Objective Measures and Emerging Adults’ Perceptions of Financial Knowledge
Posted: 28 Sep 2018
Date Written: May 20, 2018
This study examines four waves of the Arizona Pathways to Life Success for University Students (APLUS) survey to analyze the relationship between objective measures and individual’s perceptions of financial knowledge. The APLUS survey follows college students from their first year in college through 5 years after college. The longitudinal nature of the study allows for exploration of how objective measures and perceptions of financial knowledge change over time.
The dependent variable in the analysis is the individual’s perceptions of their financial knowledge (Shim et al., 2010). The perceptions are measured using responses to the following question: “How would you rate your overall understanding of personal-finance and money-management concepts and practice?” There are five possible responses ranging from very low to very high. The objective measure of financial knowledge is created from responses to 15 true/false financial literacy questions involving money management (Hilgert, Hogarth & Beverly, 2003) This objective measure forms the main explanatory variable in the model.
A random-effects ordered probit model is used, and the marginal effects are calculated, to estimate the relationship between the objective measure and the individual’s perceptions of financial knowledge. The findings suggest that, for the emerging adults in the APLUS survey, there is a weak, but positive, correlation between objective measures of financial knowledge and individuals’ perceptions of their knowledge. In addition, the results suggest that individuals’ perceptions do change over time. College seniors have a higher probability of perceiving themselves as financially knowledgeable compared to when they were first-year college students. While this is to be expected, it is interesting to note that these same participants have a higher probability of perceiving themselves as more financially knowledgeable as college seniors than they do five years after college. In other words, individuals who have been out of college for five years perceive themselves as less financially knowledgeable then they did as college seniors. This suggests that the increased complexity of post-college life experiences help individuals understand their lack of financial knowledge. Financial educators and policymakers can use this evidence to argue for improved, earlier, and ongoing financial education.
Keywords: financial knowledge, perceptions of knowledge
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