financial inclusion.


  • Aydemir, A. and M. Kırdar (2017). “Low Wage Returns to Schooling in a Developing Country: Evidence from a Major Policy Reform in Turkey”, Oxford Bulletin of Economics and Statistics, 79 (6), 1046-1086
  • Lyons, A.C. (2005). “Financial education and program evaluation: challenges and potentials for financial Professionals”. Journal of Personal Finance 4(4): 56–68.