Does financial literacy alleviate risk attitude and risk behavior inconsistency?

Korkmaz, Aslihan Gizem; Yin, Zhichao; Yue, Pengpeng; Zhou, Haigang

doi:10.1016/j.iref.2021.03.002

Cited by 61 publications

(33 citation statements)

References 27 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…This study considered various control variables based on the prior studies ( Korkmaz et al, 2021 ; Xu et al, 2021 ), including age, age square, education level, marital status ( Married ), health status ( Health ), risk attitude, and other demographic characteristics ( Lei et al, 2013 ; Zhao et al, 2016 ; Shu, 2018 ; Tang et al, 2021 ; Zhao and Qu, 2021 ). Family characteristic variables included the following: Number of children in the family (age<15), number of elderly in the family (age > 60), family size, homeownership, owning two or more houses, total family income (natural logarithm), and total family assets (take natural logarithm).…”

Section: Methodsmentioning

confidence: 99%

Does Financial Literacy Affect Household Financial Behavior? The Role of Limited Attention

Xu¹,

Yang

Ali

et al. 2022

Front. Psychol.

View full text Add to dashboard Cite

Financial literacy is essential for every individual concerned with public welfare and household portfolio choices. In this study, we investigate the impact of household financial literacy on individuals’ financial behavior using the China Household Financial Survey Data (CHFS) of 2015 and 2017. The results show that financial knowledge has significant current, long-term, and dynamic effects on financial behavior. This finding suggests that financial literacy is an important factor in shaping and improving financial behavior. Second, financial literacy can improve residents’ limited attention, and residents with high attention tend to have formal bank accounts, participate in the stock market, and engage in financial behaviors in situations such as risky financial markets. High attention also helps to improve residents’ financial behavior. This relationship suggests that financial literacy positively impacts formal bank account holding, participation in financial markets, participation in commercial insurance, participation in pension plans, and credit card holdings through limited attention channels that facilitate access to specific financial information. In addition, heterogeneity analysis showed that the impact of financial literacy on financial behavior differs significantly between urban and rural households, between men and women, and between high and low education levels. The study provides valuable insights for policy implications to enhance financial literacy, such as carrying out financial training to improve residents’ knowledge about financial aspects, which further helps to optimize household financial decision-making.

show abstract

Section: Methodsmentioning

confidence: 99%

Does Financial Literacy Affect Household Financial Behavior? The Role of Limited Attention

Xu¹,

Yang

Ali

et al. 2022

Front. Psychol.

View full text Add to dashboard Cite

show abstract

“…Being knowledgeable in a particular field is associated with making few mistakes (Lührmann et al 2018). Gizem Korkmaz et al (2009) in their study concluded that financial knowledge reduces inconsistency between risk propensity and risk behaviour. Binswanger and Salm (2017) in their study concluded that being knowledgeable reduces heuristic responses amongst subjects.…”

Section: Risk Tolerance Gapmentioning

confidence: 99%

“…What is also not clear is how financial literacy interacts with risk preferences in the realization of life outcomes. There is evidence that suggests that financial literacy reduces risk attitude inconsistency (Gizem Korkmaz et al 2009;Anderson and Mellor 2009). One may want to know if financial literacy helps individuals to better understand their risk preferences by comparing risk preferences that are elicited experimentally against those collected by way of the general risk question.…”

Section: Introductionmentioning

confidence: 99%

Eliciting Risk Preferences Experimentally versus Using a General Risk Question. Does Financial Literacy Bridge the Gap?

Mudzingiri

Koumba

2021

Risks

View full text Add to dashboard Cite

The study investigates the stability of financial risk preference choices elicited from subjects by way of two methods, namely: experimentally elicited incentivized revealed risk preferences (IRRP) and (self-reported) perceived willingness to take a financial risk (PWTFR). The research further examines whether financial literacy (a human capital aspect) helps in reducing the gap between IRRP and PWTFR choices made by subjects. A total of 193 university students (where 53% were female) participated in the study. The subjects completed IRRP choices from four multiple price list (MPL) risk preference tasks and a financial literacy questionnaire. There is a tendency to anchor at extremes of risk-seeking behavior when subjects self-report their PWTFR choices. A paired t-test analysis of the two methods shows that the average responses from the two methods are significantly different. A random effect (RE) panel regression shows that an increase in financial literacy narrows the gap between IRRP and PWTFR choices. The study’s findings show that responses by subjects from a PWTFR general risk question (GRQ) and IRRP experiment are unstable and inconsistent. What people say in a survey does not always translate into what they do when faced with a risk preference choice dilemma. Financial literacy helps individuals to predict their risk attitudes more precisely.

show abstract

“…The relationship between financial literacy and CSR has been studied from several perspectives, with a focus on how the former relates to risk and return expectations. According to Korkmaz et al (2021), the most financially literate individuals are those who exhibit more risky attitudes. This result reinforces the research conducted by Aren and Zengin (2016) that there is a significant relationship between risk perception and financial literacy.…”

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Shedding light on the impact of financial literacy for corporate social responsibility during the COVID-19 crisis: managerial and financial perspectives

Stella

Cervellati

Magni

et al. 2022

View full text Add to dashboard Cite

PurposeThe aim of this paper is to help management scholars and executives learn from the COVID-19 global crisis by analyzing if and how the level of financial literacy affected stakeholders' sensitivity to corporate social responsibility (CSR) issues during the pandemic, as well as identifying whether financial literacy is an important variable to account for in the postpandemic period. The authors test the relationship between objective (measurable) and subjective (self-assessed) financial literacy, as well as financial happiness (i.e. satisfaction with one's current financial situation) with CSR during the pandemic. High levels of financial literacy cause individuals to reward companies that implement CSR strategies and processes.Design/methodology/approachThe authors designed an online survey and obtained data on objective and subjective financial literacy, financial happiness and COVID-19 infections, as well as on the demographic and socioeconomic characteristics of a representative sample of 1,334 Italian respondents. From a methodological point of view, the authors perform a factor analysis on the CSR-related questions to extract the principal components (PCs) that were used as dependent variables in the regression models to analyze the effects of explanatory variables (financial literacy, financial happiness and COVID-19 infections) and consider the control variables (demographic and socioeconomic characteristics). The authors follow a theoretical approach merging stakeholder theory with CSR.FindingsRespondents with a high level of financial literacy and financial happiness are highly sensitive to all CSR components (ethical, philanthropic, economic and legal social responsibilities). Being infected by COVID-19 increased participants' sensitivity to ethical and philanthropic social responsibility (SR), but not to economic and legal SR. The more educated and employed respondents were, the more sensitive they were to CSR, especially compared to their less educated and unemployed counterparts.Research limitations/implicationsWhile the sample used is large and representative of the Italian population, Italy is an interesting and useful case to analyze, given that it was the first Western country to be severely hit by COVID-19; since the paper only refers to a specific country scenario, the results cannot be generalized to other countries. A cross-country comparison relating financial literacy and financial happiness to CSR during the COVID-19 pandemic period would be desirable. The research study has theoretical implications for management scholars since the authors show that, during the pandemic period, financial education and financial happiness are relevant in explaining stakeholders' greater sensitivity to CSR issues. The findings may thus help scholars to learn from the COVID-19 period, with the aim of further developing and enhancing stakeholders' theory.Practical implicationsThe research also has practical implications, both for corporate executives and for policymakers, helping them to learn from the COVID-19 global crisis concerning the role of financial literacy and financial happiness on CSR sensitivity and, consequently, how they may consider these important variables in the postpandemic era. On the one hand, executives may improve stakeholders' segmentation and eventually modify CSR policies, considering the higher sensitivity of their stakeholders' due to a higher degree of financial literacy. On the other hand, the findings suggest that policymakers should have a stronger role in supporting employment and education in general and in promoting programs to improve financial literacy to increase stakeholders' sensitivity to CSR, thus further stimulating the inclusion of CSR factors in companies' strategies. Increasing stakeholders' sensitivity to CSR will, in turn, increase the propensity of companies to include SR in their strategies. Thus, increasing financial literacy will have tangible positive effects of increasing CSR. Given the greater role played by companies during the COVID-19 period with respect to societal risk, the findings seem particularly useful.Originality/valueTo the best of the authors’ knowledge, this study represents the first that links financial literacy and financial happiness with CSR during the COVID-19 crisis. The large and representative dataset, as well as the use of specific variables related to financial literacy, financial happiness and COVID-19 infections in the CSR assessment model, makes our analysis original, robust and significant by contributing to the CSR literature and to the financial literacy literature from a methodological point of view, as well as by informing corporate executives and policymakers about the role of financial literacy with regard to CSR during the pandemic, which may help them in learning how to improve their decisions and actions in the postpandemic era.

show abstract

Does financial literacy alleviate risk attitude and risk behavior inconsistency?

Cited by 61 publications

References 27 publications

Does Financial Literacy Affect Household Financial Behavior? The Role of Limited Attention

Does Financial Literacy Affect Household Financial Behavior? The Role of Limited Attention

Eliciting Risk Preferences Experimentally versus Using a General Risk Question. Does Financial Literacy Bridge the Gap?

Shedding light on the impact of financial literacy for corporate social responsibility during the COVID-19 crisis: managerial and financial perspectives

Contact Info

Product

Resources

About