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E1a An Alternative Approach to Examine Financial Knowledge Overconfidence and Financial Behaviors among Millennials
Key Words
financial literacy,overconfidence,financial knowledge,financial behaviors,latent class,millennials
Short Description
The purpose of this study is two-fold: one to identify a more sophisticated method to more accurately determine financial knowledge overconfidence and two: to identify financial education interventions that influence overconfidence among millennials. We propose a latent class analysis to identify overconfidence groups This method statistically and endogenously identifies unobserved categorical latent variables that represent groups called classes. We successfully investigate categorical latent classes hidden in data and identify which latent class represents the overconfidence group by latent class analysis. From the result of this method, we conclude that financial education in high school can reduce the probability of being overconfident. However, millennials who have rejected financial education are more likely to be overconfident than those who have not. Financial education from employers can increase the probability of being overconfident. We also test our method on two dependent variables: use of alternative financial services and bad credit card behaviors. From the result, we conclude that the overconfidence in financial knowledge encourages millennials to use AFS and credit card with no planning. These bad financial behaviors would be problematic in their financial well-being in the future.
First & Corresponding Author
Namhoon Kim, Korea Rural Economic Institute
Authors in the order to be printed
Namhoon Kim, Travis Mountain