The relationship between financial and psychological variables and financial capability behaviour

Abstract

For this study, the researcher was explicitly interested in the possible precursors to financial capability behaviours, especially since a behavioural approach was taken. With this in mind, the study questions if ‘soft’ psychological variables explain financial literacy and financial capability in more depth than the frequently used ‘hard’ demographic variables like age, gender, and education. Even when controlling age, gender, and education the individual differences in personality traits and beliefs about economic control were strongly linked with financial literacy and financial capability. For the purposes of this study financial literacy and financial capability were measured using the same instrument that was used in the survey of Financial Literacy in Malta (MFCS, 2018). The trait of conscientiousness, (defined as being self-disciplined and able to exert self-control over impulses), and belief in internal locus of control (that is the belief that financial outcomes are due to hard work and effort as opposed to chance and fate) were both positively and consistently correlated to better financial capability and financial literacy. The results are based on a cross-sectional online survey of 319 respondents (± 5.487% assuming a 95% confidence level). As hypothesised, higher levels of conscientiousness and internal locus of control correlated with higher financial capability behaviour. Inversely external locus of control was associated with lower financial capability behaviour. It is being recommended that any current and future interventions designed to increase financial capability behaviour in Malta should consider psychological factors together with traditional teaching methods of financial literacy.