Contribution of Financial Literacy to Behavior

Ramesh Prasad Chaulagain

doi:10.22610/jebs.v7i6(j).618

Abstract

Almost all the people around the world behave with money in daily lives whereas understanding how they behave is important. It is obvious that the education, which can not affect behavior of people, is worthless. Financial literacy also is believed to change financial behavior of individuals. Financial literacy implies two sides, i.e. concept and application of personal finance. The concept consists financial knowledge and basic skill of numeracy and financial decisions; the application consists the financial behavior. The focus of the article is to discuss how the financial literacy contributes financial behavior and thereby financial wellbeing of individuals. For this, the article presents a transmission mechanism of financial knowledge and skill to the financial behavior through a framework. However, there are some contexts, conditions and criterions to transmit the financial knowledge and skill into financial behavior and well-being. Moreover, categorizing the financial behavior of individuals is a significant issue in study of financial literacy. Particularly for the survey research, a new categorization and degree of the financial behavior is presented, which is ranked as good, moderate and weak financial behavior in comparative ways. The study establishes the relevancy of the evaluation criteria of financial behavior and also presents a framework on how the financial educations work contribute in financial behavior.

Highlights

Sometimes, financial education and financial literacy are interchangeably used though these are neither same nor isolated concepts
I argue that the financial education provides a set of financial knowledge and skill, which is expressed as financial literacy
There are four common financial literacy dimensions, i.e. financial knowledge, skill, attitude and behavior, financial well-being is an ultimate destination of the financial understanding and behavior

Summary

Introduction

Financial education and financial literacy are interchangeably used though these are neither same nor isolated concepts. Ravikumar (2013) opines financial literacy as personal financial skill that affects financial well-being of individuals. He has left to mention how the well-being is achieved without any behavioral bridge between the literacy and well-being. Huston (2010) opines that financial literacy, financial education and financial knowledge are similar concepts. I argue that the financial education, knowledge and literacy are not the same concepts as he claims. I argue that the financial education provides a set of financial knowledge and skill, which is expressed as financial literacy. Most of the studies talk and mention about measuring and explain financial behavior this and that way; there is gap of proper, empirical and data based categories and evaluation of financial behavior about how to understand what the people do with their money and financial literacy Non-of the available studies are able to present a clear mechanism or path about how the financial literacy really works? most of the studies talk and mention about measuring and explain financial behavior this and that way; there is gap of proper, empirical and data based categories and evaluation of financial behavior about how to understand what the people do with their money and financial literacy

Dimensions of Financial Literacy

Theoretical Lens in Financial Behavior

Conclusion and Implications