Culture and financial literacy

1. Context
2. The study
3. Key findings
4. Points to consider

Context

A growing body of research documents that financial literacy is associated with better personal financial decision making. Individuals with a higher level of financial literacy perform better in retirement planning, are less prone to over-indebtedness and participate more often in financial markets. Recent research focuses on the effectiveness of financial education interventions for the youth and adults, but there is little analyses of initial levels of financial literacy which may also influence the impact of financial education initiatives.

Race and ethnicity are often correlated with differences in socio-economic background making it difficult to identify the effect of cultural background on financial literacy. This paper studies the effect of culture on financial literacy among young people.

The study

This study examines the extent of differences in financial literacy among young people across well-defined cultural groups. It also examines to what extent these differences may be accounted for by different dimensions of culture, e.g. preferences, financial socialisation, norms or money attitudes across these groups. In contrast to other research on the relationship between language and savings behaviour, which hypothesis a one-dimensional influence of language on patience, this study uses language as a proxy for a broader range of cultural differences.

The study examines the impact of culture on financial literacy at the French-German language border within Switzerland in part because economic conditions that potentially influence financial literacy hardly change at the language border. 649 secondary-school students aged around 15 took part in the survey. They were located in a narrow geographic region along the language border within the canton of Fribourg.

Key findings

The study found that students at German-speaking schools scored on average 25% higher than students at French-speaking schools. Students at French-speaking schools were 36% more likely to report that they (subjectively) find financial matters confusing. German speaking students were more financially literate based on their responses to a standard set of financial literacy questions as well as by their own subjective assessment.

Differences between the language groups are particularly strong among Swiss nationals, while they are negligible among students with a recent immigration history regardless of primary language, supporting the idea that locally embedded culture influences financial literacy and suggesting that the observed differences are not related to (unobserved differences) in school curricula across the language border.

Supporting other studies this test shows that financial literacy is strongly correlated with financial socialisation (receiving pocket money at an early age, having independent access to a bank account) and time preferences (patience), but less so with norms towards debt and attitudes to money.

Awareness of these cultural determinants may help design more effective programs especially in countries with a culturally diverse population for example as result of a large migrant population or historical language or religious borders.

Points to consider

Methodological limitations:

• The study only looked at one instance of cultural difference existing within the same administrative and educational systems.
• The inclusion of Swiss nationals and recent immigrants who spoke either German or French, and who exhibited different levels of financial fluency, strengthens the methodology.

Relevance:

• This study is highly relevant to a study of education and financial literacy, to studies of young people and financial management, and to the examination of the role of culture on financial literacy.

Generalisability/ transferability:

• The study is highly transferable, however caution should be exercised, particularly in non-Western contexts.

Applicability:

• The study is highly feasible and has a robust methodology. It is applicable to other contexts.

Full report

Culture and financial literacy full report