What Causes Suboptimal Financial Behaviour? An Exploration of Financial Literacy, Social Influences and Behavioural Economics

244 Pages Posted: 28 Mar 2011 Last revised: 28 May 2011

See all articles by Angelo Capuano

Angelo Capuano

Central Queensland University (CQUniversity) - School of Business & Law

Ian Ramsay

Melbourne Law School - University of Melbourne

Date Written: March 23, 2011

Abstract

This research report is part of a project, funded by the Australian Research Council, which will contribute to a broader understanding of the role of financial literacy and consumer behaviour in Australia. The research report explores the causes of financial behaviour and considers whether suboptimal financial behaviour has causes other than lack of financial literacy. Part A of the research report explains the importance of financial literacy. This part identifies the benefits of financial literacy to consumers, the community, the economy and the financial markets. Part B explains the meaning of financial literacy. This part reviews financial literacy surveys conducted worldwide and refers to academic literature to explain the key competencies and proficiencies of a financially literate consumer. Part C outlines the flaws in the decision making processes of consumers when choosing financial products. Part D identifies social, psychological and cognitive causes of suboptimal and irrational consumer behaviour. It considers social influences on financial behaviour such as wealth, income, social capital as well as psychological biases and heuristics studied in behavioural economics and neuroeconomics. It is shown that suboptimal consumer decisions have many causes, not just financial illiteracy. Part E reviews 23 financial literacy surveys to explain how financial literacy is measured. It also identifies common findings among the surveys. The Appendix to the research report provides a summary of 23 financial literacy surveys from the World Bank and a number of countries including Australia, the UK, US, Italy, the Netherlands, Singapore, Japan, Austria, Ireland and Russia.

Suggested Citation

Capuano, Angelo and Ramsay, Ian, What Causes Suboptimal Financial Behaviour? An Exploration of Financial Literacy, Social Influences and Behavioural Economics (March 23, 2011). U of Melbourne Legal Studies Research Paper No. 540, Available at SSRN: https://ssrn.com/abstract=1793502 or http://dx.doi.org/10.2139/ssrn.1793502

Angelo Capuano (Contact Author)

Central Queensland University (CQUniversity) - School of Business & Law ( email )

Australia

Ian Ramsay

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

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