Exploring the Relationship between Financial Education and Financial Knowledge and Efficacy: Evidence from the Canadian Financial Capability Survey

• Published date: 01 December 2019
• Author: David W. Rothwell,Shiyou Wu
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joca.12259

WINTER 2019 VOLUME 53, NUMBER 4 1725

DAVID W. ROTHWEL L AND SHIYOU WU

Exploring the Relationship between Financial Education

and Financial Knowledge and Efcacy: Evidence from

the Canadian Financial Capability Survey

Researchers and policymakers in many countries are interested in bet-

ter understanding the relationship between nancial education par-

ticipation and cognitive outcomes such as nancial knowledge and

self-efcacy. Weused two waves of the nationally representative Cana-

dian Financial Capability Survey along with propensity score matching

(PSM) to compare outcomes between persons who had taken a nancial

education course to those who had not. After matching and adjusting

for demographic and economic factors, nancial education participants

exhibited signicantly higher objective and subjective nancial knowl-

edge and nancial self-efcacy scores. Post-estimation analysis showed

that higher overall objective nancial knowledge scores were at least

partially driven by higher scores of men. Financial education partici-

pants had higher subjective knowledge and nancial self-efcacy scores

for both genders and across age. Future research into nancial educa-

tion ought to consider cognitive dimensions in addition to behavioral

and nancial outcomes.

Rising economic inequality, decreased regulation, and increased personal

responsibility are dening features of the past half-century.1During this

time, nancial products have become increasingly complex. Cash ow

management and long term planning now involve an array of complex

individual options and decisions. Recent estimates suggest that nancial

insecurity is widespread. For example, 39 percent of Americans answered

with certainty that they could afford a $2,000 emergency expense (Lin

et al. 2016). Just under half of Canadians own sufcient nancial assets to

maintain at the low-income threshold for 3 months (Rothwell and Robson

1. Although there has been a trend toward less regulation, it should be noted the 2010 Dodd Frank

Act increased regulations of the nancial services industry. In 2018, legislation has been signed into

law that eases some of the regulations introduced by Dodd Frank.

David W. Rothwell (david.rothwell@oregonstate.edu) is Assistant Professor at Oregon State

University, School of Social and Behavioral Health Sciences. Shiyou Wu (shiyou.wu@asu.edu) is

Assistant Professor at Arizona State University,School of Social Work.

The Journal of Consumer Affairs, Winter 2019: 1725–1747

DOI: 10.1111/joca.12259

Copyright 2019 by The American Council on Consumer Interests

1726 THE JOURNAL OF CONSUMER AFFAIRS

2018). Overall, the changing marketplace, social institutions, and policies

have combined to increase overall economic insecurity.

In efforts to promote economic well-being, governments have identi-

ed nancial literacy as a policy priority. Several OECD countries now

administer surveys to measure nancial knowledge, literacy, and capability

(OECD 2013). In Canada, the federal government established a nancial

literacy task force in 2009 to promote nancial literacy in the population.

At the same time, as economic insecurity has increased, a number of nan-

cial education interventions have emerged. Financial education programs

are featured in public schools, employment and community settings, and

among anti-poverty interventions such as individual development account

(IDA) programs. The extent to which these programs improve nancial

knowledge and nancial behaviors is of primary interest to policymakers.

This study on nancial education in Canada is important in the context

of expanding nancial education interventions across many countries. The

current study builds on a number of published studies that examined the

association between nancial education and nancial capability (knowl-

edge and behavior; Wagner and Walstad 2019; Xiao, Chen, and Sun 2015;

Xiao and O’Neill 2016; Xiao and Porto 2017). The details of these stud-

ies are discussed in the following literature review. Here, we highlight a

number of ways that our study adds to the existing knowledge base. First,

we employ novel methods to data that are nationally representative of the

Canadian population. Specically, we use data from a nationally repre-

sentative survey and match nancial education participants to similar non-

participants. To our knowledge, no previous studies have used matching

to equivalize groups that received and did not receive nancial education.

Second, we extend our inquiry beyond behavioral outcomes in previous

studies (Fernandes, Lynch, and Netemeyer 2014) to examine two types

of knowledge—subjective and objective—andnancial self-efcacy.Last,

we generate new insights into how nancial education is unequally associ-

ated with the outcomes across age and gender.

Financial Knowledge and Financial Self-Efcacy

Financial literacy has both broad and narrow conceptualizations. Ear-

lier operationalizations of nancial literacy were broad and included both

nancial knowledge and behavior. More narrowly, nancial literacy refers

to nancial knowledge and is the ability to process economic information

toward making informed decision about nancial management (Lusardi

and Mitchell 2014). Financial knowledge is consistently shown to be pos-

itively related to a variety of nancial outcomes. For example, knowledge