An empirical study on the relationship between economic competence and financial behaviour, with consideration of individual preferences

Abstract

In 2008, the Commission of the Ministers of Education and Cultural Affairs (KMK) stated that economic education is also part of general education (KMK 2008). The aims of economic education include not only developing an understanding of economic contexts and economic action but also guiding action (KMK 2008). Nevertheless, policymakers have not yet been able to agree on a national strategy for curricular implementation. Research projects are indispensable for evidence-based decision-making in the discussion on economic education in Germany. Such evidence already exists for the effect of financial education on financial behaviour. In contrast, studies on broader economic education, as enquired by the KMK in 2008, are still scarce. This paper provides evidence for the relationship between the broad construct of economic competence and financial behavior on the one hand and individual preferences, such as patience, on the other. For this purpose, data from 2929 learners from Baden-Württemberg were analyzed. The answers to the questions of the competence test were transformed into an evaluable interval scale using item response theory. Regarding financial behaviors and individual preferences, items that have already been tested and acknowledged in research, such as the CAEd Autonomy Scale by Micarello et al. (2012) or the risk appetite by Dohmen et al. (2011), were used. The results show that economic competence has a small but statistically highly significant effect on financial behaviors and preferences. Economically more competent students in Baden-Württemberg are more conscientious in handling their finances.