Financial Responsibility, Personality Traits and Financial Decision ...

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