Experimental Approach to Financial Literacy Measurement
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Presented by: Alexey Upravitelev
The financial sphere has experienced a great deal of change in recent years. The driver of this change is the fast development of digital financial technologies, as called fintech. According to the World Bank, fintech changes how people pay, save, borrow, manage risks, and get advice (Berg et al., 2020).
According to the analysis I propose, the most significant challenge in fintech development is the problem of agency, which I offer to define as a substantial change in financial behavior that occurs when consumers need to interact with digital financial services without the assistance of a manager. Traditionally, individuals would visit a bank branch and rely on the help of a manager to access the services they require. Within the digital environment, financial behavior necessitates that consumers interact with the institution independently, directly through an application without human interaction.
One of the most widely recognized methods for promoting improved financial decision-making among individuals is through programs that aim to increase financial literacy. The most popular approach of measurement the financial literacy is the one based on knowledge about basic financial concepts, proposed by Lusardi and Mitchell (2008, 2011).
My criticism of this approach is based on the idea that in terms of the digitalization of finance due to the problem of agency skills become more important than knowledge.
To accurately measure financial literacy in today's fintech-driven world, I propose employing an experimental approach. Under this method, participants would engage in tasks within an experimental environment resembling a fintech application. The main parameter of interest in this study is the time participants take to complete different tasks. A faster completion time indicates a higher level of financial literacy in this specific aspect, as individuals with the necessary skills can navigate fintech applications efficiently, even if they are unfamiliar with the interface.
By doing so, relevant insights could be obtained regarding the factors that influence customer performance, the influence of knowledge and skills on commission, and the varying levels of comprehension and behavior across different demographic groups.
Theoretically, the results would contribute to developing a more comprehensive understanding of financial decision-making by shedding light on the factors that directly impact financial behavior. In terms of practical applications, the results of these experimental studies would provide valuable knowledge for government agencies and businesses alike. For the government, it could aid in formulating more effective financial education strategies that align with the ongoing digitalization of the finance industry.
According to the analysis I propose, the most significant challenge in fintech development is the problem of agency, which I offer to define as a substantial change in financial behavior that occurs when consumers need to interact with digital financial services without the assistance of a manager. Traditionally, individuals would visit a bank branch and rely on the help of a manager to access the services they require. Within the digital environment, financial behavior necessitates that consumers interact with the institution independently, directly through an application without human interaction.
One of the most widely recognized methods for promoting improved financial decision-making among individuals is through programs that aim to increase financial literacy. The most popular approach of measurement the financial literacy is the one based on knowledge about basic financial concepts, proposed by Lusardi and Mitchell (2008, 2011).
My criticism of this approach is based on the idea that in terms of the digitalization of finance due to the problem of agency skills become more important than knowledge.
To accurately measure financial literacy in today's fintech-driven world, I propose employing an experimental approach. Under this method, participants would engage in tasks within an experimental environment resembling a fintech application. The main parameter of interest in this study is the time participants take to complete different tasks. A faster completion time indicates a higher level of financial literacy in this specific aspect, as individuals with the necessary skills can navigate fintech applications efficiently, even if they are unfamiliar with the interface.
By doing so, relevant insights could be obtained regarding the factors that influence customer performance, the influence of knowledge and skills on commission, and the varying levels of comprehension and behavior across different demographic groups.
Theoretically, the results would contribute to developing a more comprehensive understanding of financial decision-making by shedding light on the factors that directly impact financial behavior. In terms of practical applications, the results of these experimental studies would provide valuable knowledge for government agencies and businesses alike. For the government, it could aid in formulating more effective financial education strategies that align with the ongoing digitalization of the finance industry.