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.