Financial literacy and what it means for human capital

As an undergraduate student, Daniel Metzger’s original plan was to work in the financial sector. But a year abroad, visiting the PhD programme in economics at UC Berkeley, made him continue his career in academia across borders.

What is it about your work that makes a positive change?
“In 2015, our research team started a study into financial literacy in Mozambique, because access to financing is among the biggest obstacles for firms there. We wanted to understand whether managers’ financial knowledge could help mitigate those financial frictions. After three rounds of teaching on corporate finance – the last one ending in early 2019 – we collected and analysed data on the financial policies from the corporations and their accounting departments.

“After the finance courses, we found sizeable improvements in short-term financial policies related to working capital. Another important topic was risk management; when we were there, Mozambique was struck (for the second time) by a cyclone and a lot of companies lost their insurance.

“At the end of the day, the overall aim of our empirical research is to make credible and well-informed evidence-based policy recommendations. In order to do so, we need to distinguish between correlation and causation. Applying this to the context of financial literacy and financial policies, the question we are trying to answer is whether financially literate managers identify and apply more efficient financial policies. Alternatively, it might be the case that firms that are well-managed and already using efficient financial policies just hire better, financial literate managers. For the former, programmes on financial education for CEOs are expected to improve financial efficiency of firms; this is not necessarily true in the latter case.”

"What helped me a lot was to be proactive, open-minded and being able to identify what a good opportunity was."

Why do you do it?
“Research is challenging. You challenge yourself every day by digging into new methods and questions or topics that no one has thought about, at least not in that level of detail. You also have the freedom to work on questions and issues that are of real interest to you.

“I’m interested in the intersection between labour economics and finance. This includes questions on the effect of human capital of CEOs on firm decision-making and firm performance – such as the project in Mozambique. But I am also interested in how access to financing by firms affect their labour decisions. A lot of models in economics are very abstract. What I find interesting about studying human capital is that it’s a very tangible aspect that relates to everybody. This makes the research relevant for many decision-makers such as policy makers, managers, or board of directors. For example, studying human capital of CEOs and its effect on firm policies has direct implications on what type of CEO or manager a firm may want to hire.”

Do you have any words of advice for aspiring researchers?
“It’s cliché but it’s important to have passion for what you’re studying or doing because you spend a lot of time on it. You’ll also encounter plenty of scenarios where it’s not working out in the way that you envisioned to be progressing.

“What helped me a lot was to be proactive, open-minded and being able to identify what a good opportunity was. In a way, I believe you can increase the likelihood that a good opportunity happens to you. For instance, during my exchange year at Warwick University I was able to transfer to a regular master programme by reaching out to the right people, at the right time. So, in a sense I’m saying: create opportunities for yourself.”