by Keiko TAKAHASHI and HATANO, Toshiya;NAKAMURA, Satoki
Location: U6 1E
For Teachers, Researchers
Theme(s):
Financial Education and Literacy 
Gender Equality Abstract: The studies on financial literacy have developed using questions known as the “Big 3” or “Big 5,” which measures literacy levels based on the number of correct answers. However, we believe that two important challenges remain in measuring financial literacy.
The first is the scope of financial literacy. Previous studies have focused on financial assets. However, in our daily lives, we not only manage assets, but also engage in activities such as repaying loans from financial institutions. We believe that financial literacy should be included in terms of financial liabilities.
The second is how to handle the answer choices. Generally, knowledge questions offer three choices: “correct,” “incorrect,” and “don't know” (hereinafter abbreviated as “DK”). Researchers tend to include “DK” in “incorrect” and analyze the answers whether “correct” or “incorrect.”
When the characteristics of the “incorrect” group and the “DK” group differ, it should be required to analyze “DK” separately from “incorrect”group.
The objectives of our study are twofold. First, to measure expanded financial literacy, including financial debt, as defined by Lusardi and Tufano (2015) as “debt literacy.”Second, to compare the results of a three-value model with the results of a traditional binary model.
The results showed that “DK” had a higher explanatory power than “correct.” Furthermore, in the three-value model, “correct” was not significant, whereas “DK” showed a significantly negative effect on annual income. This result suggests the importance of treating “DK” as an independent variable. Financial education should focus on teaching students how to think about financial issues, including their background and fundamental concepts.