Dr. William Walstad, John T. and Mable M. Hay Professor of Economics and Dr. Sam Allgood, Edwin J. Faulkner Professor Economics, were referenced in an article in the Wall Street Journal recently regarding their research on financial literacy. Their research conducted at the UNL College of Business Administration looked at people’s financial literacy scores compared with their level of confidence, and found that people with high confidence scores were much better at making good financial decisions even if they did not always score high in actual financial knowledge.
 
The Wall Street Journal article specifically focused on the shortcomings of many small financial investors during the most recent financial crisis. It pointed to a multipart report ordered by the Dodd-Frank financial-overhaul legislation that was implemented to help assess financial literacy across the country.
 
The conclusion of the report, which was issued by the Securities and Exchange Commission around Labor Day, concluded that overall financial literacy levels are poor throughout the United States. According to the research by Walstad and Allgood, confidence levels can help overcome some aspects of low knowledge on test scores.
 
“We didn’t want to just look at people’s test knowledge. We also wanted to look at their perception of their knowledge, and to what extent do they think they know about it and how does that affect what they know,” Walstad said.
 
Walstad and Allgood used two categories in their study: financial literacy skills (knowledge) measured by test scores and confidence (security) measured by self-ratings. Four different groups of combinations were created from their surveys: skilled and confident, unskilled and confident, skilled and insecure and unskilled and insecure.
 
They then looked at five primary credit card behaviors from subjects and the data reflected the study conclusion that unskilled and confident people were most similar to the skilled and confident group, seeming to demonstrate that confidence is a key factor in consumer financial behavior.
 
“Knowledge is only going to take you so far. The combination of the two (knowledge and confidence) creates a much more powerful effect in financial literacy in terms of influencing people’s behavior. People with high confidence probably know other things or have had other experiences or other aspects of their lives that are contributing that aren’t being picked up in just the test scores,” Walstad said. Published: November 6, 2012