By Yukti Dahiya
Abstract
As Indian adolescents are increasingly engaged with digital financial systems, concerns have emerged regarding unequal access to financial literacy education and its implications on decision-making behaviour. This study examines whether differences in financial literacy exposure across government, private, and low-cost private schools are related to variation in behavioural decision-making among Indian adolescents. Drawing on a behavioural economics framework, this study looks at financial literacy within broader institutional and educational contexts. Using a cross-sectional comparative design, primary data were collected from 120 students across three types of schools through a structured questionnaire and choice-based behavioural tasks assessing present bias, overconfidence, and risk preference. Financial literacy exposure was measured using a composite index capturing curricular content, pedagogical approach, and opportunities for practical financial engagement. The results show significant differences in financial literacy exposure across school types, with higher exposure associated with lower present bias and overconfidence. The findings of the study will give school administrators and policy makers valuable information by demonstrating how institutional differences in schooling significantly shape the behavioural foundations of financial decision-making and stress on the importance of application-oriented as well as behaviourally informed financial literacy programmes in Indian schools.
Introduction
The rapid expansion of digital financial systems in India has increased adolescents’ exposure to financial decision-making at an unprecedented pace. With the widespread adoption of digital payments, online banking, and consumer credit platforms, young individuals are now required to engage with financial choices well before entering adulthood. However, increased access to financial tools has not been accompanied by uniform access to structured financial education, raising concerns about adolescents’ preparedness to make informed and consistent economic decisions (Lusardi & Mitchell, 2014).
Research on financial literacy demonstrates that children's early exposure to financial concepts is associated with improved long-term economic outcomes as they learn effective money-saving techniques, debt management abilities and financial stability maintenance at the right time(Lusardi, 2019).According to behavioural economics, financial knowledge by itself does not explain how people behave with their money. People depend on cognitive shortcuts while their decisions are affected by three specific biases that include present bias, overconfidence, and distorted risk perception when they face uncertain situations (Thaler, 2016). The fundamental development phase of adolescence enables these behavioral patterns to create their permanent structure , making it a particularly important stage for financial education and behavioural intervention (Steinberg, 2010).
Despite broad agreement on the importance of financial education, empirical findings regarding its effectiveness remain mixed. While some studies report that formal financial education improves financial knowledge and downstream financial behaviour (Fernandes et al., 2014), others demonstrate that educational methods produce brief learning advantages that disappear in no time when teachers use complex theoretical approaches instead of hands-on and practical educational methods (Willis, 2011). These mixed results suggest that differences in instructional design and institutional context may play a significant role in shaping outcomes.
Research conducted in India has been concentrated on studying adult populations and general literacy rates, but these studies do not explain how educational institutions affect adolescent decision-making behavior after graduation (Klapper et al.,2015).
This study examines how differences in financial literacy exposure across government, private, and low-cost private schools are associated with behavioural decision-making among Indian students in Grades 11 and 12. Rather than treating financial literacy as a single cognitive skill, the study conceptualises it as an institutional exposure shaped by curricular content, teaching methods, and opportunities for practical engagement. By adopting a comparative framework and focusing on behavioural outcomes, this research contributes to both the financial literacy and behavioural economics literature while offering policy-relevant insights for India’s education system.
Literature Review
Financial Literacy and Adolescent Decision-Making
Studies have discovered a positive correlation between financial understanding and various long-term financial outcomes, such as effective savings ,debt management and also financial security(Lusardi & Mitchell, 2014). Adolescents have been the subject of several studies indicating that their early exposure to financial issues can influence their later financial attitudes and actions. However, the intensity and endurance of these effects can be quite different in different circumstances. Increasingly, scholars emphasise that the quality, timing, and delivery of financial education ,particularly during adolescence, may be as important as content coverage alone (Lusardi, 2019).
Behavioural Biases in Financial Behaviour
As behavioural economics reveals, we all regularly deviate from making rational decisions: people are prone to present bias, overconfidence, and misperceived risk (Thaler, 2016). During adolescence, the brain is constantly undergoing changes which can sometimes cause the teenager to act impulsively, failing to consider future outcomes, this is because dolescent brains are still developing (Steinberg, 2010).The way in which education is organised can either reinforce or eliminate stereotypes, depending on whether it emphasizes practical learning, feedback, and self-analysis.
Education Inequality and School-Type Effects in India
India has significant socio-economic variations in the learning environments in public, private, and low-cost private schools. Variations in curriculum design, teacher training programs and the availability of learning through experience all have an impact on students' exposure to the principles of personal finance. While many studies have looked at differences in test results and reading skills, this approach still provides limited insight into how institutional environments influence behavioural decision-making (Klapper et al., 2015).
Research Gap
While in the existing literature, research has highlighted the differences in financial literacy levels and educational quality across different schooling contexts in India, most studies focus on knowledge-based outcomes rather than behavioural decision-making. This study addresses this gap by integration of behavioural measures with a comparative institutional framework to understand adolescent financial decision-making in the Indian context.
Methodology
The participants in this study were Grade 11 and 12 students enrolled in government, private, and low-cost private schools in India. The study involved 120 adolescents who were aged between 16 and 18 years old , with equal representation across the three school types. The choice of schools to be used in the study was made with regard to the ease of access to the schools, and a prior permission for the study was obtained from the schools' administrations.
The study employed a cross-sectional, mixed-method comparative design. School type was used as a between-subjects independent variable, while exposure to financial literacy was treated as a continuous predictor variable. Behavioural decision-making outcomes; including present bias, risk preference, and overconfidence , were the primary dependent variables. Grade level and self-reported socioeconomic background were included as control variables to account for potential confounding effects.
Financial literacy exposure was measured using a composite index including three components: curricular inculcation of financial concepts, pedagogical approach (such as theoretical instruction versus applied learning), and opportunities for practical financial engagement, such as simulations, projects, or real-world examples. Items were self-reported and combined to create an overall exposure score.
Behavioural decision-making was studied using a set of hypothetical, choice-based tasks which were adapted from standard behavioural economics paradigms. Present bias was assessed using intertemporal choice tasks in which participants selected between smaller immediate rewards and larger delayed rewards. Risk preference was measured through probabilistic choice tasks requiring participants to choose between certain outcomes and uncertain outcomes with varying probabilities. Overconfidence was measured by comparing participants’ self-assessed performance on the behavioural tasks with their actual task performance, allowing for the estimation of overestimation or underestimation of ability.
All materials were administered in English and were reviewed for clarity and age appropriateness prior to implementation.The researchers conducted their data collection activities throughout typical school days inside a classroom environment. Briefing of the participants was done at the start on the general purpose of the study and informed that there were no right or wrong answers. They then completed a short demographic questionnaire, followed by the financial literacy exposure items and behavioural decision-making tasks.
Finally, participants provided self-assessments of their performance. The entire process took 25 to 30 minutes in time. The study complied with ethical guidelines for studies involving human participants. Participation was completely voluntary. To guarantee anonymity of the respondents, the questionnaires were completed with confidentiality. All tasks involved hypothetical scenarios only, and no real financial incentives were used.
Results
Differences in financial literacy exposure across school types were assessed by using a one-way analysis of variance (ANOVA). The results demonstrated a significant main effect of school type on financial literacy exposure, F(2, 117) = 14.85, p < .001. Students from private schools showed the highest levels of financial literacy exposure (M = 8.4, SD = 1.2), followed by students from low-cost private schools (M = 7.1, SD = 1.3) and then lastly government schools (M = 6.2, SD = 1.4).
The study of relation between financial literacy exposure and present bias was carried out using Pearson’s correlation analysis. A significant negative correlation was observed, r(118) = −.34, p = .001, showing that higher levels of financial literacy exposure were associated with lower present bias.
Differences in overconfidence across school types were investigated by using a one-way ANOVA. The analysis revealed a significant main effect of school type on overconfidence scores, F(2, 117) = 9.62, p < .001. Overconfidence scores were highest among students from government schools (M = 2.1, SD = 1.3), then followed by low-cost private schools (M = 1.4, SD = 1.1), and lastly private schools (M = 0.7, SD = 0.9).
In order to analyse whether financial literacy exposure predicted present bias after controlling for grade level and self-reported socioeconomic background, a multiple regression analysis was conducted. Financial literacy exposure stayed a significant predictor of present bias, β = −.27, t(116) = −2.92, p = .004. The overall model accounted for approximately 18% of the variance in present bias (R² = .18).
Discussion
The study examined whether differences in financial literacy exposure across government, private, and low-cost private schools are associated with variation in behavioural decision-making among Indian adolescents. The findings provide consistent evidence that institutional context plays a meaningful role in shaping both access to financial education and behavioural outcomes during late adolescence
First, the research findings indicate significant differences in financial literacy exposure across school types. Students who attend private schools reported the highest levels of exposure, followed by students from low-cost private schools and government schools. The observed gradient follows previous studies which showed that Indian students face different levels of access to educational resources and enrichment activities depending on their institutional environment (Klapper et al.,2015).These results support the argument that financial literacy is influenced not only by individual characteristics but also by the educational environments in which students are embedded (Lusardi, 2019).
Second, higher levels of financial literacy exposure were associated with lower present bias. Adolescents with greater exposure demonstrated more consistent intertemporal decision-making, indicating a greater capacity to weigh long-term benefits against short-term rewards. This finding is consistent with behavioural economics frameworks that emphasise the role of learning environments and repeated exposure in shaping time preferences and decision heuristics (Thaler, 2016). Importantly, this shows that financial literacy exposure continues to affect present bias behavior in students after researchers excluded their academic year and family income from the analysis.
The third finding showed that students from different school types demonstrated different levels of overconfidence. Government school students showed the most overconfidence while private school students showed the least. Prior research suggests that students who take part in applied learning activities with structured feedback systems have self-assessment competencies which result in decreased overconfidence (Fernandes et al.,2014). The present findings confirm this interpretation and show that greater exposure to practical financial decision-making experiences enhance adolescents’ ability to mindfully assess their own competence.
Taken together, these results show that financial literacy exposure influences not only what adolescents know about financial concepts, but also how they make decisions under uncertainty. By focusing on behavioural outcomes rather than knowledge measures alone, this study extends existing financial literacy studies and supports calls for behaviourally informed approaches to financial education (Lusardi & Mitchell, 2014). Although the strongest effects were observed for present bias and overconfidence, patterns in risk preference followed a similar directional trend across school types. This suggests that institutional learning environments may shape multiple dimensions of financial decision-making.
Limitations and Counterarguments
Multiple factors need to be taken into account when analyzing the research results from this investigation.
First , the study design uses cross-sectional methods which prevent researchers from determining causal relationships. Although the research found financial literacy exposure to be linked with behavioral outcomes through statistically significant relationships, the direction of these relationships cannot be conclusively established. It is possible, for example, that unobserved factors influence both exposure and behaviour. Longitudinal or experimental research designs would be better suited to identifying causal mechanisms underlying these relationships (Fernandes et al., 2014).
Second, behavioural outcomes were assessed using hypothetical decision-making tasks rather than real financial incentives. While such tasks are used widely in behavioural economics and have been shown to capture meaningful decision-making patterns, they may not entirely indicate behaviour under real financial risk (Thaler, 2016). Adolescents may respond in different ways when decisions include actual monetary consequences, and result sizes observed in real-world contexts may differ from those reported here.
Third, the findings face two major limitations because of the sample size and selection process used in the study. The research participants came from a limited number of schools which researchers chose because of their easy access but this selection method might have excluded teenagers who live in countryside areas or who do not attend traditional schools. Additionally, unquantifiable elements such as parental financial behaviour, peer norms, and broader school culture may contribute to observed behavioural differences (Lusardi & Mitchell, 2014).Although, study included grade level and self-reported socioeconomic background as control variables , these variables did not eliminate all possible sources of heterogeneity.
Despite these limitations, several features of the study strengthen confidence in the findings. Consistent patterns were observed across multiple behavioural measures, and results remained robust after controlling for key demographic variables. Rather than demeaning the conclusions, these limitations highlight important directions for future research, including longitudinal analyses and experimental evaluations of applied financial education interventions.
Conclusion
This study shows how differences in school-based financial literacy exposure are associated with variation in behavioural decision-making among Indian adolescents. Higher levels of exposure were linked to lower present bias and lower overconfidence, suggesting that institutional learning environments play an important role in shaping behavioural tendencies in case of long-term economic outcomes.
Using a comparative framework across government, private, and low-cost private schools, the study highlights structural disparities within India’s financial education system. These findings align with broader research demonstrating that unequal educational environments can contribute to behavioural and economic inequalities over time (Klapper et al., 2015; Lusardi, 2019).
Above all, the outcomes highlight the value of programmes that teach financial understanding in a way that prioritises application-oriented learning and behavioural awareness rather than focusing on theoretical understanding alone. Integration of behavioural insights into all school-based financial literacy initiatives, particularly within underserved institutions ,may strengthen the effectiveness of financial education and improve decision-making outcomes among adolescents .
Overall, the findings suggest that both institutional context and delivery mechanisms of financial education have an impact on adolescent decision-making. Taking steps to address disparities in financial literacy exposure during schooling may therefore represent a critical step toward promoting more equitable economic outcomes in the future.
References
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Klapper, L., Lusardi, A., & van Oudheusden, P. (2015). Financial literacy around the world: Insights from the Standard & Poor’s ratings services global financial literacy survey. World Bank. https://www.worldbank.org/en/publication/financial-literacy
Lusardi, A. (2019). Financial literacy and the need for financial education: Evidence and implications. Swiss Journal of Economics and Statistics, 155(1), Article 1. https://doi.org/10.1186/s41937-019-0027-5
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5–44. https://doi.org/10.1257/jel.52.1.5
Steinberg, L. (2010). A dual systems model of adolescent risk-taking. Developmental Psychobiology, 52(3), 216–224. https://doi.org/10.1002/dev.20445
Thaler, R. H. (2016). Misbehaving: The making of behavioral economics. W. W. Norton & Company.
Willis, L. E. (2011). The financial education fallacy. American Economic Review, 101(3), 429–434. https://doi.org/10.1257/aer.101.3.429
