The long-term impact of financial literacy on wealth: Evidence from longitudinal data

• We study the long-term effects of financial literacy on household wealth in the Netherlands. • Uses longitudinal data (2011 – 2019) data from 475 Dutch households. • Higher literacy in 2011 predicts more income and savings in 2019. • Effects vary by age: income gains for young, more savings for older individuals. • Financial literacy affects men’s wealth, but not women’s. This paper investigates the long-term impact of financial literacy on wealth accumulation using unique longitudinal data on Dutch households, thereby resolving important endogeneity issues that plague cross-sectional analyses. We find that financial literacy significantly influences income and savings, driving wealth accumulation over time. The effects vary by age: younger individuals with higher financial literacy tend to earn more, whereas older individuals prioritize savings. Additionally, we identify a notable gender disparity, where financial literacy significantly influences wealth accumulation for men, but has no significant impact for women.