2013 Conference

Financial Services

Financial Services

Both policy makers and researchers have become interested in the assessment, determinants, and outcomes associated with personal financial human capital or “financial literacy.” When assessing financial literacy there may be an important practical distinction between the ability to recall financial knowledge and the ability to apply that knowledge to a scenario. Using functional magnetic resonance imaging (fMRI) we contrast financial knowledge questions with questions requiring application of financial knowledge to specific situations. Knowledge questions were associated with increased activation in a brain region commonly associated with error detection (anterior cingulate cortex). Application questions were associated with increased activation in brain regions that have been previously associated with visualization (occipital) and understanding a cause-and-effect hypothesis (cerebellum). This evidence supports the idea that where a multiple choice financial knowledge question may be completed by identifying statements with simple errors, financial application questions require more probabilistic causal scenario simulation. Given the difference in cognitive processes involved, financial educators may do well to closely match testing measurements with desired behavior in terms of knowledge and skill expectations of students.