Financial Responsibility, Personality Traits and Financial Decision ...

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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 financial 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 financial 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 measure 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 literacy. 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 4
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 5
Page 1 and 2: Financial Responsibility, Personali
Page 3: decisions through their understandi
Page 7 and 8: for their retirement, and thereby r
Page 9 and 10: In total, the survey consists of 62
Page 11 and 12: e good at mathematics, and merely 1
Page 13 and 14: looked at in detail later, and is o
Page 15 and 16: striking are the low scores that we
Page 17 and 18: these two household demographics re
Page 19 and 20: savers, the only interaction effect
Page 21 and 22: References [1] Berman, A. and T. Ha
Page 23 and 24: [19] Modigliani, F., Brumberg,R., 1
Page 25 and 26: Table 1: Summary statistics Total s
Page 27 and 28: Table 3: Robustness test of savings
Page 29 and 30: Table 5: Logit regressions on obser
Page 31 and 32: % Savers 60 50 40 30 20 10 0 Male F
Page 33 and 34: - It is hard to find a good financi
Page 35 and 36: C Financial Literacy Mean Stdev Min
Page 37 and 38: 100% 80% 60% 40% 20% 0% > 1960 1945

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