The Effect of the Economic Situation on Time and Risk Preferences: Does Financial Literacy Matter?

Abstract

In two studies (N1 = 430; N2 = 500) on a general Slovak population (50.3% female; age = 39.8 +/- 11.7 years), we tested a structural model outlining the effects of one's economic situation and its subjective perception on time and risk preferences (in tasks with hypothetical rewards), with financial literacy serving as a mediator of these relationships. Even after respecifying the model, mostly weak or inconclusive relationships were observed. We further tested the time stability of time and risk preferences. On a sample of 224 participants who completed both waves (one year apart), we observed moderate correlations in the preferences even after controlling for income change. We argue that both time and risk preferences in monetary choices appear to be stable traits and are only marginally related to one's economic situation or financial literacy. Further investigation on the effectiveness of financial literacy in shaping economic preferences is needed.