Racial/ethnic differences in consumer financial capability: The role of financial education

Abstract

Theoretically, consumer capability is important for consumers to make optimal financial decisions. In the traditional economic theory, consumers are rational agents, fully informed and able to make optimal decisions in a long-term such as described in the life-cycle hypothesis (Modigliani, 1986). However, many consumers are not rational as found in numerous studies in behavioural economics (Thaler, 2016). Increasing financial capability is to help improve decision-making skills that has the important economic significance (Lusardi & Mitchell, 2014). The positive association between financial capability and financial decisions is grounded within the theory of bounded rationality (Simon, 2000). Furthermore, research shows that consumer financial capability may contribute to consumer subjective financial well-being (Xiao et al., 2014;Xiao & Porto, 2017). Financial capability can be defined variously by researchers and the broadest definition is to refer financial capability as knowledge, habits (behaviour), status and access (Lin et al., 2016). Financial capability reflects people's knowledge of financial matters, their ability to manage their money and to take control of their finances (Taylor, 2011).Research on financial capability not only concerns knowledge of consumers, but also the actual behaviour of consumers and its prerequisites such as skills and attitudes (Hoelzl & Kapteyn, 2011). UK played a leadership role in the movement of promoting financial capability by conducting national surveys. The first financial capability survey

Consumer financial education and risky financial asset holding in China

“…Benefits of financial education for consumers are documented in previous research (Asarta, Hill & Meszaros 2014;Brown et al, 2016;Clark, Lusardi & Mitchell, 2017;Kaiser & Menkhoff, 2019;Kim & Xiao, 2020;Lusardi, 2019;Miller et al, 2015;Urban et al 2020). Recent meta-analysis verified the positive effects of financial education on financial literacy and behaviors (Kaiser & Menkhoff, 2017Miller et al, 2015).…”

The racial/ethnic gap in financial literacy in the population and by income

“…To the best of our knowledge, there are only two papers that empirically analyze the determinants of the racial/ethnic gap in financial literacy: Al‐Bahrani et al (2019) and Kim and Xiao (2020). Both studies use regression and Blinder‐Oaxaca (BO) decomposition analyses and data from the National Financial Capability Study (NFCS).…”

“…Kim and Xiao (2020) rely on data from the 2018 NFCS to study whether resource factors contribute more than knowledge factors to explain the Black–White and Hispanic–White gaps in financial capability. In their analysis, financial capability is a composite measure of both financial knowledge and financial behavior.…”

“…First, we adopt a very comprehensive model to identify the determinants of the observed racial/ethnic disparities in financial literacy. To the best of our knowledge, there are only two papers focusing specifically on the determinants of the racial/ethnic gap in financial literacy within the United States (Al‐Bahrani et al, 2019; Kim & Xiao, 2020). We broaden the scope of this existing work by examining the extent to which financial literacy correlates with childhood family circumstances and neighborhood socioeconomic characteristics, conditional on a rich set of individual characteristics.…”

Impact of financial debt on borrower’s health based on gender

“…Health is known to have direct relationship with race, age and marital status (Sweet et al, 2013. ) and education is related to debt levels and the capability of individuals to pay such debt (Kim & Xiao, 2020). Those with prior experience with personal bankruptcy are expected to experience different levels of stress for a given debt level than those without such experience.…”