Association for Public Policy Analysis & Management

Economic rationality measured by consistency with utility maximization is one of the most fundamental criteria of the quality of decision-making. Because economic well-being depends on the quality of decision making, it is important to find policy tools to enhance people’s capabilities to make better decisions.

This paper reports the causal effects of financial education support on economic rationality. We conducted a randomized controlled trial of financial support to 2,424 secondary female students (9^th and 10^th graders) from 33 public schools in Lilongwe, Malawi in 2011-2012. The education intervention consisted of one-year school tuition and monthly cash stipends.

The financial support program has direct impacts of educational attainment. Those who were treated are about 9 percentage points (15.1%) more likely to pass the Junior Certificate Examination (10^th grade qualification exam). The impacts are stronger for 9^th graders (12.9 percentage point) than for 10^th graders (4.6 percentage point)

We conducted a follow-up survey in 2015-2016, including a lab-in-the-field experiment to test for consistency with utility maximization in both risk and time domains. The education intervention increases scores of consistency with utility maximization. For the 9th graders, girls in the treatment group have on average 3 percentage point higher consistency scores in each of the risk and time domains while we do not find such a change for 10^th graders. This causal effect is robust to conditioning on basic socio-demographic factors, cognitive abilities, preferences, and personality. Our evidence thus suggests that education support enhances not only educational outcomes but also the quality of economic decision-making.