Impacts of Financial Literacy and Confidence on the Severity of Financial Hardship in Australia 1 (original) (raw)

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This work analyses the impact of financial literacy and financial behaviour of individuals on the likelihood of over-indebtedness, controlling for socioeconomic factors, the type of mortgage and the event of a negative income shock. Using the data from the 2009 National Financial Capability Study of the United States, we consider three self-reported measures of over-indebtedness: financial distress, arrears and foreclosure. Using the data from the National Financial Capability Study carried out in the United States in 2009, we have defined three measures of over-indebtedness-financial distress, arrears and foreclosure-, and constructed a financial literacy index and a financial behaviour index. The financial literacy index is constructed using questions on the compounding of interest rate, inflation, bonds and stocks, mortgage payment and risk diversification. The financial behaviour index is based on questions concerning individuals' financial choices related with budget management, savings, bank accounts, credit, insurance and financial advice. Results show that gender matters for the intensity of over-indebtedness. Men have higher probability of experience financial distress or being in arrears but have lower probability of getting involved in a foreclosure process. In addition to the impact of socioeconomic factors, we conclude that financial literacy contributes to the prevention of over-indebtedness since individuals with higher levels of financial literacy are less likely of becoming over-indebted. Also, individuals who engage in positive financial behaviours, such as spending less than their own income, setting a 'rainy day' fund, using credit wisely or looking for financial advice, are less likely to experience severe financial difficulties. Independently of the level of financial literacy and of financial behaviour, experiencing a large drop in income is an important determinant of over-indebtedness.

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The International Journal of Academic Research in Business and Social Sciences, 2019

The aftermath of the 2008 world financial crisis has stimulated a lot of research regarding individual and household debt. Studies pertaining individual and household debt generally discussed the element of financial literacy and its connection with individual and household indebtedness, however there was a lack of discussion on debt literacy. The objective of this article is to review the definition and measurement of debt literacy, a more specific aspect of financial literacy. The study is conducted by critically reviewing articles with a search word "debt literacy" in SCOPUS database in December 2018. The findings of this paper highlight common definitions and measurements of debt literacy, and suggest an appropriate definition and measurement for future research.

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The Journal of Social Sciences Research, 2018

Malaysia is a country that aims to become a high-income status nation by 2020. Though, Malaysia currently is facing with over-indebtedness problems, an increasing trend in consumer loan demand, high household debt-GDP ratio, and also with a high number of bankruptcies. With regards to these issues, therefore this study is conducted to investigate the causes of over-indebtedness, specifically among the young generations. This study applied a face to face survey and interviewing eight young workers in one of the public universities in Malacca, Malaysia. The results indicate that low in financial knowledge and debt illiteracy are not the causes of over-indebtedness for the sampling frame. An individual with a good financial knowledge and debt literate, also associate with a high debt and over-indebtedness. Moreover, home and car loan are the dominant contributors for individual over-indebtedness, due to the perception that home and car are the needs in today's life. These findings had brought a new dimension in exploring on the causes of over-indebtedness, where research on over-indebtedness should not only focus on the linking of financial literacy (financial knowledge and debt literacy) with consumer debt, but then should consider other contributing factors that give effect to individual over-indebtedness. It is hoped that this study may perhaps give benefits to regulatory bodies in formulating policies related to consumer debt in realizing the government's intention to become a high-income status nation by the year 2020.

FINANCIAL CAPABILITY LITERACY, BEHAVIOUR, AND DISTRESS.docx

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