What, Me Worry? Financial Knowledge Overconfidence and the Perception of Emergency Fund Needs

Lee, S.T., & Hanna, S.D. (2021). What, Me Worry? Financial Knowledge Overconfidence and the Perception of Emergency Fund Needs. Accepted for publication in the Journal of Financial Counseling and Planning.

42 Pages Posted: 24 Sep 2021

See all articles by Sunwoo T. Lee

Sunwoo T. Lee

York University

Sherman D. Hanna

Ohio State University (OSU)

Date Written: September 23, 2021

Abstract

We examined the association between financial knowledge overconfidence and the perception of emergency fund needs using the 2016 Survey of Consumer Finances (SCF) dataset. Only 28% of respondents reported a perceived amount of emergency funds needed that would cover at least 3 months of estimated spending. We conducted an OLS regression analysis on the log of the ratio of perceived emergency fund needs to household monthly expenditure. Overconfident respondents perceived a ratio 21.4% lower than those who had objective and subjective financial knowledge above median levels. Overconfident respondents might be underestimating emergency fund needs, suggesting the importance of not only increasing objective financial knowledge but also making consumers aware of the limitations of their financial knowledge.

Keywords: Emergency Fund, Financial Knowledge, Overconfidence, Subjective Emergency Fund, Survey of Consumer Finances

JEL Classification: G51;G53; G40;D14;D15

Suggested Citation

Lee, Sunwoo and Hanna, Sherman D., What, Me Worry? Financial Knowledge Overconfidence and the Perception of Emergency Fund Needs (September 23, 2021). Lee, S.T., & Hanna, S.D. (2021). What, Me Worry? Financial Knowledge Overconfidence and the Perception of Emergency Fund Needs. Accepted for publication in the Journal of Financial Counseling and Planning., Available at SSRN: https://ssrn.com/abstract=3929164

Sunwoo Lee (Contact Author)

York University ( email )

4700 Keele Street
252 Atkinson Building
Toronto, Ontario M3J 1P3
Canada

Sherman D. Hanna

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

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