Disentangling financial literacy: three - dimensional approach to analysing management of personal finances in Estonia

Journal of Social Research & Policy, Volume: 9, Issue: 1, pp. 29-40

Date: July 2018

ISSN: 2067-2640 (print), 2068-9861 (electronic)

Abstract: There has been a prevalent assumption among the promoters of financial literacy that socio-economic status and knowledge of financial matters are of vital importance in making wise decisions in managing personal finances. Empirical evidence from Estonia suggests that these in fact have a more complicated relation to actual behaviour than believed so far. The socio-economic factors that explain differences in knowledge do not necessarily influence behaviour and vice versa. We suggest a three-dimensional approach for studying the factors behind differences in financial literacy. Regression analysis reveals that only education is significantly explaining the differences in all three – knowledge, attitudes and behaviour scores. Other socio-economic factors, willingness to take investment risks and the quantity of books at home are related only to one or two of the elements of financial literacy. The findings indicate the need for agreement on what constitutes financial literacy and the study of each element of it separately to find ways of improving financial well-being.

Keywords: Financial Literacy; Financial Education; Behavioural Economics; Economic Sociology; Estonia