Date created: | Last Updated:

Category: Project

Description: The increased complexity of our financial world poses challenges for consumer financial well-being. Prior literature has established a relationship between cognitive ability and financial well-being, but has implicitly assumed this association is linear. Moving beyond this assumption, we show that understanding the shape of the relationship between cognitive ability and financial well-being provides unique insights Using the British Cohort Study, which follows 13,000 people from birth in 1970 to the present day, we investigate the relationship between childhood cognitive ability and financial outcomes in adulthood. We assess the functional form of these relationships, after including controls such as childhood socio-economic status and adult income. While most relationships between cognitive ability and financial variables are monotonic, the results reveal intriguing non-linear relationships, particularly for credit usage. The results suggest that the relationship is curvilinear, such that lower and higher levels of cognitive ability are associated with lower levels of debt. Link to the British Cohort study: https://cls.ucl.ac.uk/cls-studies/1970-british-cohort-study/