Increased Financial Literacy's Impacts on Consumers' Borrowing Behaviors

This paper examines the impact of increased financial literacy through financial education on consumers' borrowing behaviors, using data from the Nationwide Home Mortgage Disclosure Act (HMDA) and focusing on the implementation of California Consumer Financial Protection Law (CCFPL) as a natural experiment. Employing Difference-in-Differences and Synthetic Control methods, we find that CCFPL's financial education programs significantly increase loan amounts and reduce rate spreads, indicating increased risk preference and interest rate seeking behaviors. The positive effects are particularly strong among Black borrowers, while no significant change is observed for seniors.