Theoretical underpinnings of consumers’ financial capability research

This paper investigates the multidisciplinary theoretical context of financial capability and provides a critical examination of 14 relevant theoretical frameworks. To this end, the paper defines financial capability and develops a new theoretical framework of financial capability termed the personal financial management system. Financial capability is defined as the capacity of consumers to undertake comprehensive financial activities and thereby achieve personal financial well-being. The exploration of financial capability includes the concepts of financial literacy and psychological financial capability, where the latter represents automatic and controlled mental processes. Recent advances in behavioural science have profoundly changed the realm of personal finances, and it is, therefore, essential to acknowledge the importance of the intuitive reasoning that shapes our financial decision making. As part of the financial management system's throughput, together with individual motivation and opportunity within the personal financial management system, financial capability forms financial behaviour. The framework identifies three groups of relevant antecedents of financial capability including sociodemographic factors, cognitive and affective factors and personality and values. By constructing a comprehensive theoretical model, this paper contributes to the literature by providing greater consistency in the definitions of capability and its related terms, encouraging academic discussion and affirming the much-needed directions for future research.     

Emerging adults' financial capability: A financial socialization perspective

This exploratory qualitative research uses the United Kingdom as a case study to understand how past and present financial socialization agents have either enhanced or inhibited emerging adults' financial capability in order to highlight potential opportunities for future policy and practice interventions. Three primary socialization agents were identified. The family as trusted primary advisor continues well into adulthood, even where family financial capability may be low. Beyond this, emerging adults only reluctantly engage with their bank, rely on just‐in‐time experiential learning or self‐socialize via diving, often with false confidence, into the internet. Although there are many quantitative studies on financial socialization, this paper fills a gap by taking a deeply qualitative approach showing, for the first time, empirically highlighting the limited number of financial socialization agents through the voices of emerging adults. The findings contradict previous socialization research that suggests parental socialization reduces into adulthood.     

Gender differences in recollections of economic socialization,financial self-efficacy,and financial literacy

The OECD/INFE international surveys of adult financial literacy (OECD/INFE 2016, 2020) show gender differences in financial literacy in developed countries in Europe. In this study, we examine whether these differences can be explained by gender differences in parental economic socialization using the Dutch 2018 DHS household survey. We investigate whether respondents' recollection of economic socialization when young predict their adult economic behavior and self-assessed financial knowledge. The results from ordinal logit and logistic regressions and for nonlinear equations decompositions reveal gender differences in the recollection of economic socialization and in how socialization practices are related to economic behavior and self-assessed financial knowledge. Men have to a greater degree than women been socialized in terms of having paid work outside the home, while women more often than men report that their parents controlled their spending. Moreover, we find gender differences in how men and women benefitted from the same socialization practices.     

Measuring responsible financial consumption behaviour

Sound consumption decisions determine individuals’ well‐being; responsible financial consumption behaviour (RFCB) affects not only their finances but also their societal status and emotional state. The failure to manage personal finances responsibly may result in serious long‐term consequences for individuals and society overall. In order to evaluate the concept of RFCB, this study combines two established theoretical frameworks—the family management system and the theory of planned behaviour. The paper investigates the relationships among RFCB, responsible financial attitudes, financial literacy and behavioural control. Its theoretical model is tested on a random sample of 494 respondents and analysed using PLS‐SEM. The results confirm the formation of responsible consumption behaviour by six formative elements: self‐control in spending, planning for the future, seeking information, education, rational decision‐making and solvency. The findings also indicate that all three focal variables have a direct effect on RFCB.     

Parental financial support: A safety net for young adults with debt problems

Parental financial support benefits young adults in societies with decreasing welfare‐state support and a pattern of early home‐leaving. This article focuses on the association between young adults’ debt problems and parental financial support: the extent to which indebted young adults receive financial help from their parents. We also investigate the extent to which specific benefits are associated with debt problems or parental financial support. The data were gathered in an online survey conducted among 18‐to‐35‐year‐old Finns (n = 1,019). The results revealed, first, that many parents safeguard their indebted adult children’s lives by means of financial support and second, that heavy cash‐welfare‐benefit users are particularly likely to receive parental financial support. Our analysis also revealed that the prevalence of debt problems as well as of parental financial support were especially high among those who had received social assistance, sickness benefit or labour‐market subsidy within the previous 12 months. In a society open to new social risks as well as to debt problems, young people who lack financial support from their parents have a rockier transition to adulthood than those who receive support.     

Measuring the performance of financial holding companies

Financial institutions have become larger and engage in a wider array of financial activities due to continuing consolidation. Since the financial holding companies face multiple production functions simultaneously, the traditional data envelopment analysis (DEA) approach is not suitable for investigating their efficiency. This study applies the multi-activity DEA model to explore the relative efficiency of 12 financial holding companies in Taiwan. The results show that the multi-activity DEA model is obviously more capable of identifying sources of inefficiency, thereby potentially yielding greater managerial insights into organisational improvements.     

The links between job insecurity,financial well‐being and financial stress: A moderated mediation model

This study proposed a nuanced approach to the association between job insecurity and financial stress by examining whether financial well‐being mediates the established association. In addition, we examined whether the association between the job insecurity and financial stress, through financial well‐being, is moderated by income. For this study, we conducted a path analysis using 1,145 survey respondents. Results revealed a significant relationship between the job insecurity and financial stress and a partial mediation effect of financial well‐being. Moreover, the indirect effect of job insecurity on financial stress through financial well‐being was moderated by income. Although people who have higher financial well‐being were more likely to have lower financial stress, this relationship varied by income such that it was stronger for higher income groups than for lower income groups. Our findings provide insights into the way job insecurity and financial well‐being influence financial stress. This study will help the researchers and practitioners develop more effective and adaptive intervention programmes and resources for individuals and families. Implications for practice and directions for future research are discussed.     

Young people's perceptions of the responsibilities of organizations promoting financial capability

Today's changing market environment demands financial capability even from young consumers. This article concentrates on the perceptions of young people on the roles and responsibilities of school, public, private and non‐profit sector actors in promoting financial capability among the young. The qualitative data were collected via focus group discussions among young people aged 15–26 in schools and education institutions across Finland. Educational institutions play an important role in the everyday lives of the young but tend to focus on macro‐finance issues in financial education. Banks are seen as professional actors promoting financial capability to the young, but their activities are recognized as profit driven. Public sector and non‐profit organizations are less familiar to young people as providers of financial information but are considered impartial and reliable. It is apparently difficult for young people to differentiate between the activities of the various parties offering financial advice. They would welcome finance‐related information from several actors and from different perspectives. Financial education and financial matters are only interesting to the young when topical. In order to promote a financial capability among young people, the actors involved should become more proactive and cooperate with each other.     

School and family environments promote adolescents' financial confidence: Indirect paths to financial literacy skills in Finnish PISA 2018

This study investigates the associations of adolescents' financial socialization factors—financial education in school and families—with financial confidence (i.e., confidence in using financial and digital financial services). In addition, we examine how financial socialization factors indirectly relate to financial literacy skills through financial confidence and the role of demographic factors (adolescent gender, grade level, parental education, family wealth) on financial socialization, financial confidence, and financial literacy scores. We used data on the 4328 Finnish 15-year-olds participating in the 2018 Programme for International Student Assessment (PISA). We measured financial literacy by cognitive test items and assessed financial socialization and financial confidence by adolescent questionnaires. First, the results showed that financial education in school positively predicted adolescents' confidence in using financial and digital financial services. Second, financial education at schools and in families indirectly predicted students' financial literacy through confidence in using digital financial services. Third, older adolescents were more exposed to financial education at school and in families, whereas adolescents from wealthier families and girls (vs. boys) were exposed to a more frequent discussion of financial matters with parents at home. Furthermore, the boys were more confident in using financial services than the girls, although the financial literacy score did not differ by gender; older adolescents were more confident in using financial services and achieved better financial literacy than younger ones. Finally, higher parental education in the family related to higher financial literacy but not to higher financial confidence, whereas family wealth was related to higher financial confidence but not financial literacy.     

Propensity to plan,financial capability,and financial satisfaction

Propensity to plan is an indicator of financial capability that contributes to consumer financial well‐being. Previous research has shown that propensity to plan is positively related to objective financial well‐being but little research was found to examine its association with subjective financial well‐being. Using financial satisfaction to measure subjective financial well‐being, this study addressed this research gap and had three objectives: (1) to explore factors associated with propensity to plan, (2) to examine the association between propensity to plan and financial capability factors, and (3) to examine the association between propensity to plan and financial satisfaction. Using data from the 2015 US National Financial Capability Study, the results showed socioeconomic differences in propensity to plan. The results suggest consumers with more economic resources had higher scores in propensity to plan. In addition, propensity to plan was positively associated with financial capability factors, suggesting financial planning is a desirable financial behavior. Finally, propensity to plan made unique contributions to financial satisfaction after controlling for socioeconomic and other financial capability factors.     

Quality financial inclusion and financial vulnerability

Despite existing evidence suggesting that financial inclusion enhances consumers' welfare, there has been no attempt to examine the link between financial inclusion and financial vulnerability, measured along multiple dimensions. We computed more comprehensive indices of financial vulnerability and financial inclusion using polychoric principal component analysis based on a nationally representative financial inclusion survey in South Africa. Results from quantile regressions show that only the top 20% of the financially included had lower vulnerability but the effect was weaker among the more vulnerable categories. Also, the decline in financial vulnerability was less pronounced when financial inclusion was narrowly defined by excluding quality indicators. These findings suggest that financial inclusion is benefitting a few consumers in South Africa which points to the need for a bottom-up approach in designing financial products that improve the welfare of the financially included consumers.     

The relationships of financial literacy with both financial behavior and financial well-being: Meta-analyses based on the selective literature review

This study conducted meta-analyses of the relationships between financial literacy and both financial behavior and financial well-being. Peer-reviewed articles published on financial literacy in the field of consumer studies were collected by July 29, 2020. Fourteen articles were eligible for the meta-analyses. The results showed positive relationships of financial knowledge with desirable financial behavior and financial well-being. Our comparison of objective and subjective financial knowledge indicated that subjective knowledge had stronger relationships with both financial behavior and financial well-being than objective knowledge. These two types of knowledge also had different paths to financial well-being in that subjective knowledge had both direct and indirect effects on financial well-being through financial behavior, whereas objective knowledge only had an indirect effect. The relationship between financial knowledge and financial behavior appeared stronger in cross-sectional data than in longitudinal data. The implications of these results and possible directions for future consumer science research were discussed.     

Understanding the impact of employer‐provided financial education on workplace satisfaction

The present study examines the linkage between workplace financial education and workplace satisfaction. Data gathered from a national sample of employees of an insurance company favor the hypothesis that employees who participate in workplace financial education more fully understand personal finances and recognize how financial literacy impacts their future financial expectations. In addition, employees who gain considerable literacy in financial matters and confidence in their future financial situation are also more likely to be satisfied with and supportive of their company. Implications of these results for nonwork settings and for consumers in general have also been developed.     

New perspectives on not-for-profit financial institutions: Organisational form,performance and governance

This introductory essay discusses the context for the special issue, introduces the contributions, considers a number of key themes which link the articles and suggests areas for future research; in particular it makes a case for the link of organisational diversity and the stability of the financial system.     

Consumer financial information processing: An integrated approach to examine individual differences

This study applied an integrated approach to construct a hierarchical framework for consumer financial information processing. Individual differences in customers' psychological, cognitive and motivational characteristics were examined as antecedents. Using data collected from a sample of 613 U.S. adults, this study used the structural equation modeling method to identify significant direct and indirect relationships amongst personality traits, financial self-efficacy, financial information-gathering ability, search motivation, financial information sufficiency and the utilization of heuristics and systematic financial information-processing modes. The results showed that consumers' information sufficiency (+) directly explained the application of the heuristic mode, whereas consumers' information gathering ability (+), motivation to search (+) and information sufficiency (+) directly explained the use of the systematic mode. Financial self-efficacy demonstrated positive indirect associations with both heuristic and systematic modes. The results also revealed that personality traits including agreeableness, emotional stability and extraversion indirectly explained the use of information-processing modes. Agreeableness (−) and emotional stability (+) were indirectly associated with both heuristic and systematic information processing modes, whilst extraversion (+) was only indirectly associated with the heuristic mode. Openness (+) was the only trait that was directly associated with the systematic mode. This study contributes to the literature on consumer financial information processing by connecting individuals' psychological, cognitive and motivational characteristics. The findings of this study provide valuable insights and policy and practical implications within the industry.     

Getting Cinderella to the ball: putting education at the heart of financial education

The recent banking collapse has called into question all activity related to financial services, from regulation to consumer protection, to financial education. Since the Organisation for Economic Co‐operation and Development's 2005 ‘Recommendations on Principles and Good Practices for Financial Education and Awareness’, there has been an increase in financial education activity, yet the world is a different place. The role of financial education, its scope and its potential, must now be critically analysed to help ensure its efficacy in supporting financial rectitude in challenging times. The authors draw on several years’ experience in the design and delivery of financial education programmes and debt prevention interventions, informed by their perspective as educationalists. In this theoretical commentary, they seek to influence the discourse on financial education, and position education as a foundational discipline in financial education. The authors identify potential risk to the future of financial education, engaging with the literature that questions the validity of financial education as an endeavour in consumer protection, which points to the dearth of empirical evidence to support its effectiveness, and which queries the efficacy of resourcing such initiative development. They argue that financial education focused on consumption cannot serve the citizen; rather, financial education must be rooted in the needs of the individual. Through these analyses, the authors highlight areas of further research, which when undertaken, can lead to more effective outcomes for all. This article introduces the concept of financial edification as an approach to financial education, predicated on the needs of the individual. In repositioning financial education as a pedagogical endeavour, the article asserts that financial education, when not driven by education, cannot achieve its true potential; it is time for Cinderella to go to the ball.     

Impact of family income in early life on the financial independence of young adults: Evidence from a matched panel data

This study investigates whether the family income level in early life influences the financial independence of young adults. Using a large nationally representative U.S. sample (constructed based on the data from the 1999 to 2015 Panel Study of Income Dynamics, its 2009 to 2015 Transition to Adulthood Supplement and its 1997 to 2007 Child Development Supplement), we find that the relationship between one's family income level during adolescence and the financial independence of young adults follows an inverted U‐shape. We find that the college graduation status plays an important role in determining the financial independence of young adults. Once young adults graduate from the college, their financial independence is no longer influenced by their family income level during adolescence. The results show similar patterns after controlling for cognitive and noncognitive abilities and financial behaviours of young adults when they were children or teenagers. The findings of this study have significant implications for policymakers and educators.     

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.     

ENTENSITY OF FAMILY DISAGREEMENT OVER FINANCES AND ASSOCIATED FACTORS*

Results from survey research using regression techniques indicate that disagreement over family finances for men was a function of management practices (negative), years married (negative), and wife's employment, with those who had part-time employed wives reporting more disagreement than those with non-employed wives. Disagreement over family finances for women was a function of frequency of communication (negative), perceived future financial security (negative), and wife's employment, with full-time employed wives reporting less disagreement over finances than non-employed wives. Since the stress and reduced maximization of resources implied by the high percentage of families reporting intense disagreement over finances ultimately affect their well-being, it is imperative that the skills of financial management and communication be developed through counselling and education.     

Bank credit,public financial incentives,tax financial incentives and export performance during the global financial crisis

This paper investigates the extent to which access to credit, public financial incentives and tax financial incentives affect export performance using the EU-EFIGE/Bruegel-Unicredit data set, covering firms within Austria, France, Germany, Italy, Spain, Hungary and the UK during the 2008 global financial crisis. The results show that firms receiving credit or benefiting from public financial incentives display higher export intensity and export a greater number of product lines compared to those that did not, especially in countries with better access to credit and/or financial incentives during the crisis. Further, firms benefiting from tax financial incentives show a better export performance compared to those that did not, regardless of the degree of access to credit and/or financial incentives in the country in which they operate. In addition, the effect of access to credit and public finance incentives on export performance is found to be size-dependent, while the effect of tax financial incentives is not. We suggest that governments should promote publicly funded financial incentives along with conventional schemes, such as R&D subsidies, to promote exports, particularly during a period of financial crisis.