Essays in the Economics of Education and Financial Inclusion

Abstract

Consumer financial wellbeing is a universal concern. To optimize their financial health, people need effective tools for saving, borrowing, and investing, as well as income to put towards them. These tools and policies in turn must account for the behavior and preferences of the people who use them, which often deviate from what economists would define as the financially optimal use of funds. In this dissertation, I explore three contexts in which consumer choices do not appear to maximize financial wealth. In Chapter 1, I use evidence from a large panel of housing mortgage repayments in Pakistan to show that many borrowers are willing to pay more in financial costs to reduce the mental burden of debt by repaying early. These findings suggest that the psychological burden of debt is high and that there is a substantial mental benefit to decreasing debt, even if an account is not closed fully. In Chapter 2, I conduct a lab study showing that people consistently neglect correlation when assessing risks in simplified gambles, leading to lower average returns. These findings elucidate an underlying driver behind deviations from expected utility theory, which likely decreases consumer financial returns. In Chapter 3, I use administrative data from a state education system to show distinct patterns in career and technical education (CTE) program selection across demographic groups, which carry troubling labor market consequences. I find that black, Latinx, low income students, and students with disabilities are underrepresented in STEM programs that provide the best impact on future earnings. Together, these studies highlight the need for policies and programs that account for the realities of consumer behavior in order to help people maximize their financial wellbeing.