Skills and household financial decision-making in Indonesia

Arief Wibisono Lubis

International Journal of Social Economics, 2020, vol. 47, issue 11, 1433-1450

Abstract: Purpose - This study examines whether financial literacy is a relevant factor that determines authority in household financial decision-making, an area that is often viewed as boring, difficult and full of uncertainties. Cognitive ability and personality traits are also included as additional explanatory variables. Design/methodology/approach - The logistic regression technique was applied using a sample of more than 2,300 microfinance institutions' clients in three provinces in Indonesia. Findings - This study finds that financial literacy correlates positively with authority in household financial decision-making only among men. This does not mean that financial literacy is irrelevant for women's agency, since the skill might be important for authorities in other decision-making areas, including those outside households. Meanwhile, the relationship between cognitive ability and household financial decision-making authority is more universal. Research limitations/implications - This study does not collect information on the levels of financial literacy of other household members and does not capture respondents' perceptions of household financial decision-making. Social implications - The overall low level of financial literacy calls for the need for more targeted efforts to address this issue by policymakers. Education policy should also be designed to improve cognitive ability, as this ability is important for human agency and well-being. Originality/value - Household decision-making has received significant attention in the literature. Authority in household decision-making is important because it represents a person's agency and has a profound impact on well-being. To the best of author's knowledge, studies on the importance of skills in household financial decision-making are very limited.

Keywords: Financial decision-making authority; Financial literacy; Cognitive ability; Personality traits; Indonesia; D1; D12; D13; D91 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijsepp:ijse-10-2019-0632

DOI: 10.1108/IJSE-10-2019-0632

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