Financial Responsibility, Personality Traits and Financial Decision ...

Financial Responsibility, Personality Traits and
Financial Decision Making ∗
Dirk Brounen † Kees G. Koedijk ‡ Rachel A. J. Pownall §
February 28, 2013
Abstract
Personal responsibility towards financial decision-making is being advocated
on a global basis. Individuals and households are encouraged to take a more
responsible approach to personal finance, both to encourage households to make
their own decisions on financial issues and also to encourage greater financial responsibility
for these actions. In this paper, we examine the behavioral factors
and personality traits, which lead households towards taking on greater financial
responsibility for making financial decisions, which have an important impact on
the future value of savings and retirement provision. Besides household demographics
and basic financial literacy, we find that personality and upbringing are
key factors to individuals savings behavior. Respondents are more likely to grow
up to become savers when raised by parents who also saved for their college education
and who take on greater responsibility for their own actions. Our results
provide significant evidence that enriches our understanding of the heterogeneity
of human decision-making.
JEL Classification: D91, E21.
Keywords: Risk taking, Financial Decision Making, Behavioral Finance.
∗The authors gratefully acknowledge the support of CentERdata and in particular Corrie Vis.
† Tias Nimbas Business School, Tilburg University, 5000 LE Tilburg, The Netherlands.
d.brounen@uvt.nl
E-mail:
‡ Tias Nimbas Business School, and Department of Finance, Tilburg University, 5000 LE Tilburg,
The Netherlands. E-mail: c.g.koedijk@uvt.nl
§ Corresponding Author, Department of Finance, Maastricht University and Department of
Finance, Tilburg University, P.O. Box 616, 6200 MD Maastricht, The Netherlands.
r.pownall@maastrichtuniversity.nl
E-mail:
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During the past decade, governments around the globe have started advocating a
new and responsible approach to personal finance, to encourage households to be more
in charge of their own financial situation. The 2008 financial crisis and the recession
that followed hit families hard, and has shifted government policy away from promoting
cheap financing, more often used for increased consumer spending towards enhancing
consumer awareness of individuals long term financial needs and resources. This shift
increases the importance of financial responsibility, and to a large extent depends on
the financial literacy of households. We aim to investigate if financial knowledge and
financial awareness is a first condition for acting more responsibly, or if personality
traits and upbringing are more important factors in this process.
Demographic ageing is one of many social trends that is putting additional pressure
on the financial sustainability of conventional healthcare and pension plans. As the pro-
portion of elderly rises steadily, costs are approaching levels that can no longer be borne
by national government budgets alone. As a consequence, households are also forced to
take financial matters more into their own hands. Theoretical life cycle models predict
that consumers smooth consumption over their lifetime, assuming that consumers are
forward looking and make plans for the future . But whether households are actually
able and ready to manage their long-term financing responsibly is doubtful. Campbell
(2006) already points out that it is often difficult for consumers to exhibit carefully
reasoned and informed economic decisions. Lusardi and Mitchell (2007) show that 45
per cent of baby-boomers in the age bracket 51-56 have done little or no retirement
planning at all, and as a result they enter their golden years with low levels of wealth.
One important factor that triggers the extent of financial planning is financial literacy
the set of skills and knowledge that allows an individual to make informed and effective
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decisions through their understanding of finances. Using a set of carefully constructed
survey question Lusardi and Mitchell (2007) calibrate a measure for the level of finan-
cial literacy on a household level, and find empirical evidence that financial literacy is
an important aspect for taking decisions towards financial planning for the future.
Financial Literacy is not a new concept. In 2003 the Organization for Economic
Co-operation and Development (OECD) started an intergovernmental financial liter-
acy project. The main objective of this project is to provide ways to improve financial
education and literacy standards through the development of common financial literacy
principles. In late 2005 an international OECD survey study showed that 67 per cent
of Australian respondents indicated that they understood the principle of compound
interest, yet when they were asked to solve a problem using this concept only 28 per
cent had a good level of understanding. Results showed that British respondents do
not actively seek out financial information. Instead, the information that they did
acquire was collected on the off- chance, for example by picking up a pamphlet at a
bank. Results from the Canadian survey showed that respondents considered invest-
ment choice to be more stressful than going to the dentist. These compelling results
have attracted the attention of policymakers, as new acts and taskforces have been put
in place to promote financial planning and capabilities. Whilst on the one hand we
wish to promote as a society individual choice and taking into account our own finances
in a responsible manner, unless we have the correct knowledge, literacy and ability to
do so, then there still remains a role for government intervention and regulation on
savings behavior at the national level. To be able to shed greater light on policy mak-
ing in this area we need to understand attitudes towards financial decision-making and
savings behavior in greater depth. Behavioral finance allows for individual heterogene-
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ity in financial decision-making. In this paper we build upon the current literature in
behavioral finance to address whether in addition to levels of financial literacy finan-
cial decision-making is due to personality traits and upbringing. Once controlling for
the household demographics does financial literacy, financial awareness and financial
understanding improve financial decision making towards future savings behavior? Fu-
ture schemes targeted to improve financial literacy on a national level will only make a
significant impact for those individuals who also take on the responsibility towards any
financial decisions made. We address this issue directly by looking into greater detail
how personality and attitudes from upbringing influences the heterogeneity in finan-
cial decision. We take an important step towards further understanding the process of
human financial decision-making and the subsequent implications for financial markets.
We therefore extend the current analyses on financial decision making by exploring
a wider set of explanatory factors that help to explain household saving behavior in the
cross section and that can help to enhance financial responsibility levels in the future.
In line with Lusardi and Mitchell (2007), we first construct survey questions with which
we measure the financial literacy of our respondents a set of 1,721 Dutch households.
Further to the current research we include additional variables and constructs to mea-
sure the impact of both upbringing and personality on financial decision making. Our
extended survey puts us in the unique position to simultaneously analyze and weigh the
effects of household demographics, upbringing, skills and interests, and personality into
the current research in this area. Our results are both intriguing and intuitive at the
same time. We find empirical support that savings behavior depends on financial liter-
acy. The higher the level of financial literacy, the more likely that the individual will
both reportedly and actually save. Those people who score above 85% on the financial
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literacy test are 38% more likely to save than those who score below this level. Using
survey data to construct a measure of the internal locus of control which is domain
specific to financial decisions, we find strong supportive evidence that those people who
score high on this construct are 40% more likely to save. The importance of financial
literacy drops slightly but is still statistically significant and highly relevant. Whilst
for those people who take external factors more into account and believe in matters
out of their own hands playing a larger role in determining the outcome of ending up
rich in life, the likelihood of saving for the future drops by 30%. We find considerable
support after taking into account household demographics and financial literacy, skills
and interests, that taking on financial responsibility for ones own financial situation has
extremely important consequences for savings levels.
The remainder of this paper is organized as follows: the next section describes the
data and provides descriptive statistics and details regarding the setup of the survey
analysis. Section three provides the empirical results explaining financial literacy, while
section five focuses on the effects of financial literacy on financial planning and decision
making. Section five is a brief conclusion.
1 The Evolution of Savings Behavior and Financial
Literacy
Whether or not households save money is a choice that was first addressed in the
economics literature when Ramsey (1928) and Fischer (1930) introduced their infinite
and finite life-cycle models. This framework offered a new standard for economists to
think about the intertemporal allocation of time, effort and money. In its most general
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formulation, this life-cycle framework asserts that agents make sequential decisions to
achieve a coherent goal using all the information that is available to them. Along these
lines, households ought to have active savings management that helps them to smooth-
ing out their consumption over their lifespan. Over the years this life-cycle model has
been extended and enriched, allowing for potentially important features such as habits,
imperfection in capital markets, disagreements between husbands and wives about how
much to save, limited computational powers, and discounting of the future that changes
over time . An expanding body of mostly normative literature has evolved in this field,
to explain how households should behave to obtain optimal savings behavior and port-
folio choice over the life cycle. In his seminal work on household finance, Campbell
(2006) compared what we know about what households actually do with our body of
knowledge about what households should do. He argues that although many households
find adequate solutions to the complex investment problems they face, some households
make serious investment mistakes. These mistakes are made more often by poorer and
less educated households, supporting the recent call for financial education and stricter
consumer regulations. The lack of financial literacy among some consumers was first
documented by Bernheim (1995, 1998). Hilgert et al (2003) report that most Americans
fail to understand basic financial concepts, particularly those related to bonds, stocks,
and mutual funds. Lusardi and Mitchells (2006) module on planning and financial liter-
acy of the 2004 Health and Retirement Study (HRS) show that many older individuals
cannot do simple interest-rate calculations, and do not understand inflation. Using a
financial literacy construct based on a small set of numerical exercises, they conclude
that financial literacy is very low among women, those with low educations and Afro-
Americans and Hispanics. As a result, these financial illiterates fail to plan and save
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for their retirement, and thereby run the risk of falling short later in life. Recent work
by Huston (2010) sheds new light on measurement issues regarding financial literacy
and knowledge. Important here is the distinction between two dimensions understand-
ing (personal finance knowledge) and use (personal finance application). Most of the
available literature on financial literacy is focused on the first, the understanding, and
relates the variation in financial understanding to a set of demographics. Alternatively,
in the field of psychology various behavioral factors have been identified that explain
use, and effectively may help us to understand why some households plan and actually
save for retirement while other do not. Thaler (1994) and Levin (1998) have incorpo-
rated behavioral aspects as bounded rationality, limited self-control, and the fungibility
of assets, into the life-cycle model. An important concept in this area is the locus of
control the extent to which individuals believe that they can control events that af-
fect them. This concept was first developed by Rotter (1966) and became popular in
behavioral psychology. Although the concept and the various scales measuring it have
been subjected to extensive assessment and criticism, it has been applied in various ar-
eas of health science, religious beliefs and behaviors, political sciences and educational
settings . So far, this locus of control has not been applied in the financial literature
on household finance. In this paper, we integrate the locus of control concept into an
empirical analysis of household savings. We build on the available work on life-cycle
models and financial literacy by applying a framework that considers both demograph-
ics, upbringing, skills, but perhaps most notably a set of personality variables that can
help our understanding of why the use of personal finance knowledge.
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2 Data
We use data from the 2011 Dutch National Bank Household Survey (DHS). DHS is
a long-standing, annual household survey that includes extensive information about
demographic and economic household characteristics, focusing on wealth and savings
data. The data set is representative of the Dutch population, and it contains over
2,000 households. The DHS is built up in several sections. Section A inquires about
the financial background of the respondent (i.e., income, savings, spending behavior,
etc.). Section B focuses on whether households rely on external advice for their financial
matters. Section C deals with the pension plan of the household, while section D asks
questions with respect to housing and mortgage details. In addition to using data from
the core of the DHS, we also use data from additional, self-designed survey modules
on financial literacy and saving behavior, added to the survey in April 2011. This
final section of the survey is designed to assess ability of households to properly make
financial decisions and to trade off long-term benefits with short-term investments.
Our dataset also benefits from existing survey data and background characteristics on
the panel, enriching our survey results with additional background items that were
addressed in other DHS surveys over 2011. The most important set of items here, is
a set of 13 locus of financial control questions that is part of the regular assets and
loans section of DHS and that has been validated in earlier studies . The first seven
questions are designed to measure the internal locus of control. Averaging the scores
on these questions results in a construct for the belief that one determines ones own
economic fate. The remaining 6 questions measure the belief that chance determines
ones economic fate, hence are averaged in what we refer to as the chance construct. See
Furnham (1986) for an overview of the approach.
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In total, the survey consists of 62 questions, and requires 18 minutes to complete,
on average. Survey participants are interviewed via the Internet. A total of 1,721 out
of 2,028 households completed the financial literacy module – a response rate of 84.9
percent (in line with the response rate for the main survey).
Table 1 reports summary statistics of the main variables of our survey. Here we
report items in four clusters, representing the life-cycle and personality of the respon-
dents; variables relating to the household demographics (section A), variables related to
their youth and upbringing (section B), variables related to their education, skills, and
interests (section C), and variables related to their personality and attitude (section D).
In section E, we report statistics on the respondents savings behavior. The variables
of section A are most common in the literature on financial literacy and education. In
the cluster of youth and upbringing, we seek for effects that parents may have had on
the savings behavior (while controlling for generational effects) of their offspring. In
the third cluster we group variables that indicate the skills of the respondent, which are
partly trained by education and partly developed by personal interests. Here, we also
include the financial literacy construct of Lusardi and Mitchell (2007). In section E,
we group variables that are inspired by the behavioral psychology literature. Here we
test whether saving behavior coincides with personality features like optimism, being
organized, and a strong locus of control. The statistics in Table 1 are presented for
the full sample of 1,721 respondents, and for two sub groups the spenders versus the
savers. We define these sub groups based on the respondents reply to the question
that measures the extent to which they are willing to sacrifice immediate wellbeing to
achieve future results. Savers are the group that scores high on this question, while the
reverse is true for spenders.
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Table 1— Summary statistics (n=1,721)
Section A shows that the 54.17 percent of our respondents is male, and that the average
respondent is 57 years of age, lives in a household of 2.40 persons, has 0.62 children and
earns 1845 Euros net of tax every month. Besides the age structure, these characteristics
coincide strongly with the averages for the Dutch society at large. DHS respondents
are older than the average person in the Netherlands, since the panel was constructed
in the early 80s and has gradually aged ever since. Here, we also find that spenders are
slightly older than the sample average, while savers earn the highest net income.
Figure 1— Self reported savers (n=1,721)
To briefly highlight some of the demographics of the self reported savers versus spenders,
we plot the fraction of savers in our sample across age, gender, household size, and
income groups in figure 2. This illustrates the results of section A of table 1 and shows
that men do not consider themselves as significantly greater savers than women, but
this tendency does increases with age, household size and income.
In section B of table 1, we find that the majority of our respondents were born
in the era after the second world war; that 25.83 percent of respondents were born
into a family that was better off than average; that 53.75 percent received pocket
money from their parents at the age of twelve; and that 21.26 percent had parents
that saved for their education. These statistics vary across savers and spenders. We
find more savers from younger generations, and we find that these savers were more
often born into families that were better off than average, with parents that saved
more often for their education, and that were more likely to hand out pocket money,
when compared to spenders. Section C shows that after youth 39.40 percent of our
respondents enjoyed some college education. 27.14 percent of our respondents claim to
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e good at mathematics, and merely 10.51 percent keeps up with the financial news, and
71.47 percent of our respondents manage the financial administration in the household.
We posed each respondent the same six financial literacy questions as used by Lusardi
and Mitchell (2007) and 4.18 were answered correctly, on average. This score, on
the scale of six, we use as a financial literacy construct throughout our analysis. In
Appendix C, we state the scores on each of these six questions separately and we plot
the subsamples based on the respondents gender, age, mathematical skills set, and
financial interests. Here we find that the variation in this financial literacy construct
results mainly from one of the six questions (the one in which we ask respondents on
the consequence of a jump in inflation for the value of bonds). When considering these
plots, we learn that this question is answered correctly mostly by the respondents that
keep up with the financial news, more so than those that are good in math. For the
savers in our sample this financial literacy score was only slightly higher, while the
overall level of education, financial interest, and mathematical skill set exceeded the
sample average more pervasively.
Finally, when considering several personality and attitude characteristics across our
sample we find that 57.60 percent of our respondents define themselves as religious,
26.79 percent have a left wing political preference, 36.63 percent have positive economic
expectations, 62.88 percent keep a tight financial administration and only 9.00 percent
like taking financial risks. Across the two sub groups of savers and spenders we find
that the self proclaimed savers are more positive about the economic outlook, are more
on top of their financial administration and are more likely to vote for centre-leftwing
parties during elections. Perhaps the two most noteworthy variables of table 1 are those
positioned at the bottom of the table the internal locus of financial control and the
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chance construct score. As discussed before, both measure the belief of respondents to
capture how much their actions affect their own financial wellbeing versus their belief
that their future is determined more by faith than by themselves. These measures
capture the extent to which individuals are willing to take on the responsibility of
financial decisions by their own accord. Instead of looking at the levels of each, it is
more interesting to directly focus on the differences between the sub groups. We find
that this locus of financial control is higher amongst savers, while the chance score is
higher for spenders. In both cases these differences are statistically significant and in
line with expectations. Savers would save less if they thought that it was chance that
would determine their futures.
Table 2— Correlation table (n=1,721)
Obviously, some of these characteristics of our respondents are related. Hence, be-
fore we take our dataset any further we first consider the correlation coefficients given
in table 2. Beyond some obvious relationships between items like the number of chil-
dren and household size, age of respondents and their distribution across generations,
we also document some correlations that require our attention. For instance, for older
respondents, political inclination and religious belief increases, as well as the belief in
external factors. However older people are less positive about the economy. This may
be driven by the generation born before the war, which we will control for later. Male
respondents are higher risk takers, which is well documented in the literature. However,
they also take greater internal control for their finances. Indeed risk taking is statis-
tically positively correlated with taking financial control, and with degree of financial
literacy, the extent to which this is driven by male respondents and other factors will be
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looked at in detail later, and is of particular interest here for our discussion on financial
decision making.
We also find weak correlations between (not reported here) respondents who feel
that their parents were better off than average are more likely that these parents saved
for their education and gave pocket money to them on a regular basis. Respondents
who are good at mathematics are also more likely to keep tight financial administra-
tion, and respondents who keep up with the financial news are more willing to take
financial risks. Regarding the internal locus of financial control, we notice that if this is
higher for respondents who keep up with the financial news, which is intuitively more
relevant, when you believe that your financial actions matter. Finally with respect to
the chance score, we find that this is lower among the more highly educated and among
the respondents that received pocket money. 1
3 Empirical Analysis
Before we start to disentangle the various factors that determine financial planning and
decision-making, we first start with a short robustness test. In line with Huston (2010),
we would like to make a distinction between what people say and what they do under-
standing versus use. In this case, we may well be confronted with a significant response
bias, as saving and spending both carry different moral loadings. So far, we have fo-
cused our attention on dividing the sample based on how respondents have replied when
asked to what extent they are willing to sacrifice immediate wellbeing in order to achieve
future results. The highest scoring respondents (5 or higher of a 7 point scale) are cat-
egorized as savers, while for those whose score did not exceed 3 on the 7 point scale are
1 Further correlations are available on request.
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eferred to as spenders. These qualifications, however, are to some extent self selected
by the respondents. Hence, we also included a set of questions that address observable
savings behavior. Spread evenly across the survey we ask the respondents the following:
Q: Have you earned more than you spent during last 12 months?
Q: Do you have enough savings to last one year without income?
Q: Do you save for your retirement?
Q: Do you read your annual pension statement?
These questions are all designed to detect actual savings behavior. In table 3, we
report the scores on each of these four questions, again for the total sample as well
as for the two sub groups of self reported savers and spenders. In section A of the
table we discuss the results for each questions separately. Overall, this shows that
46.55 percent of our respondents have spent more than they have earned, 30.69 percent
have enough savings to last without income, 50.21 percent saves for their retirement,
and 74.35 percent reads their annual pension statement. Perhaps it is relevant here
to mention that in the Dutch system, employees are automatically a member of an
industry pension fund: saving for retirement here means whether the respondent saves
beyond the retirement plan that they have due to their employment.
Table 3— Robustness test of savings perception versus savings use
When considering the replies of the sub groups, we notice two striking patterns.
First, the savers do in fact score higher on all four questions, indicating that their
actual savings behavior appears stronger than that of their spender-counterparts. On
the other hand, the differences are small and typically insignificant. Maybe even more
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striking are the low scores that we find for some of these questions even for those who
labeled themselves as savers. For instance, only 51.06 percent of savers have in fact
earned more than they spent. Only 33.75 percent of savers have saved enough to last
a year without income. These levels are still low, when considering that earning more
than spending is a condition to even save at all. In section B of table 3, we construct
a savings score based on this set of four questions. This shows that 9.89 percent of self
reported savers in fact did not earn more than they spend, they did not save enough to
last a year, nor did they save for retirement, nor read their pension statement. Their
savings score equals zero, which makes it difficult to understand why they consider
themselves as savers in the first place. The natural conclusion is that they believe
the government is saving on their behalf as a society for their futures in the form of
retirement provision and social security. When accumulating scores 3 and 4, we find
that 39.04 percent of the savers group actually score high, compared to the 33.67 percent
of spenders and 35.49 percent for the total sample. In the remainder of our analysis we
will distinguish between self-reported savers, based on how respondents consider their
own ability, versus observed savers, based on this 35.49 percent that actually scores
high on our four saving behavior questions.
Table 4— Logit regressions on self-reported savers
To understand which factors trigger the knowledge and use of saving behavior across
our set of respondents we run stepwise Logit regressions. First, we analyze the self-
reported saving perception (understanding), in which savers is a binary dummy with
value one if respondents have indicated to be very willing to sacrifice immediate well-
being to achieve future success. We explain the variation in this dummy variable using
an extended model, in which we first include a set of demographics, which we then
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complement with skills and interest, with a set of personality and attitude variables,
and finally youth and upbringing. Table 4 presents the results in the form of odds
ratios and shows that when only considering demographics and financial background
that the perception of being a saver is related mostly to age, income and to a lesser
degree to the number of children. Older respondents are slightly less likely to label
themselves as savers, whereas higher income households with more children are. But
when extending this logit model with additional factors and by moving from model
(1) to (5) we find that the explanatory power of the model increases fivefold to 16.88
percent, and that these demographics turn out to be irrelevant once we account for
personality and attitude features. Here we find that those with a high financial literacy
score are more likely to save for the future. Those who have a leftwing voting tendency
are 39% more likely to report themselves as savers. Those who have positive economic
expectations are 380% more likely to save. This positive attitude about the future is
the most significant variable overall in accounting for reported savings behavior. Those
who keep a tight administration are twice as likely to be savers, and those who have a
strong internal locus of control are 35% more likely to consider themselves as savers.
Table 5— Logit regressions on observed savers
To compare these findings on self-reported savers as a proxy for understanding the
importance of saving, with those of observed savers our proxy for the usefulness of
savings, we repeat the same stepwise Logit regression with a dummy that indicates
whether the savings behavior is high or low. At first glance, many of the key results
that are displayed in table 5 appear similar to what we found in table 4. Again, when
only considering demographics and financial aspects, we find that savings behavior is
more common among high-income households with few children. This time, however,
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these two household demographics remain highly significant for all specifications. Those
with children and those with high incomes are able to actually save. Financial literacy
is significantly significant and those scoring high on the financial literacy questions are
at least 38% more likely to save. The findings remain significant for all these factors,
also after extending the model across the table through the various specifications in
the table to model (5). This stability of results is also reflected in the R2s that are
both high and stable across specifications. Similar to the reported results in table 4
there is a jump in the R2 once including the internal locus of financial control construct
and the chance construct. The results remain highly significant that those who take
financially responsibility are 40% more likely to save, and those who believe their fate
is more left to chance are 26% less likely to save. This finding is perhaps the most
compelling factor in this analysis (given the enhanced model fit). The internal locus
of financial control and the score on the chance construct are highly significant factors.
It is clear that respondents with a strong internal locus of financial control are more
inclined to exhibit strong saving behavior. They take matters in their own hands so to
say. In the case that the score of the chance construct is high, they believe that faith
will determine their financial future and savings behavior is much less likely. All this
supports the psychometrical studies that have applied this locus of control construct in
other fields. If willpower is strong, actions follow. This is in part down to upbringing.
Explaining real savings behavior appears to depend much more on personality, attitude,
and upbringing rather than positive economic expectations, where people are prone to
be led to believe that they should be saving. Here we find religious respondents and
those who keep tight administrations are more likely to save. Further including the
various variables for upbringing we find that all age brackets for the various generations
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show an increase in the likelihood of saving since the Second World War. Those children
whose parents saved for their education are also 52% more likely to save.
Table 6— Interaction effect analysis
Having found strong evidence that financial responsibility is a deterministic factor
of savings behavior, we would also like to check the robustness of this finding. Firstly,
whether our results vary across different groups of respondents. We therefore also
performed an interaction effect analysis. The results for the interaction effect coefficients
are given in Table 6. We split this table between the results for the internal locus of
financial control interactions on the left and the chance construct score interaction, on
the right. The interaction effects are strongest for the internal locus of control, which
was the most significant variable of the two in tables 4 and 5. For the self-reported saver
analysis, we find that the effect of the internal locus is weaker among the high-income
groups and stronger among the leftwing voters. In other words, among the low income
left voting respondents, we detect the strongest effect of having little control on not
saving for later. Respondents with high income and who tend to vote for rightwing
parties tend to have a stronger internal locus of control, which stimulates them to
save for later, or so they claim. When focusing on the cross section of observed saver
behavior, we find that the internal locus effect is significantly weaker among those who
have not received pocket money, are religious, and avoid risks. Again, we find in line
with Huston (2010) this difference between results for use and understanding. Finally,
we find weaker interaction effects for the chance construct score. For the analysis
of self-reported savers the effect is strongest among the respondents who have positive
economic expectations. In other words, being more optimistic on this, means your trust
in faith is weaker and your tendency to save is higher. When analyzing the observed
18

savers, the only interaction effect that generates a significant result is on the savings
behavior of parents. If parents saved for your own college education, you will be less
inclined (later in life) to let faith withhold you from saving for your own future.
To what extent is the locus of control construct a consequence of a persons position
rather than the determining factor in the position? Is the build up in savings due to
a more externally chance driven fate motive? Or does the fact that one believes in
fate result in an external locus of control? Is the belief a result of a cause of a persons
position in society? In view of the above criticism it is interesting to look at upbringing.
If financial responsibility is taught during upbringing then we should observe a high
influence of parents saving behavior on the offspring.
4 Conclusions
To what extent do households save and why do some households save? These are two
questions, which have been at the heart of the economics literature for many decades.
In this paper blend three elements for work on life-cycle models, financial literacy,
and the psychology of the internal locus of control to help shed some greater light on
answering these questions. We construct survey questions with which we measure the
financial literacy of our respondents a set of 1,721 Dutch households. Our survey
puts us in the unique position to be able to simultaneously analyze and weigh the
effects of household demographics, skills and interests and furthermore personality and
upbringing, over and above the influence of financial literacy, which has already been
studied on financial decision making. Our results are both intriguing and intuitive at
the same time.
In the cross section we find that the self-reported savings behavior is more likely
19

if respondents score high on financial literacy. This effect, however, weakens when
considering the actual savings behavior instead. Based on a set of four questions that
relate to actual saving behavior, only 23 percent of our savers actually exhibit financial
planning and savings behavior. This observed savings behavior is stronger when income
is higher, respondents are older and household size is modest. We find that when it
comes to skills and interests, that savings behavior is stronger among the more financial
literate and among those who are more financially interested. But this effect is mild
when compared to the factors related to the respondents attitude and personality.
Here we find that inclination to actually save money for later is strongest among the
respondents with the strongest locus of control and the lowest scores on chance. Both
psychometric constructs measure the extent to which respondents feel that they have
control over their life and future. The stronger this feeling of control, the more they
are willing to save, and the greater the financial responsibility taken. This is likely to
be related to upbringing. We detect a link between parents and the savings behavior
of their children. Respondents, whose parents have saved for their education, are more
likely to grow up as savers themselves. Encouraging personal financial decision-making
is a question of education and upbringing, but also on developing and forming policies,
which encourage affirmative actions stemming from greater personal responsibility. The
results in this paper provide strong evidence that financial decision making depends on
the human element of the ability to take responsibility for ones own actions. As a
society, and looking beyond the empirical results found here, encouraging behavior to
enhance savings and retirement provision is more likely to be affective through the
mechanism of self reliance and learning to take responsibility of ones own actions than
purely through programs to develop financial knowledge alone.
20

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22

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24

Table 1: Summary statistics
Total sample (n=1721) Spenders (n=699) Savers (n=566)
Mean Stdev Mean Stdev Mean Stdev T-test means
A: Household demographics
Male respondent (percent) 54.17% 49.84% 52.64664% 0.50 54.0636% 0.50 -0.08
Age of respondent (years) 57.24 13.59 60.40 12.70 54.00 13.80 7.03
Household size (number of persons) 2.40 1.21 2.26 1.12 2.53 1.31 -3.05
Respondent with children (dummy yes=1) 0.30 0.46 0.27 0.44 0.36 0.48 -3.92
Number of childeren in respondent’s household 0.62 1.03 0.47 0.94 0.77 1.12 -4.26
Monthly net income (in euros) 1,845.66 4,648.23 1,751.14 3,589.90 2,096.98 6,850.10 -1.62
B: Skills and Interests
Some college education (percent) 39.4% 48.87% 33.90558% 47.37278% 45.75972% 49.86394% -3.22
Good at mathematics (percent) 27.14% 44.49% 25.60801% 43.67791% 30.03534% 45.88171% -2.31
Keeps up with the financial news (percent) 10.51% 30.67% 8.29757% 27.6043% 13.9576% 34.68531% -3.66
Manages the financial administration in the household (percent) 71.47% 45.17% 71.10157% 45.36152% 70.84806% 45.48642% -0.23
Financial literacy score (numbers of questions correct out of six) 4.18 1.19 4.13 1.17 4.31 1.20 -2.73
25
C: Personality and Attitude
Religious respondent (percent) 57.6% 49.43% 58.3691% 49.3299% 56.71378% 49.59103% 0.96
Catholic (percent) 28.35% 45.08% 29.89986% 45.8147% 26.67845% 44.267% 0.97
Reformed (percent) 20.42% 40.32% 21.03004% 40.78138% 19.25795% 39.46744% 0.51
Political preference: left wing (percent) 26.79% 44.3% 25.89413% 43.8367% 31.62544% 46.54248% -2.81
Positive economic expectations (percent) 36.64% 48.2% 21.03004% 40.78138% 64.48763% 47.89741% -17.31
Keeps a tight administration 62.88% 48.33% 55.50787% 49.73129% 77.38516% 41.87064% -0.23
Risk taker 9% 28.64% 7.01001% 25.54985% 11.13074% 31.47907% -1.88
Internal locus of financial control 4.42 0.88 4.33 0.89 4.59 0.85 -5.41
Chance construct score 3.39 0.91 3.44 0.90 3.30 0.93 2.73
D: Youth and upbringing
Generation born before 1945 (percent) 25.95% 43.85% 34.04864% 47.42121% 18.0212% 38.47039% 5.48
Generation born between 1945-1960 (percent) 39.88% 48.98% 41.48784% 49.30538% 38.16254% 48.62151% 0.31
Generation born between 1960-1975 (percent) 26.07% 43.92% 20.31474% 40.26294% 32.50883% 46.88222% -3.63
Generation born after 1975 (percent) 8.11% 27.3% 4.14878% 19.95584% 11.30742% 31.69636% -3.83
Respondents born into families that were well off (percent) 25.83% 43.78% 23.60515% 42.49583% 29.5053% 45.647% -2.81
Parents of respondents saved for respondent’s education 21.26% 40.93% 18.31187% 38.70408% 26.14841% 43.98317% -3.61
Respondents that received pocket money at the age of 12 53.75% 49.87% 48.78398% 50.021% 60.77739% 48.86785% -4.09

Table 2: Correlations
Age Male Risk taker Fin lit. Religious Political Positive Internal Chance
Age 1
Male respondent 0.1349* 1
Risk Taker 0.0031 0.1563* 1
Financial literacy score of 5 or 6 0.0293 0.1723* 0.0965* 1
Religious respondent 0.1548* -0.0185 0.0379 0.075 1
Political preference: left wing -0.2500* -0.032 -0.0242 -0.0189 -0.2056* 1
Positive economic expectations -0.3134* -0.0396 0.0489 -0.0071 -0.0209 0.0343 1
Internal locus of financial control 0.0104 0.1171* 0.1017* 0.0724 0.0038 -0.0608 0.0461 1
Chance construct 0.1911* -0.0154 -0.0971* -0.0893 0.0504 -0.072 -0.0697 -0.1131 1
26

Table 3: Robustness test of savings perception versus savings use
Total sample (n=1721) Spenders (n=699) Savers (n=566)
Mean Stdev Mean Stdev Mean Stdev
A: Actual savings behavior
Current balance of the savings account 32,731.15 78,570.20 30,886.04 79,161.22 36,903.55 86,098.88
Current balance of the respondent’s investments 69,838.38 186,658.60 63,106.54 137,582.30 78,022.43 236,779.10
Wealth over income ratio 26.47 38.93 23.19 29.60 28.36 41.96
27
Proportion of respondents that have enough savings 31% 46% 25% 44% 34% 47%
to last one year without income
Proportion of respondents that have saved 28% 45% 23% 42% 31% 46%
for their children’s education
Respondents that read their annual pension statement 74% 44% 74% 44% 75% 43%
Respondents that have calculated their retirement needs 22% 42% 20% 40% 27% 45%
Respondents that save for their retirement 50% 50% 47% 50% 53% 50%

Table 4: Logit regressions on self-reported savers
(1) (2) (3) (4) (5)
Household demographics
Age 0.975*** 0.975*** 0.990* 0.990*
(0.00472) (0.00481) (0.00562) (0.00576)
Male respondent (percent) 0.981 0.945 0.982 0.962 0.956
(0.129) (0.128) (0.146) (0.144) (0.145)
Household size 0.834 0.756** 0.784* 0.768* 0.775*
(0.102) (0.100) (0.113) (0.112) (0.114)
Household with children (dummy) 0.942 0.991 0.892 0.938 0.914
(0.260) (0.276) (0.277) (0.295) (0.288)
Number of children 1.368* 1.494** 1.466* 1.501** 1.495*
(0.244) (0.277) (0.299) (0.309) (0.313)
Monthly net income 1.303*** 1.175 1.129 1.090 1.090
(0.131) (0.125) (0.131) (0.129) (0.129)
Skills and interests
College Education 1.179 1.201 1.203 1.165
(0.150) (0.167) (0.169) (0.168)
Good at mathematics 1.135 1.074 1.018 1.012
(0.155) (0.159) (0.153) (0.153)
Keeps up with the financial news 1.658*** 1.523** 1.371 1.376
(0.316) (0.320) (0.292) (0.295)
Manages the household financial administration 0.888 0.875 0.867 0.870
(0.129) (0.139) (0.138) (0.140)
Financial literacy score of 5 or 6 1.374** 1.550** 1.551** 1.525**
(0.220) (0.271) (0.274) (0.269)
Personality and attitude
Religious respondent 0.992 0.991 0.997
(0.131) (0.132) (0.133)
Political preference: left wing 1.397** 1.467*** 1.387**
(0.205) (0.218) (0.215)
Positive economic expectations 4.742*** 4.742*** 4.794***
(0.638) (0.644) (0.649)
Respondent keeps a tight administration 2.068*** 2.072*** 2.059***
(0.295) (0.298) (0.298)
Risk taker 0.986 0.955 0.895
(0.214) (0.209) (0.198)
Strong internal locus of financial control 1.361*** 1.356***
(0.104) (0.105)
High score on chance construct 1.024 1.033
(0.0861) (0.0874)
Youth and upbringing
Generation born before 1945 0.755
(0.221)
Generation born between 1945-1960 1.030
(0.266)
Generation born between 1960-1975 1.144
(0.298)
Respondents born into families that were considered well off 1.257
(0.194)
Parents of respondents saved for respondents education 1.085
(0.175)
Respondent received pocket money at age of 12 1.075
(0.149)
Constant 0.385 0.869 0.145** 0.0444*** 0.0237***
(0.318) (0.735) (0.136) (0.0461) (0.0243)
Rˆ2-adjusted 0.0319 0.0424 0.1567 0.1659 0.1688
Observations 1,438 1,438 1,438 1,438 1,438
seEform in parentheses
*** p

Table 5: Logit regressions on observed savers
(1) (2) (3) (4) (5)
Household demographics
Age 1.006 1.005 1.003 1.008
(0.00474) (0.00482) (0.00527) (0.00546)
Male respondent (percent) 0.988 0.945 0.941 0.951 0.978
(0.132) (0.129) (0.131) (0.134) (0.139)
Household size 1.170 1.160 1.132 1.139 1.200
(0.139) (0.148) (0.146) (0.150) (0.159)
Household with children (dummy) 0.380*** 0.396*** 0.413*** 0.426** 0.361***
(0.121) (0.128) (0.135) (0.142) (0.122)
Number of children 0.915 0.906 0.908 0.910 0.829
(0.176) (0.180) (0.183) (0.188) (0.175)
Monthly net income 2.145*** 1.869*** 1.830*** 1.665*** 1.657***
(0.251) (0.233) (0.228) (0.204) (0.204)
Skills and interests
College Education 1.104 1.111 1.056 1.035
(0.140) (0.143) (0.138) (0.140)
Good at mathematics 0.960 0.932 0.853 0.841
(0.131) (0.128) (0.120) (0.120)
Keeps up with the financial news 1.710*** 1.500** 1.374 1.464*
(0.327) (0.293) (0.275) (0.296)
Manages the household financial administration 1.152 1.091 1.102 1.111
(0.168) (0.161) (0.165) (0.168)
Financial literacy score of 5 or 6 1.466** 1.449** 1.398** 1.382**
(0.233) (0.233) (0.228) (0.227)
Personality and attitude
Religious respondent (0.146) (0.150) (0.154)
Political preference: left wing 1.023 1.064 0.918
(0.144) (0.152) (0.138)
Positive economic expectations 0.943 0.923 0.883
(0.127) (0.126) (0.121)
Respondent keeps a tight administration 1.428*** 1.389** 1.384**
(0.183) (0.181) (0.182)
Risk taker 1.829*** 1.676** 1.527**
(0.363) (0.337) (0.312)
Strong internal locus of financial control 1.408*** 1.409***
(0.101) (0.103)
High score on chance construct 0.728*** 0.740***
(0.0585) (0.0602)
Youth and upbringing
Generation born before 1945 1.832**
(0.546)
Generation born between 1945-1960 2.344***
(0.647)
Generation born between 1960-1975 2.631***
(0.748)
Respondents born into families that were considered well off 0.988
(0.144)
Parents of respondents saved for respondents education 1.525***
(0.235)
Respondent received pocket money at age of 12 1.026
(0.133)
Constant 0.00140*** 0.00319*** 0.00320*** 0.00273*** 0.00185***
(0.00132) (0.00306) (0.00314) (0.00287) (0.00193)
Rˆ2-adjusted 0.0630 0.0727 0.0832 0.105 0.1158
Observations 1,438 1,438 1,438 1,438 1,438
seEform in parentheses
*** p

Table 6: Interaction effect analysis for internal locus of financial control and chance construct
i nternal locus chance construct
self-reported savers observed savers self-reported savers observed savers
Interaction with gender (male) 0.0755 0.0603 0.130 -0.123
(0.166) (0.159) (0.153) (0.147)
Interaction with age (older than 60 years) -0.0457 -0.0296 -0.0776 0.0399
(0.0473) (0.0446) (0.0623) (0.0581)
Interaction with children (household with children) 0.0320 0.00718 0.0521 -0.125
(0.180) (0.190) (0.169) (0.181)
Interaction with high incomeˆ1 -0.396* -0.597 -0.0501 0.0855
(0.222) (1.013) (0.209) (0.195)
Interaction with born into rich family -0.162 0.221 -0.151 0.116
(0.181) (0.214) (0.176) (0.166)
Interaction with parents saved for education -0.00228 0.0537 -0.00954 -0.134***
(0.0345) (0.179) (0.0469) (0.0448)
Interaction with pocket money -0.0643 -0.110*** -0.00613 0.120
(0.158) (0.0336) (0.149) (0.146)
Interaction with good in mathematics -0.0724 -0.163 0.188 0.0210
(0.181) (0.153) (0.162) (0.155)
Interaction with keeps up with financial news 0.0833 0.150 0.0795 0.0718
(0.249) (0.178) (0.219) (0.210)
Interaction with keep tight administration 0.0362 -0.333 0.102 0.135
(0.178) (0.231) (0.167) (0.157)
Interaction with financial literacy (score is 5 or higher) -0.201 0.168 0.211 0.0879
(0.225) (0.163) (0.213) (0.198)
Interaction with religious 0.104 -0.433** 0.0666 0.162
(0.159) (0.210) (0.151) (0.146)
Interaction with leftwing voters 0.433** -0.0570 -0.0158 0.0695
(0.188) (0.154) (0.167) (0.171)
Interaction with positive economic expectations 0.0271 -0.0335 0.355** 0.0455
(0.159) (0.180) (0.149) (0.151)
Interaction with risk taker 0.218 -0.365** -0.416 0.389
(0.288) (0.160) (0.265) (0.241)
30
R2-adjusted 0.1770 0.1326 0.1780 0.1290
Observations 1,438 1,438 1,438 1,438

% Savers
60
50
40
30
20
10
0
Male
Female
1960
1
2
3
4
Gender Age HH size Children Income
5
>5
Figure 1: Self reported savers (n=1721)
0
31
1
2
3
>3
3000
Income
Children
HH size
Age
Gender

A Survey question set
Q: Do you have the feeling that you were born into a family that was financial better
off than average? yes / no / do not know
Q: Have your parents saved for your education? yes / no / do not know
Q: Did your parents hand you pocket money when you were 12 years old? yes / no /
do not know
Q: If yes, on what frequency did you receive this pocket money? monthly / weekly /
do not know
Q: if yes, from which age onwards did you receive pocket money?
Q: Did you receive clothing money at the age of 14 years old? yes / no / do not know
Q: if yes, on what frequencies did you receive pocket money? monthly / weekly / do
not know
Q: if yes, from which age onwards did you receive pocket money?
Q: have you experienced an unexpected drop in income over the past 12 months? yes
/ no / do not know
Q: How satisfied are you with your current financial situation? 1-10
Q: Have you had a negative account balance on your checking account over the past 12
months?
Q: Have you spend more or less than you earned over the past 12 months? yes / no /
do not know
Q: How difficult is it for you to make ends meet? 1-10
Q: What is the estimated balance of your savings account?
Q: Has your household saved enough money to last one year without income? yes / no
/ do not know
Q: Have you saved for your childrens education? yes / no / do not know
Q: For how long have you been investing in stocks, bonds, or mutual funds?
Q: What is the estimated value of your investment portfolio (stock, bonds, and mutual
funds)?
Q: Are you willing to take financial risks? 1-10
Q: Who within your household is most experienced with dealing with financial matters?
me / other
Q: Who keeps track of the administration in your household? me / other
Q: Have you asked for financial advice from a professional advisor during the past 5
years regarding: Loans, Savings, Mortgage, Insurance, and Taxes
Q: Do you prefer more than 1 advice when you make financial decisions? yes / no / do
not know
Q: To what extent do you agree with the following statements:
- I trust financial advisors and take their advice 1-10
- Financial advisor are expensive 1-10
32

- It is hard to find a good financial advisor 1-10
Q: Are your member of a corporate pension fund? yes / no / do not know
Q: Do you read your annual pension statement, that is send to your home address? yes
/ no / do not know
Q: Have you saved for your retirement? yes / no / do not know
Q: if yes, in which way? My own house, Savings account, Investments, Mutual funds,
or Other.
Q: Have you ever computed how much you need to retire? yes / no / do not know
Q: Do you own your home? yes / no / do not know
Q: What is the current loan balance of your mortgage?
Q: How high is your monthly mortgage payment?
Q: What would be the value of your house if you were to sell it today?
Q: Do you plan to fully amortize your mortgage by the end of the mortgage term? yes
/ no / do not know
Q: Are you willing to invest your home equity to finance for your retirement needs? yes
/ no / do not know
Q: When you took your current mortgage, did you gather different mortgage proposals?
yes / no /do not know
Q: What type of mortgage do you have mainly?
Q: Do you have a fixed or floating rate mortgage?
Q: To what extend do you agree with the following:
- I am good in handling my personal finances 1-10
- I am good at mathematics 1-10
- I keep up with the financial news 1-10
Q: Suppose today you have 100 euros of savings and the interest rate on your savings
account at the bank equals 2%. How much money would be in your account after 5
years, if you do not withdraw any money in the meanwhile? More than 102, 102, less
than 102, do not know
Q: Suppose your savings rate at your bank is 1% a year. Suppose also that the inflation
rate is 2% a year. How much could you buy with your money after one year? More,
same, less, do not know
Q: Suppose tomorrow the general interest rate will increase. What will then happen
with the value of bonds? Increase, same, decrease, do not know
Q: Are the following statements correct?
- The monthly payments on a 15 year mortgage are normally higher than on a 30 year
mortgage (of the same loan balance), but the total interest payments are less for the
15 years mortgage. - Investing all your money into stocks of one single firm is normally
less risky than investing in a mutual fund.
33

B Locus of financial control question set
Please state the level to which you agree with the following statements on a scale from
01 (completely disagree) 02 03 04 05 06 07 (completely agree)
B.1 Internal Dimension
1: Saving and careful investments are the most important factors to become rich
2: Whether or not I end up rich depends mostly on my abilities
3: People that handle their financial affairs prudently remain rich in the longer run
4: Generally speaking, it is my own fault if I end up poor
5: I am usually capable of handling my own personal affairs
6: If I get what I want, this usually results from my own hard labor
7: My life results from my own actions
B.2 Chance Dimension
8: There is little one can do to protect myself from poverty
9: Ending up rich has nothing to do with luck
10: Regarding money, there is little one can do for yourself once you are poor
11: In my case, saving money is not prudent as financial matters depend on luck
12: Faith is the prime factors that determines whether you end up rich or poor
13: Only by winning lotteries or inheriting money, one can get rich
34

C Financial Literacy
Mean Stdev Min Max
Financial Literacy Questions
Interest rate question 95.08% 21.64% 0 1
Inflation rate question 87.27% 33.35% 0 1
Bond Value question 25.59% 43.65% 0 1
Investment risk question 91.59% 27.76% 0 1
Mortgage question 58.62% 49.27% 0 1
Financial Literacy Measures
Respondents that have all 5 questions correct 15.02% 35.73% 0 1
Those who consider themselves as financially literate 19.40% 39.55% 0 1
Those who consider themselves as capable 20.54% 40.41% 0 1
when it comes to money management
35

D Explaining Financial Literacy
100%
80%
60%
40%
20%
0%
female male
Interest rates Infla1on Bond value Investment risk Mortgages
Figure 2: Financial literacy and gender (n=1721)
36

100%
80%
60%
40%
20%
0%
> 1960 1945 -­‐ 1960 < 1945
Interest rates Infla1on Bond value Investment risk Mortgages
Figure 3: Financial literacy and age (n=1721)
100%
80%
60%
40%
20%
0%
good at math not good at math
Interest rates Infla1on Bond value Investment risk Mortgages
Figure 4: Financial literacy and mathematical skills (n=1721)
37

100%
80%
60%
40%
20%
0%
keep up with financial news does not keep up with financial news
Interest rates Infla1on Bond value Investment risk Mortgages
Figure 5: Financial literacy and keeping up with the financial news (n=1721)
38