About Institute for Choice
The Institute for Choice (University of South Australia) is a world-leading research facility that focuses on understanding and modelling human decision-making and choice behaviour.
There has been growing interest on ways to measure financial literacy using survey questions. However, there is little agreement on which questions to ask to measure financial capability, or on how to combine the answers to the questions into an overall index of financial capability.
The aim of this project was to develop a pilot study and ‘proof of concept’ to identify sets of questions and a method to reliably and accurately measure individuals’ financial capabilities. In this ‘proof of concept’ we focused on three key financial decisions – choices of loans, insurance and investments – which are sufficiently comprehensive to predict financial capability in a variety of contexts but sufficiently limited to enable efficient consumer surveying. Using two surveys of financial literacy experts we identified three sets of seven discriminating questions considered by experts to be highly informative and developed a scoring model to measure financial capability from any combination of correct and incorrect answers to the identified questions. We tested the performance of the scoring model using responses from a consumer survey and found it to have significant predictive power to discriminate between consumers who get answers to questions on loans, insurance and investment correct or incorrect.
The project created new resources for financial literacy research including a systematic way to identify sets of discriminating questions for financial decisions as well as method to develop a scoring model to rate individuals’ financial capability using their answers to the discriminating questions.
The research team was Professor Jordan Louviere (University of SA, pictured above right), Professor Hazel Bateman (UNSW, centre), Professor Susan Thorp (University of Sydney, above left) and Dr Christine Eckert (UTS).
$120,000 over one year