Subjective financial knowledge, prudent behaviour and income

Abstract

Purpose The purpose of this paper is to study how subjective and objective knowledge of finance, behaviour in managing personal finances and socio-economic status affect financial well-being. Design/methodology/approach The financial well-being score is constructed in quantitative financial literacy survey data from Estonia as the arithmetic mean of four statements on a five-point scale. Four hypotheses are tested in multiple regression analysis. Findings Subjective knowledge has a stronger relation with financial well-being than objective knowledge. Financial behaviour score and income level correlate with financial well-being. Research limitations/implications The paper contributes to literature on financial literacy, subjective financial knowledge and financial well-being. In future research, psychological factors and future orientated financial well-being should be included, and their relationship to subjective well-being could be analysed further. Practical implications The results highlight the importance of subjective knowledge and sound behaviour for improving financial well-being. Providers of financial services should address these more in the design of their services and communication. Social implications Policymakers developing national strategies for financial education need to address subjective financial knowledge for increasing financial well-being in society. Originality/value Knowledge, behaviour and subjective knowledge have not been used simultaneously in the analysis of financial well-being in Europe before.

The Effect of Financial Knowledge, Financial Behavior and Financial Inclusion on Financial Well-being

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How Investors Attitudes Shape Stock Market Participation in the Presence of Financial Self-Efficacy

“…Behavioral finance theory relies on how the thinking process and cognitive errors impact investor choice and prices of the stock exchange (Dam, 2017). Investors do not follow the rational models of investment which are assumed in the theory of efficient markets and there exist significant variations in the behavior of investors (Wärneryd, 2001; Riitsalu and Murakas, 2019).…”

Financial literacy and its variables: The evidence from Indonesia

“…Previous studies have revealed that subjective financial knowledge has a positive relationship with financial well-being (Riitsalu and Murakas, 2019;Woodyard, 2013); financial behavior (Allgood and Walstad, 2013;Deenanath et al, 2019;Hilgert et al, 2003;Robb and Woodyard, 2011;Sivaramakrishnan et al, 2017;Seay and Robb, 2013;Tang and Baker, 2016;Xiao et al, 2014); and financial decisions (Khan et al, 2017). Even though previous studies have indicated that both objective and subjective financial knowledge are important to financial behavior to which they contribute different roles, several studies have revealed that subjective financial knowledge is more adequate for explaining financial decisions and behaviors than objective financial knowledge (Robb and Woodyard, 2011).…”