Introduction
The index will include indicators of financial knowledge, financial behavior, financial attitudes and psychological factors to measure levels of financial capability. Therefore, financial literacy lays the foundation for achieving financial well-being by using financial knowledge to guide financial behavior and decision-making. The first essay will develop a new financial literacy index that includes measures of financial knowledge, behavior, attitudes, and psychological factors.
The second essay will explore the relationship between gender and financial capability using the new Financial Capability Index. The third essay will explore the relationship between financial socialization and financial capability using a new index of financial capability. The purpose of this component of the study is to determine the importance of financial socialization in an individual's childhood and the direct relationship between socialization and levels of financial capability.
Data
For example, several questions about financial behavior had response option scales of always, often, sometimes, rarely, never, and don't know. However, 'don't know' and 'not applicable' responses required data cleaning and manipulation to ensure that the data were in a usable state for principal component analysis and multiple regression. An informed researcher's judgment was used to address 'don't know' and 'not applicable' responses, with treatments including re-categorising responses as systematically missing variables and/or eliminating certain questions because they were not relevant to the New Zealand population or high level missing answers.
In other cases, "don't know" or "not applicable" responses were recoded into another valid response that was similar in measuring the conceptual understanding of the question. Interpretation of the research means that the responses of don't know (6) were recoded as neither agree nor disagree (3) as they essentially provided the same level. When reviewing the entire questionnaire, there was significant inconsistency in the direction of the Likert scale response options.
Financial capability index
An individual's level of financial capability is therefore directly influenced by his internal (personality, behavioral biases and psychological health) and external environment (experiences, personal circumstances and social factors) (Kempson et al., 2005). Empirical literature defines the importance of financial knowledge, financial behavior and financial attitude in determining the level of an individual's financial ability. Financial capability goes beyond knowledge and describes an individual's ability to use their understanding of financial concepts to guide financial behavior and appropriate financial decision-making.
A study on the behavior of financial assets found that including psychological factors doubled the explanatory power of the model compared to an economic model that only measures financial knowledge and attitudes (Shephard et al., 2017). As financial decision-making and the resulting financial risks are increasingly borne by the individual, the importance of financial capabilities has been emphasized. Achieving financial capacity means acting in a financially competent manner toward financial well-being (French et al., 2020).
Therefore, the ability to exercise economically proficient behavior is imperative in the determination of economic capacity. In addition to the impact on income and financial well-being, improved financial capacity is thought to guide an individual's financial decision-making and management of financial resources now and into the foreseeable future (Taylor et al., 2011). As described earlier in the chapter, financial capability is a driving force for achieving financial well-being.
The final step in creating the financial capability index is to examine the statistical significance of the model. The result of the multiple regression analysis is a model in which financial capabilities are predicted as a function of financial knowledge, financial behavior, financial attitudes and psychological biases. For this analysis, an eigenvalue baseline of 0.8 was justified to eliminate duplicate loadings and capture two additional components that had high variance-explanatory power. The last two retained components are Internal_Locus_Control (0.9) and Responsibility_Avoidance (0.9), which explain another 10.2% and 10.2. % of the variance, respectively.
As financial decision-making and the resulting financial risks are increasingly borne by the individual, the importance of financial capabilities has become even greater. Perhaps the most important part of achieving financial capacity is the ability to translate knowledge into informed financial decision-making and effective financial behavior. The result of the stepwise backward regression will be a model that explains the maximum variation in the financial capacity variable.
Gender and financial capability
A similar study, also based on FINRA's National Financial Literacy Survey, explored gender differences in financial knowledge, behavior and well-being. There is growing interest among researchers in the level of financial literacy of women, particularly in relation to the link between financial literacy and financial decision-making. Another factor contributing to the gender gap in financial capabilities is the influence of the life cycle and stages.
The gender gap in levels of financial skills is getting worse as women's participation in the labor market increases. As women's participation in the labor market has increased, the mismatch in financial literacy skills has been highlighted, particularly in income management and debt literacy (Potrich et al., 2018). An American study undertaken by Potrich et al. 2018) investigated gender differences in financial literacy levels observed against various socio-economic and demographic variables.
Consequently, less access to financial resources throughout life combined with poor levels of financial skills increase the risk that women will face financial difficulties in retirement (de Bassa Scheresberg et al., 2014; Hasler & Lusardi, 2017). Finally, general psychological differences between men and women also contribute significantly to the gender gap in financial skills. Based on the results of the US National Survey of Financial Literacy, women were significantly more likely to answer 'don't know' questions than men, with 65% of women answering 'don't know' to at least one of the five financial literacy questions (de Bassa Scheresberg et al., 2014).
These challenges are the biggest contributor to the gender gap in financial capability that persists around the world. Using the new financial capability indicator, this essay will examine and attempt to better understand gender differences in financial capability. Although gender differences in financial ability levels are well documented, significantly less research has been undertaken to understand what factors explain this gender difference.
Studies have identified several variables that are likely to have a negative impact on the financial capability levels of women in different age groups.
Parental socialization and financial capability
Financial socialization relates to the acquisition of financial knowledge and behavior to enable self-management of everyday financial matters as individuals transition to adulthood and beyond (Kim & Chatterjee, 2013). However, the level of knowledge that children can acquire through financial socialization is limited to the level of financial knowledge that their parents maintain and are able to display (Sherraden, 2010). Purposeful financial socialization is the process where parents intentionally educate their children about financial concepts and behaviors.
The development of awareness among parents would likely increase the regularity of purposeful financial socialization and targeted education, thereby improving the development of children's financial capabilities (Zhu, 2018). Therefore, consumer socialization theory is defined as the conscious or unconscious accumulation of financial knowledge and skills as modeled by key socialization agents during adolescence. However, financial socialization is unlikely to lead to appropriate financial decision-making when children are exposed to parents/mentors who lack financial knowledge and demonstrate positive financial behaviors (Sherraden, 2010).
Several studies have identified that traditional financial education programs tend to focus on developing financial literacy and understanding everyday concepts. It is important to understand the nature of the relationship between financial capability levels among young adults and the financial socialization experience they were exposed to in their childhood years. It is clear that a significant part of financial education is accomplished through the socialization process.
The literature has identified the importance of financial socialization to influence the development of appropriate financial knowledge and money management practices by the individual. In some cases, studies have shown that individuals who are exposed to financial socialization gain financial knowledge and tend to demonstrate positive financial behaviors. H1: Individuals who acquire knowledge through financial socialization during childhood demonstrate higher levels of financial literacy than individuals who do not.
H2: Individuals who acquire knowledge through financial socialization during childhood exhibit higher levels of financial ability than those who only experience formal financial education.
Summary and contribution
Finally, behavioral economics studies have recently shown the link between financial socialization and financial ability levels. The final part of this exploration will address the development of the knowledge and skills that underpin an individual's financial capabilities through a process known as financial socialization. This part of the study aims to identify the importance of financial socialization during an individual's childhood and the direct relationship between socialization and financial ability of an adult.
The research project is a comprehensive exploration of the current state of financial opportunity in New Zealand. This study proposes a new financial capacity indicator to more accurately measure financial capacity levels in New Zealand. The index will effectively include proxies of financial knowledge, financial behavior, financial attitudes and psychological factors to measure financial wealth levels.
The essay will include the rationale for the index's formation and, once constructed, will be used to measure New Zealand's levels of financial capability. This index of financial capability will be a key feature of the study and will provide the basis for the methodology for the following studies. The second essay will use the financial literacy index to better understand the gender gap that exists in levels of financial literacy.
The final essay will explore the development of knowledge and skills that form the foundation of an individual's financial capability through a process known as financial socialization. Financial Capabilities of Working Women: An Analysis of Family Status and Career Stages Retrieved from https://www.tiaainstitute.org/sites/default/files/presentations/2017-. Financial Capability and Wellbeing Retrieved from https://masjumpprdstorage.blob.core.windows.net/cms-production/financial-.
Retrieved from https://8b109582833d5c2e19d5-b8e01d380645fda9dfa9d12a21c5e59a.ssl.cf3.rackcdn.com/downloads/Beyond-financial-literacy_The-psychological-dimensions-of-financial-capability_Technical-report.pdf. Financial capacity for well-being: an alternative perspective from the capacity approach Retrieved from https://www.econstor.eu/bitstream pdf. Parental socialization and financial capabilities among Chinese adolescents in Hong Kong Journal of Family and Economic Issues.
