Abstract
Much policy attention has been placed on enhancing individuals’ financial knowledge and literacy, chiefly through financial education programs. However, managing one’s personal finances takes more than financial knowledge and literacy: an individual also needs a sense of self-assuredness, or ‘self-belief’, in their own capabilities. This personal attribute is known within the psychology literature as ‘self-efficacy’. This paper examines the significance of an individual’s financial self-efficacy in explaining their personal finance behaviour, through the application of a psychometric instrument. Using a 2013 survey of Australian women, financial self-efficacy emerges as one of the strongest predictors of the type and number of financial products that a woman holds. Specifically, our analysis reveals that women with higher financial self-efficacy – that is, with greater self-assuredness in their financial management capacities – are more likely to hold investment and savings products, and less likely to hold debt-related products. Even alongside other important factors – such as education, financial risk preferences, age and household income – the explanatory power of financial self-efficacy is found to be significant at the 1% critical level. Moreover, the significance of financial self-efficacy is independently identified from that of financial literacy factors, which bears important implications for the development of policies aiming to improve financial outcomes.
Highlights
IntroductionIntroduction and backgroundThe past decade has seen governments in many countries establish national financial literacy strategies in an attempt to improve the financial wellbeing of their citizens
Introduction and backgroundThe past decade has seen governments in many countries establish national financial literacy strategies in an attempt to improve the financial wellbeing of their citizens
While the previous studies cited in this paper have generally found that financial self-efficacy is significantly correlated to a range of other behavioural and psychological outcomes relating to personal finance, we are not aware of any studies that have examined the significance of financial self-efficacy with respect to an individual’s engagement with financial products, or have sought to distinguish the significance of financial self-efficacy from that of financial literacy
Summary
Introduction and backgroundThe past decade has seen governments in many countries establish national financial literacy strategies in an attempt to improve the financial wellbeing of their citizens. Despite these heavy investments in financial education, most countries have experienced little observable improvements in financial literacy (OECD 2013a) It appears that the effectiveness of many of these financial education programs has not been adequately evaluated (Fox & Bartholomae 2008; Fox, Bartholomae & Lee 2005; McCormick 2009; Xiao et al 2010) and indicators of financial stress and financial anxiety persist (Dowling, Corney & Hoiles 2009). Being able to successfully manage one’s personal finances entails psychological and attitudinal traits: an individual needs to have the motivation to seek out financial information, the ability to control emotions that can affect their decision-making, and assurance in their own decision-making and financial management capacities (Atkinson & Messy 2011; The Social Research Centre 2011). It has been argued that research in the field of personal finance behaviour needs to more effectively encompass psychological theories that explain how personal behaviours are formed
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
