The Academy of Financial Services 35th Annual Meeting

Financial capability, psychological

This paper highlights the weakness of existing financial capability measurement tools which ignore the impact of psychological factors. This paper defines the terms underpinning financial capability, provides a summary of the current state of financial capability levels, and identifys shortfalls of existing measurement tools. Modern behavioural finance studies have increasingly explored the direct link between psychological factors and financial decision-making. Specifically, this study examines the impact which behavioural bias, heuristics, locus of control and time orientation have on financial capability levels in New Zealand. This study incorporates financial wellbeing data kindly provided by Australia and New Zealand Banking Group Ltd and has been used under licence with its permission. Factor analysis was undertaken to prepare the data for regression modelling. Data analysis resulted in reducing 52 items to 12 retained factors, and then to three index components. Following initial analysis, robustness and validity checks were completed.