The association between financial literacy confidence and financial satisfaction

Abstract

PurposeThis study examines the association between financial literacy confidence and financial satisfaction. The authors posit that overconfident poor performers will experience greater levels of financial satisfaction and underconfident high performers will experience lower levels of financial satisfaction.Design/methodology/approachBased on the results of an objective financial literacy assessment and a subjective financial literacy assessment, variables measuring study participants' financial literacy overconfidence and financial literacy underconfidence are constructed. The variables are analyzed for their associations with financial satisfaction.FindingsThe results from the multivariate analysis suggest that financial literacy overconfidence (underconfidence) is associated positively (negatively) with higher levels of financial satisfaction and is associated negatively (positively) with lower levels of financial satisfaction.Practical implicationsThe discussion first highlights that to increase objective financial literacy, the disconnect between subjective financial literacy assessment and objective financial literacy must be recognized. Secondly, the discussion encourages financial literacy and education programs to incorporate behavioral education, which can provide learners with an awareness of the role of financial literacy confidence when making financial decisions.Originality/valueFinancial literacy overconfidence can result in an inability to recognize the realities of one's financial situation. Individuals who are overconfident in their level of financial literacy preformed lower on an objective assessment of their financial literacy, yet also tended to have a greater sense of financial satisfaction. This finding not only suggests that financial literacy overconfidence results in financial ineptitude, but also suggest that financial literacy overconfidence can result in specious conclusions regarding one's financial situation. The financial literacy underconfidence finding suggests that those who are financial literate, and who are also underconfident in their financial literacy, are less likely to have high financial satisfaction.

Impact of financial literacy on savings behavior: the moderation role of risk aversion and financial confidence

“…Jappelli and Padula (2015) suggest that solid financial knowledge supports reducing the costs of entering stock markets. Pearson and Korankye (2022) reported that financial literacy overconfidence is positively related to increased levels of financial satisfaction and vice-versa. Bourova et al (2018) investigated the financial literacy levels and the intensity of financial hardship among Australians with debt problems.…”

Student loan debt in retirement: identifying the correlates and implications for policy, practice and research

“…Financial knowledge. Financial knowledge, representing both subjective and objective knowledge, is an essential factor that is known to influence financial behavior (Korankye et al, 2023;Pearson and Korankye, 2022). First, subjective financial knowledge represents people's confidence in their knowledge of financial matters (Rosen and Sade, 2019).…”

Affect and financial satisfaction: The mediating role of financial self‐efficacy

“…This finding points to the significance of financial selfefficacy to financial satisfaction and justifies support the inclusion of financial self-efficacy as a predictor of financial satisfaction in this current study, which explores the relationship between affect, financial self-efficacy, and financial satisfaction then increase their perception of their financial situation and well-being. In summary, the existing literature has focused on the influence of economic and socio-demographic factors on financial satisfaction (Aboagye & Jung, 2018;Pearson & Korankye, 2022;Seay et al, 2015). More recently, there is a growing body of literature on how psychosocial factors relate to financial satisfaction (Davis & Runyan, 2016;Tharp, Seay, Carswell, et al, 2020;Tharp, Seay, Stueve, et al, 2020).…”

“…In summary, the existing literature has focused on the influence of economic and socio‐demographic factors on financial satisfaction (Aboagye & Jung, 2018; Pearson & Korankye, 2022; Seay et al, 2015). More recently, there is a growing body of literature on how psychosocial factors relate to financial satisfaction (Davis & Runyan, 2016; Tharp, Seay, Carswell, et al, 2020; Tharp, Seay, Stueve, et al, 2020).…”