Measuring financial literacy with a Situational Judgement Test: do some groups really perform worse or is it the measuring instrument?

Abstract

Due to current trends in society and economy, financial literacy is often considered as an important twenty-first century skill. However, regardless of the postulated relevance, studies suggest that financial illiteracy seems to be a widespread phenomenon in the population of many nations. Some studies also show that some groups perform particularly poorly (e.g. women, persons with migration background and/or low level of education). These differences are often attributed to different individual characteristics such as abilities, dispositions or socialisation patterns. However, available research also suggests that even after controlling for them, a quite large portion of the performance differences between the various groups of test-takers remains unexplained. One explanation for performance gaps in financial literacy might be that differences in test scores could also be evoked by the test instruments itself and may thus, at least in part, be interpreted as testing bias. In this paper, we present a newly developed Situational Judgement Test, which is focused on financial competence. For this test, we examine whether differences between groups are attributable to individual differences or due to a test bias. To analyse a possible test bias, we tested one facet of financial literacy (with three factors: control of one’s financial situation, budgeting and handling of money) related to everyday money management for measuring invariance for different groups. If measuring invariance could be assumed, we analysed group differences by calculating t-tests. Results show that two factors of the test show measurement invariance for all groups considered (gender, migration and educational background, opportunities to learn). Group comparisons are thus possible and potential differences are not due to a test bias. For one factor, we can only assume measurement invariance for the group with/without migration background and with/without opportunities to learn in financial topics. When we look at group differences, we find that in contrast to the findings of many previous studies, the analysis of the mean differences does not show any systematic deficits in financial literacy for specific groups.