2013 Conference

Other

Financial Literacy, Personal Finance

Financial Services

There has been increasing concern with the financial literacy of the U.S. population, accompanied by the shifting of retirement benefit policies, exacerbated by the recent financial crisis. However, it remains unclear what types of financial knowledge and behavior are most vital to good planning, and more importantly, whether they make any differences in later life financial well-being, and therefore should be promoted through financial literacy education. This study introduces a new measure of financial literacy - financial self-awareness – to supplement the existing measures of financial literacy. Financial self-awareness reflects individuals’ knowledge of their financial resources, which captures both knowledge and behavior needed for managing financial lives for various populations. The objective of this study is to validate financial self-awareness as a supplementary measure to current financial literacy measures. Using data from Wisconsin Longitudinal Study (WLS), a sample of Wisconsin high school graduates from the class of 1957, this study examines the links between psychological human capital and late-life financial self-awareness, with OLS and logit modeling. Modified Human Capital Theory inspires the incorporation of psychological human capital. Findings show that psychological human capital, such as personality traits and psychological orientations help explain part of the variation in financial self-awareness in late life. Personality traits not only independently relate to late-life financial self-awareness above and beyond the effect of cognitive abilities and other early life factors, but also indirectly mediate the relationship between early-life cognitive human capital and late-life financial self-awareness. This study contributes to the literature for validating financial self-awareness as an important and separate measure from existing financial literacy measures, and for identifying the demographics and characteristics of population more likely to be financially unaware, with the implication of being able to provide well-targeted interventions promoting self-awareness across the life course to improve financial well-being.