Measuring Perceived Financial Capability

Abstract

With the growing complexity of financial products and services, there is an increased interest in understanding the psychological components that affect financial decisions. Perceived financial capability is but one component of the broader concept of financial capability that also includes objective knowledge and the opportunity to act. We construct with factor analysis a single measure of perceived financial capability from five items in the 2009 Canadian Survey of Financial Capability (CFCS) (N = 15,519). After adjusting the measure for the influence of income, we find through bivariate analysis and multiple regression that younger individuals, females, and those with low education levels have relatively lower levels of perceived financial capability. Results indicate that perceived financial capability is empirically distinct from objective financial knowledge. Approximately 65% of the correlation between perceived financial capability and financial knowledge was unexplained. Results provide a baseline understanding of perceived financial capability in Canada that can be used for comparison with other countries and over time.

Keywords: perceived financial capability, financial knowledge, subjective measurement, Canada

JEL Classification: D140