An item response theory approach to constructing and evaluating brief and in-depth financial literacy scales |
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Authors: | Rob Ranyard Simon McNair Gianni Nicolini Darren Duxbury |
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Institution: | 1. Centre for Decision Research, Leeds University Business School, Leeds, UK;2. Consumer Markets Team, Behavioral Insights Team, London, UK;3. Faculty of Economics, Tor Vergata University of Rome, Rome, Italy;4. Accounting and Finance Group, Newcastle University Business School, Tyne, UK |
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Abstract: | We applied item response theory (IRT) to construct and evaluate new brief and in-depth financial literacy scales. A survey of a UK adult sample (N = 589) included 50 questions to assess knowledge about managing financial resources and competence in using personal finance-related information—including five widely used items, on interest rates, inflation, investment diversification, mortgages and bonds. IRT applied to a scale of these items identified some limitations, overcome via further iterations to construct a new brief scale with sound psychometric properties. IRT was then applied iteratively to our pool, resulting in an in-depth, 20-item scale, also psychometrically sound, covering four broad financial domains: everyday money transactions; the concept of money; borrowing; and saving and investment. Parallel 10-item sub-scales were also evaluated. The validity of the new scales was demonstrated by regression analyses which found that, controlling for demographic variables, financial literacy predicted key indicators of financial well-being. |
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Keywords: | financial literacy item response theory scale development |
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