Financial Literacy as More than Knowledge: The Development of a Formative Scale through the Lens of Bloom's Domains of Knowledge

• Published date: 01 December 2019
• Author: Dee Warmath,David Zimmerman
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joca.12286

1602 THE JOURNAL OF CONSUMER AFFAIRS

DEE WARMATH AND DAVID ZIMMERMAN

Financial Literacy as More than Knowledge: The

Development of a Formative Scale through the Lens of

Bloom’s Domains of Knowledge

For well over a decade, nancial literacy has been a primary lens

through which researchers approach nancial education. Unfortu-

nately, in most cases, this potentially rich construct is reduced to mere

nancial knowledge. This myopic conceptualization hampers the devel-

opment of the concept and programs to build nancial literacy.Despite

research that reveals these limits, the eld has either persisted with

this narrow denition of nancial literacy or abandoned the model

altogether in favor of capability or similar constructs. Using Bloom’s

domains of knowledge, we redene nancial literacy as the combina-

tion of three different indicators reecting threedomains of knowledge:

nancial skill, self-efcacy, and explicit knowledge. Using data from a

national survey, we apply the methods of formative scale development

to construct and validate a more robustconceptualization and measure-

ment of nancial literacy. Weexplore how this nancial literacy index

might inform development of innovative nancial education programs.

The burden of nancial responsibility is increasingly shifting to the indi-

vidual American who is more than likely ill-prepared to handle the chal-

lenge (Erturk et al. 2007; Mandell and Klein 2009). Numerous studies

provide evidence of the challenges most Americans face. Roughly 59%

of American households do not have a budget or spending plan (US Bank

2016). Emergency savings is lacking in 61% of households (Martin 2018).

One-third of Americans have saved less than $5,000 with 21% having zero

saved for retirement (Northwestern Mutual 2018). Circumstances such as

these may lead to higher rates of material hardship and psychological dis-

tress (Dakin and Wampler 2008).

Some researchers, practitioners, and policymakers suggest that people

with higher levels of nancial literacy are more likely to avoid these eco-

nomic and psychological circumstances (Mandell and Klein 2009; Robb

and Woodyard 2011). The result has been a proliferation of programs

designed to impact knowledge of nancial concepts. The model underlying

Dee Warmath, (warmath@uga.edu ) is an Assistant Professor at the Universityof Georgia. David

Zimmerman, (david.zimmerman.phd@anderson.ucla.edu) is a Ph.D. student at the University of

California Los Angeles.

The Journal of Consumer Affairs, Winter 2019: 1602–1629

DOI: 10.1111/joca.12286

Copyright 2019 by The American Council on Consumer Interests

WINTER 2019 VOLUME 53, NUMBER 4 1603

these efforts is that nancial literacy supports better nancial decision mak-

ing and increases the probability of achieving desirable nancial outcomes

(Collins and O’Rourke 2010). While there is some evidence that this rela-

tionship may be true for longer horizon nancial behaviors (Wagner and

Walstad 2019), the weight of the evidence mostly concludes that it has lit-

tle to no effect (Allgood and Walstad2016; Borden et al. 2008; Fernandes,

Jr, and Netemeyer 2014; Jones 2006; Robb and Woodyard 2011).

Despite more than a decade of research, practice, and policy related

to nancial literacy, however, the concept and its relationship to nancial

decision making remain underdeveloped. Financial literacy has become

synonymous with explicit nancial knowledge with these terms being

used interchangeably (Fernandes, Lynch, and Netemeyer 2014; Lusardi

and Mitchell 2007, 2014). Yet literacy includes more than cognitive

knowledge. If we extend the current logic of nancial literacy to the realm

of reading and writing literacy, only those individuals who are able to

identify direct objects and diagram sentences would be deemed literate.

The majority of US adults, many of them persuasive and articulate readers

and writers, would likely fail such a test.1Moreover, as literacy experts

have demonstrated, the best way to learn to read (or write) is to read

(or write). This method builds the skills, knowledge, and self-efcacy

required to increase literacy levels. Learning to read or write also requires

the creation of spaces in which learners can make mistakes safely and

increase their capability as a result.

We argue that the current myopic conceptualization and operational-

ization of nancial literacy hamper creativity and innovation in nancial

education. Despite attempts to broaden our understanding (Huston 2010;

Remund 2010), the lion’s share of research on nancial literacy remains

focused on the explicit nancial knowledge component with numerous

knowledge tests being developed as nancial literacy measures (Bowen

2002; Collins and O’Rourke 2010; Courchane and Zorn 2005; Duguid

2005; Fernandes, Lynch, and Netemeyer 2014; Goldsmith, Goldsmith,

and Heaney 1997; Hastings, Madrian, and Skimmyhorn 2013; Knoll and

Houts 2012).

This study leverages Bloom’s domains of knowledge to offer an inno-

vative conceptualization of nancial literacy (Bloom et al. 1956). Our con-

ceptualization recognizes the existing cognitive component of nancial

literacy (i.e., nancial knowledge [Fernandes, Lynch,and Netemeyer 2014;

1. See, for example, Can You Pass Fifth Grade English? https://offbeat.topix.com/quiz/

17197/qidx1?tr=misc/search-result/external_item_search////,1568578701, uppdk1j7. Accessed March

31, 2019.