Impact of inflated perceptions of financial literacy on financial decision making

Bhanu Balasubramnian and Carol Springer Sargent

Journal of Economic Psychology, 2020, vol. 80, issue C

Abstract: We examine whether inflated perceptions of financial literacy affect financial decision making. Gaps between objective financial literacy and self-reported (perceived) financial literacy (blind spots) predict 19 financial behaviors better than age, gender, income, ethnicity, marital status, self-employment status, and general education levels. Only two predictors, perceived financial literacy and financial education, carried similar levels of predictive power on financial behaviors. Those with inflated perceptions of financial literacy are more likely to miss mortgage payments, receive a collection call, use informal debt, and have poor banking behavior. Those without blind spots make better financial decisions. The differences between those with and without blind spots are more pronounced among individuals with higher education and income.

Keywords: Financial literacy; Financial capability; Consumer economics; Cognitive biases; Dunning-Kruger effect; Overconfidence (search for similar items in EconPapers)
JEL-codes: D1 D12 D14 D81 D83 G41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:80:y:2020:i:c:s0167487020300672

DOI: 10.1016/j.joep.2020.102306

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