Financial Literacy, Cognitive Ability, and Long-Term Wealth Accumulation: Evidence from Household Panel Data in Nigeria

The mechanisms through which financial literacy translates into improved financial decision-making and long-term wealth accumulation are not fully understood, particularly in contexts characterised by low average literacy levels, underdeveloped financial markets, and pervasive informal financial practices. This study develops a structural life-cycle model of financial decision-making that incorporates heterogeneous financial literacy levels and cognitive ability as determinants of asset allocation, savings adequacy, and wealth accumulation, and estimates the model using longitudinal household panel data from Nigeria. The theoretical contribution is a dynamic optimisation model of the financially literate and financially illiterate household, generating predictions about differential savings rates, portfolio choices, insurance demand, and retirement preparedness that are testable with observational data. The empirical application constructs a balanced panel from three waves of the Nigerian Financial Inclusion Survey conducted in 2020, 2022, and 2024, covering 4,000 households across Nigeria's six geopolitical zones. Financial literacy is measured using a validated instrument comprising financial knowledge, attitude, and behaviour subscales, while cognitive ability is assessed through numeracy and vocabulary tests embedded in the survey instrument. The structural model is estimated using simulated method of moments, and treatment effect analyses using regression discontinuity design exploit age-based eligibility thresholds for financial literacy training programmes. A mediation analysis identifies the channels through which literacy affects wealth. The theoretical framework integrates life-cycle theory, the household finance literature, and the cognitive economics of financial decision-making. The PhD-level contribution lies in the structural model development, the rare multi-wave panel data construction, and the causal identification strategy. Findings carry implications for the Securities and Exchange Commission's investor education programme and national financial literacy policy. Keywords: financial literacy, cognitive ability, wealth accumulation, household finance, Nigeria