The Financial Knowledge Scale: An Application of Item Response Theory to the Assessment of Financial Literacy

Abstract

Despite increasing interest in and funding for financial literacy and financial education programs in the private and public sectors, the field of financial literacy still has a major obstacle to overcome: the lack of a widely disseminated measure of financial literacy, developed through rigorous psychometric analyses. In this article, we develop such a measure, focusing specifically on financial knowledge. Using item response theory (IRT), we analyze items from three national surveys, resulting in a psychometrically sound 20-item financial knowledge scale. By using IRT, the current analysis uses individuals' answers to inform which questions to include in the scale in the first place, rather than simply confirming relationships between these answers and other financially relevant outcomes post hoc. Widespread use of this index and the continued use of modern psychometric techniques would allow for the comparison of financial knowledge, measured consistently and reliably, across studies, populations, and programs.

An Analysis of the Nature of the Relationship Between SAT Scores and Financial Literacy

“…The demographic-related patterns seen among college students mirror ones found with adult samples (e.g., Goldsmith, & Goldsmith, 2006;Knoll & Houts, 2012;Lusardi & Mitchell, 2008;Markow & Bagnaschi, 2005;Monticone, 2010;Woodyard & Robb, 2012). Several studies suggested that parents play a major role in their children's financial socialization (Cude et al, 2006;Jorgensen, 2007;Lusardi & Mitchell, 2009), so the similarity should not be surprising.…”

Age differences in consumer financial capability

“…Researchers also examined potential effects of financial literacy on borrowing behavior (Huston, 2012;Sevim et al, 2012), saving behavior (Huang et al, 2013), inflation expectations (Bruine de Bruin et al, 2010), and financial behavior (Xiao et al, 2014a). Some researchers examined measuring issues of financial literacy, such as its conceptual definition (Remund, 2010), validation of the measures (Knoll and Houts, 2012), its relevance to product design (West, 2012), and consumer ability to correctly answer financial quiz questions (Schmeiser and Seligman, 2013). Researchers also examined financial educators' teaching strategies (Taylor et al, 2012), discussed how to develop a financial literacy component in a liberal art curriculum (Crain and Ragan, 2012), and conducted international comparative studies on financial literacy (Nicolini et al, 2013).…”

Nível de alfabetização financeira dos estudantes universitários: afinal, o que é relevante?

“…Tendo em vista que não há um instrumento operacional validado que mensure a alfabetização financeira em sua totalidade (Remund, 2010), optou-se pela utilização de uma proxy, seguindo o procedimento adotado por diversos pesquisadores (Aktinson & Messy, 2012;Shim, Xiao, Barber & Lyons, 2009;Shim et al, 2010;Knoll & Houts, 2012), os quais têm, normalmente, avaliado a alfabetização através de fatores. Nesse estudo, a alfabetização financeira é formada pelos seguintes fatores: conhecimento financeiro, comportamento financeiro e atitude financeira.…”