Financial literacy in Brazil – do knowledge and self-confidence relate with behavior?

Abstract

Purpose-People are increasingly responsible for making sound financial decisions to foster their financial satisfaction and well-being, which magnifies the importance of financial literacy, and this concept and measurement is still not yet crystallized in the literature, specifically capturing different behavior perceptions. Moreover, there is not a distinction based on different classifications of behavior, such as over or underconfidence, to understand the relation between literacy and decision process. To fill this gap, this paper aims to investigate whether the financial literacy conceptual model proposed applies similarly to every group independently of their previous self-confidence perception. For this purpose and quality control, OECD (2016) data were used with a final sample of 1,487 Brazilian citizens. Quantitative analysis technique using partial least squares structural equations path modeling and differences between groups using multi-group analysis was applied. In line with general studies, when analyzing the financial literacy usual model for the group as a whole, financial knowledge construct positively influences self-confidence, and both together positively affect financial behavior. However, for individuals with low financial knowledge and low self-confidence, as well as for those with too much or too little confidence, the model did not hold. Therefore, self-confidence perception influences the way financial knowledge is used for financial decisions and should be addressed in financial education and training to be more effective. Design/methodology/approach-To operationalize the variables and test the paper's hypotheses, the authors used the methodology developed in OECD (2016), based on the research instrument's Brazilian application adapted from the questionnaire developed in OECD (2015), with data initially used and made available by Garber and Koyama (2016). Based on the recommendations of Hair Jr et al. (2017a, 2017b), the authors used partial least squares modeling PLS-PM (SmartPLS 3.2.6) to estimate the structural models. Findings-Concerning structural relationships, the final model showed knowledge with a positive influence on self-confidence, self-confidence with a positive effect on behavior and knowledge with a positive influence on behavior, both directly and, through its relationship with self-confidence, indirectly. This underscores that, for the total sample, the greater people's knowledge and self-confidence, the better their behavior. The unexpected absence of attitude in the final model, even allowing for potential measurement problems, brings up an important reflection on the mediating effect that the self-control variable may exert between attitude and behavior. A person may believe that saving for the future is important (attitude) but whether they actually save (behavior) may depend on self-control, which is needed to prevent immediate gains from being prioritized in practice. Research limitations/implications-The findings reported so far concern the study's total sample....

The Role of Financial Literacy on Financial Behavior

“…Furthermore, an individual's behavior is not merely based on what they understand or know, rather it still has something to do with their self-confidence. Knowledge drives a person's self-confidence to do something (Ramalho & Forte, 2019). A good financial behavior is the basic need for all people and entrepeneurs are not an exception.…”

Savings and financial literacy: a brief review of selected literature

“…The majority of empirical research on financial literacy and savings have relied on representative adult samples (Cupák, Kolev and Brokešová 2019;Ramalho and Forte 2019). Other studies have analysed students (Bongini and Cucinelli 2019; de Cecco and Estache 2016; Potrich, Vieira and Mendes-Da-Silva 2016), millennials (Yong, Yew and Wee 2018), groups with higher-than-average financial literacy such as teachers (Zulaihati, Susanti and Widyastuti 2020) and US Federal Reserve System collaborators (Clark et al 2014).…”

“…Long-term savings offer opportunities to engage in regular consumption throughout people's life cycle, and short-term or emergency savings provide purchasing power protection in the event of income shocks (Mahdzan and Tabiani 2013). Various studies have analyzed the factors that influence individuals' saving behavior and highlighted the role of financial literacy (e.g., Cupák, Kolev and Brokešová 2019;Pak and Chatterjee 2016;Ramalho and Forte 2019), which has an important function in financial decision making, especially given financial systems' increasing complexity (Potrich, Vieira and Mendes-Da-Silva 2016). People must acquire not only financial knowledge but also the ability and confidence to apply this expertise when making financial decisions (Huston 2010).…”

“…Pak and Chatterjee (2016) focused on both observed and perceived knowledge and measured financial literacy's impact on savings (i.e., emergency and retirement) for the study's entire sample and overconfidence group.The literature has also discussed financial literacy's multidimensional role and analysed the relationships between the three dimensions mentioned previously (see section 3.3.1). For instance, the model proposed byPotrich, Vieira and Mendes-Da-Silva (2016) andRamalho and Forte (2019) incorporates current financial knowledge, perceived financial knowledge and financial attitude as antecedents of financial behavior. Potrich, Vieira and Mendes-Da-Silva (2016) compared three models with different relationships between the components of financial literacy, behavior, knowledge and attitude and concluded that financial knowledge and attitude are correlated with and mutually predict financial behavior.…”

How does materialism affect charity works?

“…Behavior economics is related to how human beings individually or in groups make decisions based on their social factors; for example, attitudes, feelings or emotions, or psychological factors in general. These social and psychological factors can also be assumed as human preferences; furthermore, it may influence the decision-making process (Ramalho & Forte, 2019). This psychological concept used in behavior economics is what makes it very different than the classical economic theory.…”