Financial Literacy Research Research Articles

PENINGKATAN LITERASI KEUANGAN MENGGUNAKAN PENDEKATAN HEURISTIK (Studi Kasus pada Pedagang Tradisional yang Dikelola oleh PD Pasar Bermartabat)

Community service activities can be used as a way to increase financial literacy in traditional traders managed by PD Pasar Bermartabat. The results of the 2019 National Financial Literacy Survey show the financial literacy index figure of 38.03%. This figure shows that most Indonesians are not included in the well literate category. In practice, traditional market traders are familiar with loan sharks in their daily business activities. One of the limitations of this community service activity is the limited time because the target community is an active UMKM actor with a long working time. To overcome this limitation, it is necessary to have an appropriate learning model in improving financial literacy, namely the heuristic learning model. This financial literacy research data was measured using a questionnaire from Carpena's financial literacy dimensions. To find out the differences in financial literacy before and after the implementation of the heuristic learning model, the paired t-test was used different test with a significance level of 0.05. The number of respondents was 30 market representatives managed by PD Pasar Bermartabat. The results of this study indicate that the heuristic learning model can improve the financial literacy of traditional market traders managed by PD Pasar Bermartabat.

The role of national culture in financial literacy:Cross‐countryevidence

AbstractThis paper examines the effect of national culture on adult financial literacy levels in 12 countries. Contrary to earlier financial literacy studies, our results are directly comparable across countries given that we use the standardized OECD/INFE financial literacy survey data and Hofstede's, 2001, cultural dimensions to capture financial literacy and national culture. In line with the financial socialization theory, we find that uncertainty avoidance positively influences financial literacy, while individualism negatively influences financial literacy. We conclude that national culture affects financial literacy and that it is important to account for cultural dimensions in future international financial literacy research.

ASSET

Abstract. Young adults increasingly require good financial literacy to make the most of the opportunities provided to them. Unfortunately, existing financial literacy measures that may assist with targeting interventions show low reliability, ceiling effects, and a high level of abstraction. To address this, we designed and assessed the psychometric properties of a new measure specifically targeting young people, the Assessment of Economic and Financial Literacy (ASSET). We find it has better overall validity, reliability, and predictive power than existing measures. Using ASSET, we find that mathematical ability, calculator use (an example of deliberative thinking), gender, and socioeconomic status are key predictors of financial literacy. We recommend this more robust tool for use in financial literacy research to assess implications for guiding major financial decisions among young people.

The Role of National Culture in Financial Literacy: Cross-Country Evidence

This paper examines the effect of national culture on adult financial literacy levels in 12 countries. Contrary to earlier financial literacy studies, our results are directly comparable across countries given that we use the standardized OECD/INFE financial literacy survey data and Hofstede's, 2001, cultural dimensions to capture financial literacy and national culture. In line with the financial socialization theory, we find that uncertainty avoidance positively influences financial literacy, while individualism negatively influences financial literacy. We conclude that national culture affects financial literacy and that it is important to account for cultural dimensions in future international financial literacy research.

“Buy or Rent”: What Do Metropolitan Youth Choose

In the framework of financial literacy research, young people look like a not-too-responsible subject, prone to irrational consumption and not having the habit of long-term financial planning . However, the social context in which the burden of social spending is increasingly shifted onto the shoulders of the citizens, requires from them financial discipline, knowledge of financial instruments, and rational decisions . The article analyses the behaviour of metropolitan youth in the housing market . We showed that in the long term, the majority of young people are focused on the purchase of their own homes . It is due to the reluctance in the presence of the family to depend on the landlord and direct their funds into the “other people’s pocket”, as well as the perception of their housing as an asset . Satisfying modest requests of respondents is impossible without seeking financial assistance . A little more than half of the respondents see a bank as a lender, and more than a third of respondents see relatives or friends as a lender . Nearly half of the participants in the mass survey directly or indirectly faced mortgage lending; in most cases this experience was “rather positive” . As an alternative solution to the housing problem, young people see rent, the main advantage of which is increased mobility . Rent is not excluded and in the presence of own housing, which in this case will be rented . Despite their generally optimistic attitude, about half of the respondents believe that today housing is an intractable problem for young people . According to respondents, the state could help young people by implementing such measures as monitoring the reasonableness of pricing; subsidising mortgage interest or allocating quotas for young families and scarce staff; development of rental housing; increase of scholarships and promotion of employment for graduates so that young people start forming savings as early as possible; effective regional development policy allowing to unload the capital.

The role of cognitive abilities on financial literacy: New experimental evidence

Financial literacy research focuses on why, how, and when people acquire financial knowledge, shape their financial attitudes, and adapt their financial behaviors. The literature demonstrates that some demographic characteristics highly correlate with financial literacy. However, demographic factors often mask the ultimate determinants of financial literacy acquisition such as risk aversion, time preferences, cognitive and behavioral biases, personality traits, cognitive and non-cognitive abilities, among others. Theory suggests that cognitive ability is one of the fundamental factors in explaining financial literacy. We offer experimental evidence supporting the key role of cognitive ability in financial literacy acquisition. Our experimental setting allows us to (a) overcome particular limitations of the traditional multiple-choice questions survey designs, (b) provide compatible incentives to make participants exert an appropriate level of effort to solve the assigned tasks, and (c) use a well-known measure of cognitive abilities. We find that individuals with higher cognitive abilities are more financially literate. Our main result holds even after controlling for some of the main confounding factors identified in the literature. In contrast to previous studies, we find no role for gender in explaining financial literacy once we control for cognitive abilities.

The Assessment of Financial Literacy: New Evidence from Europe

The hypothesis that people with more financial literacy make better financial decisions and show positive financial behaviors is crucial for more than one stakeholder. A weak connection between financial literacy and financial behaviors jeopardizes the opportunity to invest in financial education and to develop a consumer protection framework based on the chance to develop aware and responsible financial consumers. This study uses data from different countries (Germany, France, Italy, Sweden, the UK), using surveys devised and fielded specifically to measure financial literacy and in order to assess if the availability of a broad set of items on financial literacy allows to develop new measures of financial literacy to better understand the relationship between financial literacy and financial behaviors. The well-established Lusardi–Mitchell questions are compared with measures that differ in terms of number of items (the “50-items” index), range of topics (the “5-specific” index), or selection process of the items (the “unbiased” index). Results support the hypothesis that the Lusardi–Mitchell questions remain a good measure in a first-step analysis, but a deeper understanding of the connection between financial literacy and financial behaviors benefits from the measures proposed in the study, that should be considered as additional assessment tools in financial literacy research.

Improving Financial Literacy in Secondary School Students: An Randomized Experiment

Financial literacy is a multicomponent construct comprising financial knowledge, attitude, behaviors, and well-being. Financial literacy in young people helps them to achieve financial independence and escape from intergenerational poverty. Recent assessments, however, reveal that youth financial literacy is unsatisfactory. Financial education should be provided for students during secondary school as a natural context in which to establish young people’s financial literacy. Empirical evidence from randomized experiments studying the impact of financial education on secondary school students, however, is limited. To address this research gap, we performed a randomized experiment with 270 Form-3 (U.S. equivalent Grade 9) secondary school students in Hong Kong. Structural equation modeling (SEM) results demonstrated that objective financial knowledge, financial attitudinal variables, and financial well-being variables could converge into the latent construct of financial literacy, while all financial behavioral variables converged into another latent construct of financial behavior; of note, the two latent constructs were not significantly correlated. SEM results also revealed that our financial education program significantly improved financial literacy, but did not have a significant effect on financial behavior in the short term. These findings contribute to existing financial literacy research by facilitating more accurate measurement and detailing the near-term effects of financial interventions at the adolescent stage in young people.

Malaysian Individual Investors: What Are the Factors That Influence Their Financial Statement Usage?

Research aim: This study seeks to examine the knowledge and attitudinal factors that influence financial statement usage among Malaysian individual investors. Design/ Methodology/Approach: A survey was conducted on a sample of 399 Malaysian individual investors using self-administered questionnaires. Research finding: The findings reveal that financial statement usage is positively associated with subjective norm, financial statement knowledge, attitude towards financial statement usage, and perceived behavioural control. However, it is negatively associated with trading frequency attitude. Theoretical contribution/Originality: This study seeks to contribute to the very limited research on the factors that influence individual investors’ financial statement usage. Additionally, it enriches the literature on financial statement usage among individual investors in Malaysia by showing the extent to which the three main financial statements are utilised by them. Furthermore, this research extends financial literacy research on stock investing to the realm of financial statement usage by highlighting the influence of financial statement knowledge on this behaviour. Thus, the study seeks to bridge the gap between financial reporting and financial literacy. Practitioner/Policy implication: The findings provide useful insights for the providers of investor education programmes in developing more holistic programmes. Research limitation/Implication: Non-random sampling was employed in this study, albeit such an approach is consistent with the literature. Also, respondents comprised individual investors who are proficient in English because the researchers seek to complement Malaysian studies on the readability of English language financial statement narratives. Keywords: Financial Reporting, Investment Decision-making, Financial Knowledge Type of manuscript: Research paper JEL Classification: M41, G41, D80

Assessing consumer literacy on financial complex products

Consumer financial education has become an important research topic, due to the growth of a wide range of investment products available in online banking. The individuals are exposed to highly complex financial products without understanding the risk and what product is suitable for them. This study investigates and measured the financial education of individuals in complex financial products. A quiz game was developed for a bank website to measure 1597 bank clients in complex products literacy. The survey also enabled a comparison between the basic and advanced skills of financial literacy knowledge. The results highlight a satisfactory overall financial literacy level. While basic knowledge level between individuals has a higher degree, there are serious concerns in advanced skill level. This study contributes to an understanding of adults’ knowledge about the prediction of the risk of investments in complex financial products, as well as providing value to ongoing financial literacy research.

Financial Literacy Research in China: The Progress and the Role of Social Work

Financial Literacy Research in China: The Progress and the Role of Social Work

The challenge of assessing financial literacy: alternative data analysis methods within the Italian context

BackgroundAssessing individuals’ financial literacy levels is currently widely recognized as being necessary to design effective financial education programs and also to evaluate their actual impact. To address the lack of a consensus regarding an appropriate instrument to measure financial literacy, the OECD and its International Network on Financial Education (INFE) developed a core questionnaire in 2011, to be administered across a wide range of countries. Italy participated in the study with a survey promoted by the financial consortium ABI–PattiChiari. A tailored version of the OECD/INFE questionnaire was used in the survey, with three indicators of financial literacy taken from the OECD survey (financial behavior index, financial attitude index, financial knowledge index) and two new indicators (financial familiarity index and financial planning).PurposeThe present paper focuses on data analysis methods used to evaluate financial literacy among the Italian adult population. It reviews data analysis approaches used to evaluate financial literacy and proposes a new method to gauge this latent construct in order to obtain a valid and reliable index that is able to capture educational needs in a manner that is as accurate and targeted as possible.MethodsThe sample used for the survey consisted of 1247 Italian residents of at least 18 years of age who were reached via CATI. The sample was obtained by appropriate stratification across several dimensions (gender, age, geographical area, and municipality size). We propose alternative data analysis methods to treat the survey data: item response theory (IRT) and classification and regression tree analysis.ResultsThe analysis highlighted the crucial role that data analysis methods play in assessing financial literacy. Comparing the results for classical test theory and IRT, this paper suggests that financial literacy research should be open to alternative and multiple approaches to obtain reliable measures of financial literacy that are able to capture the educational needs of different population groups and can help to design effective financial education programs.

Testing Educational Tools to Demonstrate Returns to Work for Children Aging Out of the SSI-Disabled Children Program

A substantial fraction of children receiving Supplemental Security Income benefits for disability (SSI-child) transition directly onto the SSI-adult program at age 18 without attempting to enter the labor market. Once this transition is complete, very few attempt to work while receiving SSI-adult benefits. The MDRC SSA Youth Transition Demonstration (YTD) Project report (2008) identified lack of information about financial incentives/disincentives as a potential barrier to work for these youth. In the authors’ Year 1 and Year 2 Financial Literacy Research Center projects they focused on this potential impediment. Their Year 1 analysis documented the financial value of working for young adults on SSI. With Year 2 funding they developed a financial calculator based on their analysis and tested whether it could be a tool for determining the value of work for young SSI recipients. Their results point to the potential for such financial education tools to help SSI youth and their families make more informed decisions about their financial future. They also underscore the need for additional development of these and other financial education tools for this vulnerable population.

Guest Editor’s Introduction to the Thematic Issue on Family Finance

Three papers in this volume were selected after rigorous peer reviews from papers presented at research forums sponsored by the Center for Financial Security at the University of Wisconsin-Madison. They each reflect the important themes of the Center’s research. The Center is an interdisciplinary research center that does applied research on issues of importance to the financial security of individuals and families. These papers, completed during the period that the Center was one of three national centers comprising the Social Security Administration’s Financial Literacy Research Consortium, represent key issues on which the Center focuses its work: vulnerable populations, measurement of financial literacy, and the relationship between financial literacy and financial behavior. Financial literacy implies the understanding of financial concepts relevant to one’s financial circumstances and whose application in decision making would improve financial decisions to the betterment of current and/or future financial well-being. This implies that financial education is not a ‘‘one size fits all,’’ but must be shaped to the context within which families and individuals make financial decisions, both to the current context of their lives and to their likely or preferred financial life trajectories. Improving financial literacy through education implies an understanding of what should be taught, to whom, and when. These papers highlight the complexity of financial literacy education which must take account of individual’s family circumstances and initial financial beliefs and behaviors. This introduction ties these papers together by highlighting their connection to the Center’s major research themes. The three papers all deal with different but very much related aspects of financial debt. Financing current consumption through debt can be either a boon or threat to financial security. Mortgages enable the consumption of housing services in the short run and the accumulation of an asset as the mortgage is paid off. Unsecured consumer debt allows for current consumption, which may include capital building purchases (e.g., education of self or children) but its accumulation and payments are not directly tied to the growth in family assets. Both types of debt may lead to improved family financial security or lead to financial distress. Dew’s paper argues that debt matters not just for financial well-being but to family stability. Financial literacy education may be good family policy. Even if it is widely recognized that family finances matter a lot to marital satisfaction, it remains unclear what particular components of family finances matter—what types of assets and debt threaten family stability and how the acquisition process and whose decisions increase that threat. His paper shows that debt matters differently to husbands’ and wives’ marital satisfaction implying that education must go beyond the simple lessons of ‘‘thrift’’ and ‘‘savings’’ but must be aware of how couples make and manage financial decisions. The paper by Levinger, Benton and Meier hypothesizes that the knowledge of one’s creditworthiness matters to the wise acquisition of debt. It is far too simple to caution families against the accumulation of debt since debt can adjust for the disparity between income and consumption needs at any point in time, raising families’ economic wellbeing over time. But debt must be timed appropriately and have interest-term conditions that are best suited to the families’ financial circumstances. Families are better off if K. C. Holden (&) La Follette School of Public Affairs, University of Wisconsin, 1225 Observatory Dr., Madison, WI 53706, USA e-mail: kcholden@wisc.edu

Family Financial Socialization: Theory and Critical Review

Financial literacy research of the past 40 years (1970–2010) has largely ignored the reasons for sociodemographic differences in financial outcomes. The primary purpose of this paper is to initiate a theoretical discussion regarding family financial socialization—what it is; why it is important; and how its tenets could help advance understanding of individual differences in financial literacy. To this end, we propose a conceptual model that integrates family socialization theory and recent trends in financial literacy research. The study concludes with an interdisciplinary critical review of 100 articles which provide illustrations, highlight gaps, and present opportunities for further research with many practical guidelines for advancing deeper understanding of financial literacy from a socialization perspective.