A Financial Sophistication Proxy for the Survey of Consumer Finances

11 Pages Posted: 28 Aug 2011

See all articles by Sandra J. Huston

Sandra J. Huston

Texas Tech University

Michael S. Finke

The American College

Hyrum L. Smith

Utah Valley University

Date Written: August 27, 2011

Abstract

The Survey of Consumer Finances (SCF) contains detailed U.S. household balance sheet information and is frequently used to study outcomes in household finance. There is no variable that explicitly measures financial sophistication in the SCF. We propose a factor score composed of four questions that can serve as a proxy of financial sophistication to correct a possible important omitted variable bias. Results using the sophistication factor show how controlling for financial sophistication provides a more precise estimate of the marginal effects of control variables such as education and race.

Keywords: Survey of Consumer Finances, household finance, financial literacy, financial sophistication

JEL Classification: D12, D14

Suggested Citation

Huston, Sandra J. and Finke, Michael S. and Smith, Hyrum L., A Financial Sophistication Proxy for the Survey of Consumer Finances (August 27, 2011). Available at SSRN: https://ssrn.com/abstract=1918208 or http://dx.doi.org/10.2139/ssrn.1918208

Sandra J. Huston

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Michael S. Finke (Contact Author)

The American College ( email )

Bryn Mawr, PA 19010
United States

Hyrum L. Smith

Utah Valley University ( email )

Orem, UT UT 84058
United States
801-863-8473 (Phone)

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