More Than Knowledge: Consumer Financial Capability and Saving Behavior

Abstract

This paper explores the association between financial capability, defined broadly through different constituents, and households' savings behavior. Using a survey conducted to a sample of 1501 consumers, the results, correcting for endogeneity, indicate that in order to explain savings behavior: (i) knowledge about investment products (funds, stocks, bonds, etc.) is more important than knowledge about concepts of an economic-financial nature (simple and compound interest rate, inflation, and diversification); (2) self-confidence in financial knowledge is more relevant than actual financial knowledge; (3) budgeting skills are strongly relevant; and (4) some of the elements proposed by the Theory of Planned Behavior, in particular control or self-efficacy, are valid predictors of savings behavior. In sum, a broad conception of financial capability, beyond financial knowledge, is needed to understand savings behavior. Our study has implications for policy decision makers, consumers, and educational and financial institutions and sheds light on future lines of research.