Saving intention and intention completion: The role
of formal education, financial socialization, and
financial literacy
Colin Rijkers
University of GroningenThis study examines relationships of formal education and financial socialization with saving intention and saving intention completion. Saving behavior is frequently related to financial literacy. Consequently, I argue that formal education and financial socialization are crucial concepts shaping this financial knowledge and skill, thereby increasing intentions to save and completion of these intentions. Based on a sample from the Dutch Household Survey I find support for the positive relationship of financial socialization with saving intention and saving intention completion. This relationship materializes directly, as well as through two distinct measures of financial literacy, self-assessed financial literacy and money-management skills. Formal education is insignificant in its relationship with saving intention and completion. However, statistical evidence does indicate a significant relationship with financial literacy measures.
Keywords: Saving, financial literacy, money-management skills, education, financial socialization
Master’s Thesis Finance 2016-2017, 2nd semester. Name: Colin Rijkers
1. Introduction
Savings are more important than ever. Households need to save for retirement, residents, children, and other foreseen and unforeseen expenditures. The importance of saving is emphasized in academic literature, is embedded in societal beliefs, and is reinforced by financial and governmental institutions. As a first example, Gjertson (2016) indicates that poor saving behavior increases the probability of several financial and nonfinancial hardships. Secondly, Bucciol & Veronesi (2014) state that saving is important for retirement, to sustain stable consumption needs, and to protect against unforeseen adverse events such as unemployment or health issues. Thirdly, in the Netherlands an independent advisory institution named NIBUD advises consumers about financial matters. This institute promotes planning and saving, reinforcing the societal importance of financial behavior. However, the NIBUD reports that 20% of Dutch households don’t save, and that over 30% has too little savings on the basis of NIBUD’s own advice (Van der Schors & Van der Werf, 2017). Lastly, several academics voice concerns regarding the amount of retirement savings (Bucciol & Veronesi, 2014; Lusardi & Mithcell, 2011).
Understanding saving behavior is thus highly relevant. However, several gaps do still exist in academic literature. First, relationships of formal education and financial socialization with saving behavior have received too little attention despite their significance for financial behavior (Argawal et al., 2010; Bucciol & Veronesi, 2014; Jorgensen & Savla, 2010). Second, many studies focus on the propensity to save and on saving levels (Bucciol & Veronesi, 2014; Lusardi & Mithcell, 2011; Van Rooij et al., 2012). However, completion of saving intentions has not received much attention, although very relevant in understanding saving behavior (Rabinovich & Webley, 2007). To fill the research gaps, I examine the relationships of formal education and financial socialization with saving intention and saving intention completion.
Formal education and financial socialization are two theoretically and practically relevant determinants shaping financial behavior, skill, and knowledge (Argawalet al., 2010; Bucciol & Veronesi, 2014; French & McKillop, 2016). Most academics study the relationship of formal education and financial socialization with financial behavior by considering the relationship with the mediating factor financial literacy (Bucciol & Veronesi, 2014; French & McKillop, 2016; Xiao & O'Neill, 2016). The OECD defines financial literacy as “a
combination of awareness, knowledge, skill, attitude, and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being” (OECD INFE,
this conceptual difficulty, I include the financial literacy component money-management skills to capture true skills (French & McKillop, 2016).
For empirical analysis, I construct a panel dataset using CentERdata’s DNB Dutch Household Survey. The panel ranges from 2011 to 2016 and includes demographical, psychological, and financial information.
Analysis shows that financial socialization is positively related to both saving intention and saving intention completion. Formal education, however, does not directly relate to saving intention or completion. Moreover, the mediating effects of money-management skills and self-assessed financial literacy are confirmed. In turn, money-management skills and self-self-assessed financial literacy significantly positively relate to saving intention and saving intention completion. However, the highest level of self-assessed financial literacy is not significantly related to saving behavior, reinforcing that the concept reflects confidence rather than true knowledge. Moreover, statistical evidence on the relationship of formal education and financial socialization with money-management skills and self-assessed financial literacy confirms the mediating effect of the financial literacy measures.
Additionally, financially unhealthy and healthy households are considered separately. This robustness test confirms findings with respect to formal education. Furthermore, financial socialization is only relevant for saving intention and completion of unhealthy households. Similarly, with respect to saving intention completion, money-management skills are of larger effect for the unhealthy sample. Self-assessed financial literacy is only significant for the financially healthy sample.
The remainder of the paper starts with a detailed literature overview. Then the data and methodology are explained. The actual empirical analysis is covered by providing univariate and multivariate analysis and some robustness tests. Lastly, the conclusion, limitations, and recommendations for further research are discussed.
2. Literature Overview and Hypotheses
The main focus of this study is on the relationship of formal education and financial socialization with saving intention and saving intention completion. Saving intention refers to the plan to save for a coming period. Saving intention completion reflects success in realizing this saving intention (Rabinovich & Webley, 2007).
Financial socialization refers to the extent to which an individual has received financial advice and guidance in childhood and youth. Parental education is a major component of financial socialization (Van Campenhout, 2015). However, financial socialization extends parental education by including factors outside parental control. Bucciol & Veronesi (2014) study the specific components of parental education in detail.
Additional to the relationship of formal education and financial socialization with saving behavior, is financial literacy. Financial literacy is a measure of an individual’s knowledge of economic concepts (Allgood & Walstad, 2016). Following existing research (Bucciol & Veronesi, 2014; French & McKillop, 2016) and the definition by the OECD INFE (2011) as included in the introduction, formal education and financial socialization are likely to, at least partly, materialize through financial literacy. Therefore, financial literacy is expected to have a mediating role in the relationships of formal education and financial socialization with saving intention and saving intention completion.
Furthermore, recent research finds a discrepancy between actual and self-assessed financial literacy (Allgood & Walstad, 2016; Kramer, 2016). The latter is used in this study. For example, Kramer (2016) finds that only self-assessed financial literacy is negatively related to financial advice seeking, while actual financial literacy remains unrelated. Based on these findings, self-assessed financial literacy is argued to reflect an individual’s confidence in one’s own financial knowledge and skill rather than true financial knowledge and skill. Therefore, merely considering self-assessed financial literacy does not clearly reflect an individual’s true skills regarding saving and financial decisions in general (Allgood & Walstad, 2016). Consequently, a skill component has to be added to the analysis. The skill component in this study is defined as money-management skills.
Money-management skills are part of financial literacy and reflect the degree of attention and planning with respect to financial matters (French & McKillop, 2016). Biljanovska & Palligkinis (2016) propose the concept of financial control. Financial self-control has considerable overlap with money-management skills as both concepts are ulitmately based on goal setting, tracking, and commitment. Nevertheless, because the two concepts reflect skill more than the psychologically embedded self-control (Muraven et al., 1998), I continue referring to money-management skills.
2.1. Relationship A: The relationship of formal education and financial socialization with financial literacy measures.
The first theoretical relations to be discussed are that of formal education and financial socialization with money-management skills and self-assessed financial literacy. Xiao & O'Neill (2016) find a positive relationship between financial education and financial literacy. Specifically, the authors find that high school and college education positively relate to self-assessed financial literacy. Moreover, college education increases true knowledge following from its positive relation with actual financial literacy (Xiao & O'Neill, 2016). Confirmingly, French & McKillop (2016) find that financial education, an extension of formal education, contributes positively to the development of money-management skills (i.e. true skill and knowledge). This finding is based on Argawal et al. (2010), finding enhancing effects of education on loan behavior.
Prior research learns us that self-assessed financial literacy reflects different information than actual financial literacy (Allgood & Walstad, 2016). Self-assessed financial literacy reflects confidence rather than true financial knowledge (Kramer, 2016). Given the conceptual complexities, one cannot state that the knowledge component completely diminishes when financial literacy is self-assessed. Instead, self-assessed financial literacy could be a combination of true knowledge and confidence in this knowledge. Xiao & O'Neill (2016) argue
Educational factors
• Formal education • Financial socialization
Financial control variables: • Occupation • Income • Financial health Demographic control • Age • Gender Saving behavior • Saving intention • Intention completion
Financial literacy (à mediators)
• Self-assessed financial literacy • Money-management skills
Control (miscellaneous) • Health
Figure A. Theoretical model
A A
B C
that financial education specifically, increases confidence in financial knowledge. This statement is reinforced by Willis (2008) stating that financial education increases confidence without always improving ability. However, Gentile et al. (2016) find that higher financial knowledge lowers individuals’ propensity to rate themselves as being better-than average, consequently, lowering (over)confidence.
When shifting focus to financial socialization, positive relationships with financial literacy are discovered. Lewis & Scott (2000), find that receiving pocket money, a component of financial socialization, promotes the development of economic awareness and knowledge, and thus financial literacy. Moreover, an experiment by Collard et al. (2012) suggests that financial skills training positively impacts financial confidence. Because financial skills training in the experiment is characterized by practical advice and active guidance, I argue this can be interpreted as a type of financial socialization. Furthermore, besides the confidence boosting effect of financial skill training (financial socialization), actual results reflect an improvement in money-management skills (Collard et al. 2012).
2.2. Relationship B: The relationship of financial literacy measures with saving intention and intention completion.
Multiple studies find significant relationships between financial literacy and household financial behavior. French & McKillop (2016), focusing on low-income households in Northern Ireland, state that a lack of financial literacy is correlated with higher debt burdens, incurring greater fees, loan defaults, and loan delinquency.
Shifting focus to saving decisions, evidence is provided by Van Rooij et al. (2011) focusing on Dutch households. The authors conclude that actual financial literacy is positively associated with saving and retirement planning. Furthermore, they find that the effect of financial literacy is strongly related to household wealth in general. The positive relationship between financial literacy and saving behavior is also documented in the developing market of Zimbabwe (Murendo & Mutsonziwa, 2017). More support for the positive relationship between financial literacy and saving behavior in developed markets is provided in an US-based study by Henager & Mauldin (2015). Additionally, their study suggests that only self-assessed financial literacy positively relates to saving intentions, whereas actual financial literacy is negatively related to saving intentions. This finding reinforces the conceptual distinction between actual and self-assessed financial literacy.
find that failure to employ money-management skills decreases various household net wealth measures, and positively relates to self-assessed financial distress. Based on these findings, money-management skills tend to improve financial decisions making. Therefore, analogous to debt reduction, one would expect a higher propensity to save when money-management skills are better developed. Furthermore, when money-management skills improve financial decision making, intention completion is also expected to be positively related to these skills.
2.3. Relationship C: The relation of formal education and financial socialization with saving behavior.
As discussed above, formal education positively relates to self-assessed financial literacy and true money-management skills (Argawal et al. 2010; French & McKillop, 2016; Xiao & O'Neill, 2016). Moreover, financial socialization is positively related to the confidence component of self-assessed financial literacy, but also to true knowledge and skill (Bucciol & Veronesi, 2014; Collard et al. 2012). In turn, actual and self-assessed financial literacy are positively related to saving propensity and several net worth measures. Therefore the relationship of formal education and financial socialization with saving intention is expected to be positive. Additionally, Bucciol & Veronesi (2014) already indicate that the parental education component of financial socialization increases saving propensity in adolescence.
With respect to intention completion, similar expectations arise. Because most authors focus on saving levels and intention rather than on inention completion, most relationships discoverd are on saving levels. Saving levels can only be researched when saving has occured. Consequently, I expect to find positive relationships of formal education and financial socialization with saving intention completion. However, relationship C in figure A is expected to, at least partly, diminish when including relationship B based on the relationships described in sections 2.1. and 2.2.
2.4. Relationships between saving behavior and control variables
Prior literature has found relationships between saving and numerous other variables. Two types of variables are highly relevant to consider besides the variables of interest described above. First, demographical control variables age, gender, and health. From existing literature, we know gender (Bannier & Neubert, 2016; Driva et al., 2016), and age (Jappelli & Padula, 2013), significantly relate to the assumed mediating factor financial literacy. Driva et al. (2016) find males having a higher self-assessed financial literacy than woman. Jappelli & Padula (2013) conclude that actual financial literacy depreciates with age. Furthermore, controlling for health is necessary as it affects marginal consumption utility, and thus also relates to the utility of saving (Macé, 2015).
Second, financial control variables, income, occupation, and financial health of the household, are included to control for households’ economic positions. A household’s financial characteristics and the mere financial ability to save is likely to play a large role in saving intention and saving intention completion. Financial control variables are widely used in studying saving behavior and financial behavior in general.
3. Data and methodology
The data used for the sample is retrieved from the DNB Dutch Household Survey (DHS), an extensive database in which over 2,000 households report on economic, financial, and psychological questions. The survey is distributed on an annual basis. I construct a panel dataset ranging from 2011 to 2016 to obtain sufficient data points. Moreover, the panel dataset makes it possible to assess whether saving intentions have been completed in the subsequent year. When interpreting the data, one should remember that it is based on the respondents’ own belief and knowledge.
The dataset only includes household heads and individuals involved in the household’s financial administration. By using these criteria, only individuals responsible for the financial situation of the household are included in the sample. Children, housemates, and other family members are removed from the sample, as are individuals under 16 years of age. Table 1 provides the descriptive statistics for this dataset.
3.1. Key variables
3.1.1. Saving intention
Saving intention simply reflects the plan to save for the coming year. The following DHS question is used as a proxy for saving intention:
• Is your household planning to put money aside in the next 12 months?
The four possible answers are: yes certainly, yes perhaps, probably not, and certainly not. The constructed variable used in analysis combines ‘yes certainly’ and ‘yes perhaps’ to simply ‘yes’. When ‘probably not’ and ‘certainly not’ is answered, there is no saving intention. Consequently, by using this aggregation, a binary variable is created. Furthermore, since the DHS only provides information about the intention for the coming year, this is the period used. Looking at the descriptive statistics in table 1, one can see that about 80% of the responses indicate an intention to save. Adding to the representativeness of the sample, this is in line with findings of the NIBUD mentioned earlier (Van der Schors & Van der Werf, 2017).
3.1.2. Saving intention completion
Completion of saving intention is measured by using two questions. The first question measures saving intention in year T-1, and is described in section 3.1.1. The second question is a simple ‘yes/no’ question assessing whether saving has occurred in the previous 12 months:
• Did your household put any money aside in the past 12 months?
This question is considered in year T, such that combining both answers shows whether or not households completed their intention to save. When there is intention to save, and saving has occurred as indicated in year T, saving intention is completed. When saving intention is present at T-1, but the household did not put money aside as indicated in year T, saving intention is not completed. Similar to saving intention, intention completion is a binary variable. Appendix C provides a detailed overview of the saving intention and saving intention completion measures. Similar to saving intention and findings of Van der Schors & Van der Werf (2017), about 80% of responses indicate completion of saving intentions.
3.1.3. Formal education
in analysis contains four variables: (i) primary education & lower, (ii) pre-vocational & senior vocational education, (iii) Pre-university education, and (iv) university & vocational education.
3.1.4. Financial socialization
The financial socialization variable is based on six questions asked in the DHS. Respondents answered these questions on agreement scales of one to four and one to five. The questions are listed beneath, and the allocation of original answers is included in appendix A. The following questions are asked:
1. When you were between 8 and 12 years of age, did you receive an allowance from your parents then?
2. When you were between 8 and 12 years of age, did you do little household chores (like washing the car) for which you received some money from your parents?
3. When you were between 8 and 12 years of age, could you spend your money as you pleased?
4. Did you have a job on the side (like a newspaper round, a job on Saturday etc.) when you were between 12 and 16 years of age?
5. Did your (grand)parents try to teach you how to budget when you were between 12 and 16 years of age?
6. Did your (grand)parents stimulate you to save money between the age of 12 and 16?
Five out of six questions assess the degree of parental education in childhood and youth. Bucciol & Veronesi (2014) exclude ‘chores’ and ‘side-jobs’ from their analysis on parental education. However, since I consider the broader concept financial socialization, these questions are relevant. Moreover, to obtain identical scales over all six measures, the relative agreement is used rather than nominal agreement. Subsequently, the total average agreement over all six questions is determined and used as a proxy of total financial socialization. Whereas Bucciol & Veronesi (2014) focus on detailed components of parental education and specific combinations, I am interested in the general relation of saving behavior with the degree of financial socialization. Therefore, I aggregate the components.
3.1.5. Money-management skills
Money-management skills are determined by relying on variables used by both French & McKillop (2016), and Biljanovska & Palligkinis (2016). Based on their definitions and variables, money-management skills boil down to goal setting, tracking, and commitment. The DHS questions used as proxies for goal setting, tracking and commitment are listed and briefly explained beneath.
• Goal setting Do you put money aside for particular purposes in order to reserve
separate amounts for different expenditures?
Putting money aside for particular purposes can be interpreted as setting goals for these purposes. With this practice, saving purposes are separated and become explicit goals rather than part of total savings. This practice is also referred to as mental accounting (Rabinovich & Webley, 2007) • Tracking How well do you keep track of your (household) expenditures?
Tracking expenditures provides more insights into a household’s financial situation. Better knowledge of this situation implies less unexpected events.
• Commitment Do you find it difficult to control your expenditures?
When an individual or household commits to a saving goal, it is expected that this individual finds it easy to control expenditures. On the other hand, when an individual fails to control expenditures, there is no real commitment to the saving goal.
For tracking and commitment, relative agreements with the questions were directly determined. Answers on goal setting included three ‘yes’ options, and one ‘no’ option, therefore the ‘yes’ options were aggregated first. Subsequently, the relative agreements on the three questions are aggregated to determine one proxy of money-management skills. Original answers to the questions can be found in appendix B, as well as an original allocation of answers. For multivariate analysis, the money-management skills variable is divided into low,
moderate, and high, representing 0%-35%, 35%-65%, and 65%-100% agreement, respectively. 3.1.4. Self-assessed financial literacy
The degree to which individuals believe they are financially literate is measured by asking the following question:
Respondents answer this question by indicating whether they believe they are: not
knowledgeable, more or less knowledgeable, knowledgeable, or very knowledgeable. Based on
the original question, a self-assessed financial literacy measure is constructed. When a respondent indicates he/she is very knowledgeable or knowledgeable, the respondent is allocated to the ‘(high) financial literacy’ category. More or less knowledgeable respondents are ‘moderately knowledgeable’. Respondents who indicate they are not knowledgeable regarding financial matters are allocated to the ‘poor financial literacy’ category. A detailed overview of the original question can be found in appendix B.
3.2. Control variables
Construction of the demographic control variables is relatively straightforward. Only the health variable is divided into ‘poor’, ‘fair’, and ‘(very) good’ and is treated as a dummy variable. Furthermore, naturally gender is a binary variable.
Financial control variables are divided into categories and are treated as dummy variables. Associated categories and distributions can be found in table 1. Income is measured based on household income. Furthermore, occupation is divided into four categories: employed
& self-employed, unemployed & unpaid, retired, and other.
Financial health is constructed as a binary variable. A household is considered to be financially healthy when saving money is indicated to be possible. On the other hand, when saving is impossible or the household is indebted, the household is financially unhealthy.
3.3. Methodology
The theoretical relationships proposed by figure A in section 2 are researched by employing univariate and multivariate analysis. First, univariate analysis facilitates understanding of relationships between several variables. Correlation analysis provides a first impression of the relationships. Furthermore, difference-in-means analysis further details the relationships between key variables.
Table 1. Sample descriptive statistics
The descriptive statistics of the variables used in the univariate and multivariate analyses. N reflects the number of responses on which the variables are based. The minimum, maximum, mean, and standard deviation values are provided. Additionally, an allocation measure indicates how categorical variables are relatively distributed over their categories. Categorical variables with a minimum of zero and a maximum of one, reflect (binary) dummy variables. The original measures of financial socialization, money-management skills, and self-assessed financial literacy used in the variable construction are detailed in appendix A, B, and C.
N (# responses) Min. Max. Mean Std. Dev. Allocation (%)
Age 27138 16.00 95.00 50.59 16.16
Is male 27138 0.00 1.00 0.65 0.48 65.10%
Saving Behavior
Intention to save 11286 0.00 1.00 0.80 0.40 79.71%
Saving intention is completed 6516 0.00 1.00 0.79 0.41 78.73%
Formal education 15380
Primary education & lower 0.00 1.00 0.04 0.18 3.50%
Pre-vocational & Senior vocational 0.00 1.00 0.44 0.50 43.93%
Pre-university 0.00 1.00 0.10 0.30 9.87%
University & Vocational 0.00 1.00 0.43 0.49 42.70%
Financial socialization 5539
Low 0.00 1.00 0.14 0.35 14.14%
Mid-low 0.00 1.00 0.34 0.47 33.69%
Mid-high 0.00 1.00 0.36 0.47 36.36%
High 0.00 1.00 0.16 0.36 15.82%
Self-assessed financial literacy 11544
Low self-assessed financial literacy 0.00 1.00 0.14 0.35 14.07%
Moderate self-assessed financial literacy 0.00 1.00 0.55 0.50 55.41%
High self-assessed financial literacy 0.00 1.00 0.31 0.46 30.53%
Money-management skills 11545
Low money-management skills 0.00 1.00 0.23 0.42 22.93%
Moderate money-management skills 0.00 1.00 0.21 0.41 21.29%
High money-management skills 0.00 1.00 0.56 0.50 55.78%
Position in household 27138
Household head 0.00 1.00 0.88 0.33 87.90%
Spouse 0.00 1.00 0.10 0.30 10.30%
Partner (not married) 0.00 1.00 0.02 0.13 1.80%
Does financial administration 15392 0.00 1.00 0.79 0.41 78.50%
Occupation 15384
Employed & self-employed 0.00 1.00 0.58 0.49 58.03%
Unemployed & unpaid 0.00 1.00 0.15 0.36 15.22%
Retired 0.00 1.00 0.26 0.44 26.30% Other 0.00 1.00 0.00 0.07 0.46% Income 9694 < €20.000 0.00 1.00 0.24 0.42 23.61% €20.000 - €38.000 0.00 1.00 0.42 0.49 41.88% €38.001 - €50.000 0.00 1.00 0.20 0.40 20.28% €50.001 - €75.000 0.00 1.00 0.11 0.32 11.29% > €75.000 0.00 1.00 0.03 0.17 2.94% Financial health
Furthermore, the only regular variable ‘age’ is included. Additionally, dummy variables for formal education, financial socialization, money-management skills, self-assessed financial literacy and control variables are included, indicated by the D’s in the equations. The coefficients reflect the change in the probability of the dependent variable taking value one when the dummy variable takes value one.
Saving intention [1,0] = β1+βageX1+β3D1+β4D2+ …+βnDn+e.
Saving intention completion 1,0 = β1+βageX1+β3D1+β4D2+ …+βnDn+e.
(1) (2) Third, relationship A is detailed in table 5 by running OLS regressions with money-management skills and self-assessed financial literacy as the dependent variables. These regressions are constructed similar to the linear probability models. However, the dependent variables are not binary, but on a scale of 0% to 100% agreement.
4. Empirical Analysis & Results
In this section, the results of the empirical analysis are covered. Univariate analysis contains correlation analysis (table 2), and a straightforward difference-in-means analysis to further detail the relationships of key independent variables with saving variables (table 3).
4.1. Univariate analysis
4.1.1. Relationship A: The relationship of formal education and financial socialization with
financial literacy measures.
Correlation analysis in table 2 shows that both formal education and financial socialization are significantly correlated with self-assessed financial literacy and money-management skills. First, the two lowest levels of formal education are negatively related to self-assessed financial literacy. In contrast, university & vocational education positively relates to self-assessed financial literacy. These findings are consistent with existing literature finding enhancing effects of education on financial literacy (Lewis & Scott 2000; Xiao & O'Neill, 2016). With respect to money-management skills, the relationship with formal education is weak although still significant for both the low and high end of formal education.
4.1.2. Relationship B: The relationship of financial literacy measures with saving intention and intention completion.
Both self-assessed financial literacy and money-management skills are positively related to saving intention as reflected by table 2. This is in line with literature, as money-management skills (French & McKillop, 2016), and both actual and perceived financial literacy (Van Rooij et al., 2012; Henager & Mauldin, 2015) tend to increase net wealth measures. Interestingly, the correlation coefficient of money-management skills with saving intention is about twice as high compared to self-assessed financial literacy. Similarly, the relationship between money-management skills and intention completion is about twice as strong as the relationship between self-assessed financial literacy and intention completion.
The difference-in-means analysis in table 3 learns us that saving intention and saving intention completion are significantly higher for respondents in the top 50% of self-assessed financial literacy than for the bottom 50%. The same is true for money-management skills. However, the difference in means is larger for money-management skills than for self-assessed financial literacy. These results confirm relationships found in correlation analysis in table 2.
4.1.3. Relationship C: The relation of formal education and financial socialization with saving behavior.
The direct relationship between formal education and saving intention is significantly present as reflected in table 2. The high end of formal education positively relates to saving intention, whereas lower formal education levels are significantly negatively related. Findings with respect to saving intention completion are similar with respect to signs, but overall weaker with smaller coefficients and significances.
Table 3 shows that higher levels of formal education are associated with a higher intention to save, and a higher saving intention completion. However, the relationship between formal education and saving intention completion is confirmed to be slightly weaker than between formal education and saving intention. This is consistent with results from correlation analysis in table 2.
4.2. Multivariate analysis
The multivariate analysis consists of six key regressions provided in table 4. I describe the results using the theoretical relations A, B, and C explained earlier and visualized in figure A. First, the direct relationship of formal education and financial socialization with saving variables is discussed (relationship C), to continue with introducing the mediating variables (relationships A & B). Thereafter, relationship A is detailed, and robustness tests are provided.
4.2.1. Relationship C: The relation of formal education and financial socialization with saving behavior.
Regressions 1.1 and 2.1 provide the output of regressions on relationship C, where saving intention and saving intention completion are the dependent variables of interest. Immediately, one can see that formal education is not significantly related to saving intention and neither to saving intention completion. Univariate analysis reflected a relationship with both correlation and difference-in-means analysis. However, multivariate analysis does not support this finding.
Furthermore, financial socialization significantly relates to saving intention as can be concluded from regression 1.1. This implies that individuals who have received higher levels of financial guidance and advice, are associated with a higher propensity to save. Moreover, this finding is convincing as both coefficient size and significance are larger for higher categories of financial socialization. The significant relationship confirms to Bucciol & Veronesi (2014) who found significant relationships between components of financial socialization and the propensity to save.
When considering the relationship between financial socialization and saving intention completion, evidence of a relationship is less clear. Nevertheless, the highest level of financial socialization still significantly relates to a higher probability of saving intention completion. However, in contrast with saving intention, lower levels of financial socialization are not significantly related to saving intention completion.
4.2.2. Relationship A & B: The mediating function of money-management skills and self-assessed financial literacy.
Table 4. Multivariate analysis
This table presents the regression output of linear probability models of the key variables formal education, financial socialization, money-management skills (MMS), and self-assessed financial literacy (SAFL) on saving intention and saving intention completion. The dependent variables are binary variables where 1 represents intention to save, or saving intention completion, respectively. Regressions 1.1, 1.2, and 1.3 are on saving intention, whereas regressions 2.1, 2.2, and 2.3 are on saving intention completion. Associated robust S.E. are provided in parentheses below the coefficient. *= significant at the 10% significance level; **= significant at the 5% significance level; ***= significant at the 1% significance level
Saving intention Saving intention completion
(1.1) (1.2) (1.3) (2.1) (2.2) (2.3)
Formal education (Base group: primary educ. & lower)
Pre-vocational (VMBO) & Senior vocational (MBO) .027 .019 -.002 -.015 (.033) (.033) (.049) (.048) Pre-university (HAVO/VWO .044 .040 .016 .010
(.037) (.037) (.054) (.053) University & Vocational .004 -.001 -.038 -.049
(.034) (.033) (.049) (.049)
Financial socialization (Base group: low)
Mid-Low .038** .036** .013 .010 (.018) (.018) (.021) (.021) Mid-High .046** .041** .030 .020 (.018) (.018) (.023) (.023) High .060*** .052** .083** .075** (.022) (.022) (.037) (.036)
Money-management skills (Base group: low MMS)
Moderate money-management skills .020 .019 .121*** .076*** (.017) (.012) (.026) (.016) High money-management skills .059*** .069*** .113*** .095***
(.015) (.010) (.022) (.013)
Self-assessed financial literacy (Base group: low SAFL)
Moderate self-assessed financial literacy .041** .041*** .056** .025 (.018) (.012) (.027) (.016) High self-assessed financial literacy .017 .002 .016 .000
(.020) (.013) (.029) (.018)
Occupation: (Base group: other)
Retired .294*** .288*** .112* .116 .095 .063 (.088) (.088) (.061) (.185) (.184) (.092) Unemployed & Unpaid .245*** .247*** .058 .059 .045 .032
(.088) (.088) (.061) (.185) (.184) (.092) Employed & Self-employed .316*** .318*** .131** .152 .134 .107
(.088) (.088) (.061) (.185) (.183) (.091)
Income: (Base group: < €20.000)
€20.000-€38.000 .040*** .039*** .058*** .051** .048** .036*** (.015) (.015) (.010) (.022) (.022) (.013) €38.001-€50.000 .064*** .063*** .065*** .053** .054** .040** (.018) (.018) (.012) (.026) (.025) (.016) €50.001-€75.000 .041* .040* .057*** .060** .060** .028 (.021) (.021) (.015) (.031) (.030) (.019) >€75.000 .009 .009 .027 .035 .037 -.016 (.034) (.034) (.025) (.049) (.049) (.031)
Household is financially healthy .257*** .250*** .280*** .347*** .331*** .348***
(.012) (.012) (.008) (.018) (.018) (.011)
Age -.004*** -.004*** -.004*** -.001 -.001 -.001* (.001) (.001) (.000) (.001) (.001) (.000)
Is male -.049*** -.045*** -.044*** -.030* -.026 -.048***
(.012) (.012) (.009) (.017) (.017) (.011)
Health: (Base group: Poor)
First, similar to regression 1.1 and 2.1, formal education does not directly relate to saving intention or saving intention completion. However, compared to regressions 1.1 and 2.1, most formal education levels have smaller coefficients and significances when introducing money-management skills and self-assessed financial literacy. This could be a consequence of the mediating variables absorbing the weak and insignificant effect of education.
Second, financial socialization still relates significantly to saving intention. However, also for this variable, both coefficient sizes and significances of the dummies have decreased compared to regression 1.1. The decrease in coefficient size and significance adds to the assumed mediating effect of money-management skills and self-assessed financial literacy. Nevertheless, even with the mediators in place, financial socialization still significantly relates to saving intention. Consequently, the effect of financial socialization partly circumvents the variables of true skills (money-management skills), and confidence in own financial knowledge (self-assessed financial literacy). Jorgensen & Savla (2010) argue that parental financial education has no effect on financial knowledge, but does moderately impact financial behavior and attitude. Because parental education is the main component of financial socialization, this statement is reinforced.
Third, the highest category of financial socialization remains significantly related to saving intention completion indicated by regressions 2.2. Similar to financial socialization variables on saving intention, the size and significance of the coefficient decreases.
Fourth, money-management skills positively relate to saving intention, confirming the univariate analysis and prior findings of French & McKillop, (2016). Money-management skills also positively relate to saving intention completion. Moreover, the relationship with saving intention completion is stronger compared to saving intention, with higher coefficients and significances.
they will eventually manage. Therefore, a high level of self-assessed financial literacy might not be an improvement over a low level.
4.2.3. Control variables
Demographical control variables behave largely as expected. For example, males have a lower propensity to save than females conforming to findings of Van Rooij et al. (2012) with respect to total net worth. Furthermore, financial control variables explain, as expected, a considerable amount of saving intention and saving intention completion.
4.3. Statistically reinforcing relationship A
Already, the mediating effect of money-management skills and self-assessed financial literacy is supported by earlier findings in section 4. However, table 5 reinforces the evidence by detailing the relationship of formal education and financial socialization with money-management skills (regression 5), and self-assessed financial literacy (regression 6). Effectively, the relationship examined here, is relationship A in figure A from section 2.
The main conclusions with respect to money-management skills, are that both formal education and financial socialization are significantly and positively related. Interestingly, low levels of formal education relate to money-management skills more strongly than high levels of formal education. This is a puzzling result, however, it could be consequence of the aggregation procedure or the nature of the Dutch school system.
Financial socialization significantly positively relates to money-management skills, which confirms to prior research (Argawal et al., 2010; Collard et al., 2012; French & McKillop, 2016). The trend over the constructed variables is as expected, with higher levels of financial socialization being more strongly related to money-management skills.
With respect to self-assessed financial literacy in regression 6, only the highest level of formal education is significantly positively related. Therefore, only the highest level of formal education makes individuals more knowledgeable or confident regarding financial matters.
Additionally, financial socialization significantly relates to self-assessed financial literacy. This reinforces the findings of Collard et al. (2012) with respect to financial confidence and confirms findings of Bucciol & Veronesi (2014) regarding financial literacy.
Table 5. Relationship A. regressions
Regression results of relationship A in figure A. Regression 5 is on relative money-management skills on an agreement scale of 0% to 100%. Regression 6 is on relative self-assessed financial literacy on an agreement scale of 0% to 100%. For formal education, financial socialization, and household income, dummy variables are used. The coefficients reflect the increase/decrease in agreement on a scale of 0% to 100%. Robust S.E. are between parentheses under the coefficient. *= significant on a 10% level; **=significant on a 5% level; ***= significant on a 1% level
(5) (6)
Formal education (Base group: primary education & lower)
Pre-vocational (VMBO) & Senior vocational (MBO) 6.071** 2.047 (2.367) (2.918) Pre-university (HAVO/VWO 3.845 3.086
(2.617) (3.228) University & Vocational 5.202** 7.404**
(2.393) (2.951)
Financial socialization (Base group: low)
Mid-Low 2.132** 2.095* (1.022) (1.260) Mid-High 5.202*** 5.809*** (1.117) (1.377) High 6.295*** 4.599** (1.898) (2.340)
Occupation: (Base group: other)
Retired -7.522 -4.688 (6.386) (7.876) Unemployed & Unpaid -1.644 -0.872
(6.396) (7.841) Employed & Self-employed -6.281 -4.688
(6.362) (7.846)
Income: (Base group: < €20.000)
€20.000-€38.000 0.775 1.068 (1.062) (1.309) €38.001-€50.000 (0.253) 2.829* (1.290) (1.591) €50.001-€75.000 2.509 8.004*** (1.532) (1.889) >€75.000 2.315 11.094*** (2.419) (2.983)
Household is financially healthy 8.196*** 7.018***
4.4. Financial health robustness test
A robustness test in which financially unhealthy and healthy households are considered separately confirms several earlier conclusions. Table 6 presents the output for the robustness test. First, regressions 7.1 and 7.2 on saving intention for financially unhealthy and healthy households respectively, confirm that formal education is not significantly related. Furthermore, financial socialization is significantly related to saving intention for the financially unhealthy population, but not for the financially healthy population. Similar, whereas money-management skills significantly relate to saving intention for financially unhealthy households, this is not true for the financially healthy sample. In contrast, self-assessed financial literacy only significantly relates to saving intention for financially healthy households.
With respect to saving intention completion, findings are similar. First, formal education is insignificant. Second, financial socialization significantly positively relates to saving intention for financially unhealthy households, but not for financially healthy households.
Thus, when saving is indicated to be impossible and the household is indebted, individuals rely more on skill and knowledge obtained in childhood and youth. With respect to saving intention completion, money-management skills are more important for financially unhealthy households than for healthy households. Again, self-assessed financial literacy is only significantly related to saving intention completion for individuals with financially healthy households.
Table 6. Financial health robustness test
This table presents the regression output of linear probability models on the key variables formal education, financial socialization, money-management skills (MMS), and self-assessed financial literacy (SAFL) on saving intention and saving intention completion. The sample is split into financially healthy and unhealthy households. The dependent variables are dummy variables where 1 represents intention to save, or saving intention completion, respectively. Regressions 7.1 and 7.2 are on saving intention for financially unhealthy households and financially healthy households, respectively. Regressions 8.1 and 8.2 are on saving intention completion for financially unhealthy households and financially healthy households, respectively. Associated robust S.E. are provided in parentheses underneath the coefficient. *= significant at the 10% significance level; **= significant at the 5% significance level; ***= significant at the 1% significance level
(7.1) (7.2) (8.1) (8.2)
Formal education (Base group: primary education & lower)
Pre-vocational (VMBO) & Senior vocational (MBO) .017 -.013 .038 -.071 (.058) (.035) (.097) (.049) Pre-university (HAVO/VWO .050 .008 .089 -.059
(.065) (.038) (.108) (.053) University & Vocational -.011 -.017 -.024 -.086
(.060) (.035) (.099) (0.053)
Financial socialization (Base group: low)
Mid-Low .088*** .001 .027 -.001 (.028) (.014) (.045) (.020) Mid-High .076** .022 .001 .029 (.031) (.015) (.050) (.020) High .079 -.002 .213** .034 (.059) (.023) (.094) (.033)
Money-management skills (Base group: low MMS)
Moderate money-management skills .047 -.015 .165*** .085*** (.033) (.017) (.053) (.033) High money-management skills .116*** .005 .149*** .080**
(.027) (.015) (.043) (.022)
Self-assessed financial literacy (Base group: low SAFL)
Moderate self-assessed financial literacy .035 .043** .079 .051* (.032) (.018) (.051) (.028) High self-assessed financial literacy -.026 .039** -.032 .047
(.037) (.019) (.059) (.028)
Occupation: (Base group: other)
Retired .219 .426*** .050 -.054 (0.133) (.123) (.285) (.275) Unemployed & Unpaid .169 .414*** .011 -.068
(.132) (.123) (.283) (.275) Employed & Self-employed .257* .471*** .160 -.041
(.132) (.123) (.284) (.274)
Income: (Base group: < €20.000)
€20.000-€38.000 .072*** -.028* .073* .015 (.026) (.015) (.042) (.023) €38.001-€50.000 .153*** -.018 .145** .001 (.038) (.015) (.057) (.025) €50.001-€75.000 .071 -.017 .168** .005 (.051) (.015) (.077) (.028) >€75.000 -.017 -.044 -.110 .059 (.087) (.028) (.128) (.044) Age -.007*** -.001** -.001 -.001 (.001) (.001) (.002) (.001) Is male -.077*** -.013 -.079** .000 (.024) (.011) (.039) (.017)
Health: (Base group: Poor)
5. Conclusion
This study contributes to understanding saving intention and the completion of these saving intentions. The relevant determinants are formal education and financial socialization. The variables money-management skills and self-assessed financial literacy are measures of financial literacy. These variables are mediating instruments through which the determinants formal education and financial socialization are assumed to, at least partly, materialize. Using an extensive sample from the DNB Dutch Household Survey, demographical, psychological, and financial data have been combined and analyzed. Several conclusions can be drawn from the research.
First, correlation analysis shows a significant relationship of formal education with saving intention and completion. Moreover, a stronger relationship exists between financial socialization and both saving intention and saving intention completion. Additionally, formal education and financial socialization positively relate to the mediating variables money-management skills and self-assessed financial literacy, these findings are in line with prior studies (Bucciol & Veronesi 2014; Collard et al., 2012). Furthermore, money-management skills and self-assessed financial literacy positively relate to saving intention and completion, supporting earlier research (French & McKillop, 2016; Henager & Mauldin, 2015; Van Rooij et al., 2012).
Second, difference-in-means analysis reinforces relationships discovered in correlation analysis. For high and low levels of formal education, financial socialization, money-management skills, and self-assessed financial literacy, means of saving variables are significantly different. The high levels of these independent variables are associated with significantly higher means of saving intention and saving intention completion, respectively.
providing evidence for the mediating effect of money-management skills and self-assessed financial literacy. In turn, higher levels of money-managament skills and self-assessed financial literacy significantly increase the probabilities that individuals intend to save and that they will complete these intentions. These results reinforce the findings of French & McKillop (2016) with respect to money-management skills, and of Henager & Mauldin (2015) with respect to self-assessed financial literacy. Furthermore, money-management skills have the strongest effect, especially for saving intention completion.
Fourth, regression analysis narrowing the scope to relationship A shows that money-management skills and self-assessed financial literacy are enhanced by formal education and financial socialization. These results are in line with conclusions by Bucciol & Veronesi (2014) for financial socialization, and Collard et al. (2012) for both formal education and financial socialization. Furthermore, the results reinforce findings of Argawal et al. (2010), and French & McKillop (2016). Moreover, formal education ambiguously relates to self-assessed financial literacy with only university and vocational education being positive and significant.
All in all, formal education does not convincingly relate to saving intention or saving intention completion. Direct effects of formal education are absent. On the other hand, formal education does significantly relate to money-management skills and self-assessed financial literacy, and might therefore enhance saving intention and completion through this mechanism.
Furthermore, financial socialization significantly relates to saving intention and saving intention completion. The relationship materializes directly, as well as through the mediators money-management skills and self-assessed financial literacy. Therefore, policy makers could enhance saving behavior by stimulating or providing financial socialization in childhood and youth.
6. Limitations and recommendations
Despite the aim to clearly contribute to the existing literature base surrounding saving behavior, reality learns that the field is very complex. Due to this complexity this study is subject to several limitations.
captured. In future research it would be worthwhile to include a measure of true financial knowledge and skill.
Second, the measure of formal education reflects the highest level of education completed at schools or universities. To detail evidence regarding educational effects more, future research could focus on the effect of finance and economics courses.
Third, financial socialization is aggregated to construct the variable used in the study. Naturally, detail is lost in this process. For this reason, research focused at saving completion based on more detailed financial socialization measures, similar to that of Bucciol & Veronesi (2014), could add to academic knowledge.
Last, all data used in the study is self-assessed and reported by respondents. This increases the probability of biased data. Despite best efforts to work with a dataset as reliable as possible, future research could use more factual data where possible.
Acknowledgements
Appendix A. Financial socialization questions
This table shows the original questions asked in the Dutch Household Survey used in constructing the custom financial socialization measures in this research. As discussed in the main body of the paper, it is implicitly assumed that answers to these questions are naturally indicating the degree to which an individual’s conforms to the question. N reflects the number of respondents who answered on the question.
Q: When you were between 8 and 12 years of age, did you receive an allowance from your parents then?
N %
5540
Yes 51.40%
Yes, but sometimes it was forgotten 6.20%
Occasionally 12.30%
No 30.10%
Q: When you were between 8 and 12 years of age, did you do little household chores (like washing the car) for which you received some money from your parents?
N % 5540 Often 9.80% Sometimes 20.50% Occasionally 16.10% Hardly ever 19.00% Never 34.70%
Q: When you were between 8 and 12 years of age, could you spend your money as you pleased?
N %
5540
My parents decided how I spent all my money 24.00%
My parents decided on how I spent most of my money 19.90%
Part of my expenditure was decided by me, the rest was decided by my parents 23.50%
Mostly, I could decide on how I spent my money 20.90%
I could decide on how I spent on all my expenditures 11.80%
Q: Did you have a job on the side (like a newspaper round, a job on Saturday etc.) when you were between 12 and 16 years of age?
N %
5539
Yes, I had many jobs on the side at that time 16.70%
Yes, I had few jobs on the side at that time 32.90%
Yes, I had one job on the side at that time 20.70%
No, I did not have a job at the side at that time 29.80%
Q: Did your (grand)parents try to teach you how to budget when you were between 12 and 16 years of age?
N %
5539
Yes, they gave me advice and practical help 25.00%
yes, they gave me some advice and practical help 28.40%
Yes, but to a certain extent 26.10%
No 20.50%
Q: Did your (grand)parents stimulate you to save money between the age of 12 and 16?
N %
5539
Yes, they emphasized the necessity of saving 24.40%
Yes, they told me how important saving is 35.70%
Yes, but to a certain extent 22.30%
Appendix B. Original money-management skills and self-assessed financial literacy measures
In this table the original self-assessed financial literacy as well as the original money-management skills variables are included. The allocation of answers is provided and to be transparent, also the aggregation decisions are included.
Self-assessed financial literacy
Q: How knowledgeable do you consider yourself with respect to financial matters?
N % Aggregation
11544
Very knowledgeable 4.10% (High) financial literacy
Knowledgeable 26.40% (High) financial literacy
More or less knowledgeable 55.40% Moderate financial literacy
Not knowledgeable 14.10% Low financial literacy
Tracking
Q: How well do you keep track of your (household) expenditures?
N %
11546
I keep very good track of my expenditures 16.10%
I keep good track of my expenditures 37.90%
I more or less keep track of my expenditures 32.10%
I keep rather bad track of my expenditures 7.10%
I don’t or very badly keep track of my expenditures 6.80%
Commitment
Q: Do you find it difficult to control your expenditures?
N % 11547 1 Very easy 17.30% 2 31.60% 3 18.50% 4 15.70% 5 11.20% 6 4.60% 7 Very difficult 1.10% Goal setting
Q: Do you put money aside for particular purposes in order to reserve separate amounts for different expenditures?
N % Aggregation
11545
Separate bank accounts 28.70% Yes
Separate envelopes, jars/boxes or another way at home 3.30% Yes
Other ways 4.00% Yes
Appendix C. Original Saving Measures
This appendix reflects the original saving measures used in the research. Similar to appendix B, aggregation decisions are included for transparency.
Saving intention
Q: Is your household planning to put money aside in the next 12 months?
N % Aggregation
11286
Yes, certainly 48.10% Yes
Yes, perhaps 31.60% Yes
Probably not 15.90% No
Certainly not 4.30% No
Saved intention completion
Q: Did your household put any money aside in the past 12 months?
References
Allgood, S., & Walstad, W. B. (2016). The effects of perceived and actual financial literacy on financial behaviors. Economic Inquiry, 54, 675-697.
Argawal, S., Amromin, G., Ben-David, I., Chomsisengphet, S., & Evanoff, D. D. (2010). Learning to cope: voluntary financial education and loan performance during a housing crisis. American Economic Review, 100, 495-500.
Bannier, C. E., & Neubert, M. (2016). Gender differences in financial risk taking: the role of financial literacy and risk tolerance. Economics Letters, 145, 130-135.
Biljanovska, N., & Palligkinis, S. (2016). Control thyself: self-control failure and household wealth. Journal of Banking and Finance, 1-15, (available at:
http://dx.doi.org/10.1016/j.jbankfin.2016.10.010)
Bucciol, A., & Veronesi, M. (2014). Teaching children to save: what is the best strategy for lifetime savings? Journal of Economic Psychology, 45, 1-17.
Collard, S., Finney, A., Hayes, D., & Davies, S. (2012). Quids in: the impact of financial skills training for social housing tenants. UK: Citizens Advice Bureau.
Driva, A., Lührman, M., & Winter, J. (2016). Gender differences and stereotypes in financial literacy: off to an early start. Economics Letter, 146, 143-146.
French, D., & McKillop, D. (2016). Financial literacy and over-indebtedness in low-income households. International Review of Financial Analysis, 48, 1-11.
Gentile, M., Linciano, N., & Soccorso, P. (2016). Financial advice seeking, knowledge and overconfidence; evidence from the Italian market. Working Paper. (available at SSRN: http://ssrn.com/abstract=2802589).
Gjertson, L. (2016). Emergency saving and household hardship. Journal of Family and Economic Issues, 37, 1-17.
Henager, R., & Mauldin, T. (2015). Financial literacy: the relationship to saving behavior in low- to moderate-income households. Family and Consumer Sciences Research Journal, 44, 73-87.
Jappelli, T., & Padula, M. (2013). Investment in financial literacy and saving decisions. Journal of Banking & Finance, 37, 2779-2792.
Jorgensen, B. L., & Savla, J. (2010). Financial literacy of young adults: the importance of parental socialization. Family Relations. Special collection: Family finances, and Hard Times, 59, 465-478.
Lewis, A., & Scott, A. J. (2000). The economic awareness, knowledge and pocket money practices of a sample of UK adolescents: a study of economic socialisation and economic psychology. Children’s Social and Economics Education, 4, 34-46.
Lusardi, A., & Mithcell, O. S. (2011). Financial literacy and planning: implications for retirement wellbeing. NBER Working Paper Series No. 17078, 1-37.
Macé, S. (2015). Saving and perceived health risks. Review of Economics of the Household, 13, 37-52.
Muraven, M., Tice, D. M., & Baumeister, R. F. (1998). Self-control as limited resource: regulatory depletion patterns. Journal of Personality and Social Psychology, 74, 774-789.
Murendo, C., & Mutsonziwa, K. (2017). Financial literacy and savings decisions by adult financial consumers in Zimbabwe. International Journal of Consumer Studies, 41, 95-103.
OECD INFE. (2011). Measuring financial literacy: core questionnaire in measuring financial literacy: questionnaire and guidance notes for conducting an internationally comparable survey of financial literacy. Paris: OECD.
Rabinovich, A., & Webley, P. (2007). Filling the gap between planning and doing: psychological factors involved in the successful implementation of saving intention. Journal of Economic Psychology, 28, 444-461.
Van Campenhout, G. (2015). Revaluing the role of parents as financial socialization agents in youth financial literacy programs. The Journal of Consumer Affairs, 49, 185-222. Van der Schors, A., & Van der Werf, M. (2017). Geld achter de hand makkelijker maken.
Utrecht: NIBUD.
Van Rooij, M. C., Lusardi, A., & Alessie, R. J. (2012). Financial literacy, retirment planning and household wealth. The Economic Journal, 122, 449-478.
Willis, L. E. (2008). Against financial-literacy education. Iowa Law Review, 94, 197-285. Xiao, J. J., & O'Neill, B. (2016). Consumer financial education and financial capability.
