Development and Validation of a Financial Self-Efficacy Scale

10 Pages Posted: 18 Feb 2012

See all articles by Jean M. Lown

Jean M. Lown

Utah State University - Emma Eccles Jones College of Education and Human Services

Date Written: 2011

Abstract

The influence of a financial sophistication scale on adjustable-rate mortgage (ARM) borrowing is explored. Descriptive statistics and regression analysis using recent data from the Survey of Consumer Finances reveal that ARM borrowing is driven by both the least and most financially sophisticated households but for different reasons. Less sophisticated households are more likely to choose ARMs when they are income constrained, while more sophisticated households are more likely to choose ARMs to take advantage of higher interest rate spreads between fixed-rate mortgages and ARMs. These results highlight the importance of financial sophistication in making effective mortgage decisions and the value financial counselors and planners can provide in helping households understand the benefits and risks of ARM borrowing.

Keywords: adjustable-rate mortgages, financial sophistication, mortgage choice, Survey of Consumer Finances

JEL Classification: 122

Suggested Citation

Lown, Jean M., Development and Validation of a Financial Self-Efficacy Scale (2011). Journal of Financial Counseling and Planning, Vol. 22, No. 2, p. 54, 2011. Available at SSRN: https://ssrn.com/abstract=2006665

Jean M. Lown (Contact Author)

Utah State University - Emma Eccles Jones College of Education and Human Services ( email )

Logan, UT
United States

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