Overconfidence in Financial Literacy: Implications for Planners

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Figure 2.

Figure 3.

Definitions of variables in study

Variable	Definition
female	dummy variable for gender: 0 indicating male and 1 indicating female
indigenous	dummy variable for self-identification of being indigenous Australian: 0 indicating no and 1 indicating yes
above20	dummy variable for being 20 years old or above: 0 indicating no and 1 indicating yes
non_English	dummy variable for speaking a language other than English at home: 0 indicating no and 1 indicating yes
paid_work	dummy variable for doing paid work: 0 indicating no and 1 indicating yes
study_biz	dummy variable for studying business at university: 0 indicating no and 1 indicating yes
self_rate_avg	the average self-rating on the level of understanding of eight aspects of financial literacy (i.e., budgeting, saving, managing debt, investing, retirement planning, taxation, insurance, and superannuation) each on a five-band Likert scale (i.e., 1 – very low, 2 – low, 3 – fair, 4 – high, and 5 – very high)
test_overall	the total number of correct answers to a panel of 14 quizzes on various aspects of financial literacy
rescaled_test_overall	Rescaled test_overall to a range between 1 and 5: rescaled_test_overall = 4 x test_overall / 14 + 1
overconfidence	overconfidence in financial literacy: overconfidence = self_rate_avg - rescaled_test_overall

Operationalisation of financial literacy constructs

Constructs	Questions	Source
Budgeting, saving, managing debt	1. Compound interest	Lusardi and Mitchell, 2009
	2. Inflation	Lusardi and Mitchell, 2009
	3. Budgeting	Mandell, 2008
	4. Borrowing	Mandell, 2008
	5. Credit card debt	Mandell, 2008
Investing	6. Risky assets	Lusardi and Mitchell, 2009
	7. Long period returns	Bateman, et al., 2012
Superannuation, retirement planning, and insurance knowledge	8. Performance indicator	ANZ, 2011
	9. Concessional tax rate	Chardon, 2014
	10. Life insurance need	Mandell, 2008
	11. Car insurance	Mandell, 2008
Taxation knowledge	12. Assessable income	Chardon, 2014
	13. Tax payable	Chardon, 2014
	14. Negative gearing	Chardon, 2014

Numerical summary of self-rated and tested levels of financial literacy in sample

Variable	N	M	Mdn	SD	Skew	Kurt	Min	Max	Q1	Q3
self_rate_avg	363	2.68	2.50	.79	.62	.19	1.00	5.00	2.13	3.13
test_overall	316	6.70	7.00	2.75	.02	-.49	.00	13.00	5.00	9.00
Overconfidence	316	-.23	-.25	.80	.35	.15	-2.32	2.09	-.79	.23

Regression coefficient estimates

	B	β	t	p
Constant	-.504	-	-4.090	<.001***
female	.139	.071	1.230	.220
Indigenous	-.063	-.013	-.222	.824
above20	-.073	-.045	-.792	.429
non-English	.466	.184	3.193	.002***
paid_work	.187	.111	1.897	.059*
study_biz	.080	.035	.612	.541

Seemingly unrelated regressions of self-rated and tested levels of financial literacy

	Unconstrained model				Constrained model
	self_rate_avg	p	rescaled_test_overall	p	self_rate_avg	p	rescaled_test_overall	p
female	-.454	<.001	-.594	<.001	-.526	<.001	-.526	<.001
indigenous	.347	.193	.409	.117	.379	.090	.379	.090
above20	.195	.024	.268	.002	.233	.001	.233	.001
non_English	.299	.030	-.168	.214	.268	.052	-.139	.304
study_biz	.057	.644	-.023	.849	.016	.880	.016	.880
paid_work	.241	.009	.055	.550	.145	.064	.145	.064
constant	2.748	<.001	3.251	<.001	2.86	<.001	3.14	<.001
χ2(d.f.), p	35.37(6)	<.001	46.28(6)	<.001	55.22(6)	<.001	50.67(6)	<.001
R-squared	.105		.133		.099		.128
residuals r, p	.441, <.001				.432, <.001
joint constraints test: χ2(d.f.), p	n.a.				7.09(5),.214

Demographics of respondents

Demographics	Frequency	Per cent % (n=302)
Female	238	79
Indigenous	8	3
20 yrs and above	133	44
Non-English at home	33	11
Paid work	203	67
Studying business	42	14
Living at home	170	56