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Competence, Confidence, and Gender: The Role of Objective and Subjective Financial Knowledge in Household Finance

Author

Listed:
  • Thérèse Lind

    (Linköping University)

  • Ali Ahmed

    (Linköping University)

  • Kenny Skagerlund

    (Division of Psychology, Department of Behavioral Sciences and Learning)

  • Camilla Strömbäck

    (Linköping University)

  • Daniel Västfjäll

    (Division of Psychology, Department of Behavioral Sciences and Learning
    Decision Research)

  • Gustav Tinghög

    (Linköping University
    Linköping University)

Abstract

We studied the association of individual differences in objective financial knowledge (i.e. competence), subjective financial knowledge (i.e. confidence), numeric ability, and cognitive reflection on a broad set of financial behaviors and feelings towards financial matters. We used a large diverse sample (N = 2063) of the adult Swedish population. We found that both objective and subjective financial knowledge predicted frequent engagement in sound financial practices, while numeric ability and cognitive reflection could not be linked to the considered financial behaviors when controlling for other relevant cognitive abilities. In addition, both objective and subjective financial knowledge served as a buffer against financial anxiety, while we did not detect similar buffering effects of numeric ability and cognitive reflection. Subjective financial knowledge was found to be a stronger predictor of sound financial behavior and subjective wellbeing than objective financial knowledge. Women reported a lower level of subjective financial wellbeing even though they reported a more prudent financial behavior than men, when controlling for sociodemographics and cognitive abilities. Our findings help to understand heterogeneity in people’s propensity to engage in sound financial behaviors and have implications for important policy issues related to financial education.

Suggested Citation

  • Thérèse Lind & Ali Ahmed & Kenny Skagerlund & Camilla Strömbäck & Daniel Västfjäll & Gustav Tinghög, 2020. "Competence, Confidence, and Gender: The Role of Objective and Subjective Financial Knowledge in Household Finance," Journal of Family and Economic Issues, Springer, vol. 41(4), pages 626-638, December.
    • Handle: RePEc:kap:jfamec:v:41:y:2020:i:4:d:10.1007_s10834-020-09678-9
    DOI: 10.1007/s10834-020-09678-9
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    23. Strömbäck, Camilla & Skagerlund, Kenny & Västfjäll, Daniel & Tinghög, Gustav, 2020. "Subjective self-control but not objective measures of executive functions predicts financial behavior and well-being," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
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