Determinants of financial literacy and behavioural biases of young adults: the comparison of Bristol, UK and Istanbul

Akin, I (2021) Determinants of financial literacy and behavioural biases of young adults: the comparison of Bristol, UK and Istanbul. PhD thesis, Bath Spa University.

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Abstract

Financial literacy is defined as the combination of financial knowledge, financial behaviour and financial attitude and the ability to use this combination in financial decisions (OECD, 2015). A high level of financial well-being depends on individuals financial literacy level because a high financial literacy level increases the possibility of taking good financial decisions (Lusardi, 2010). However, financial literacy is not the only factor that affects taking accurate financial decisions; at the same time, behavioural biases should be considered. Behavioural biases are systematic errors that keep individuals away from rationality (Shefrin, 2002). The biases might cause unhelpful or even hurtful decisions. Therefore, a high level of behavioural biases negatively affects the financial well-being of individuals (Montier, 2007). In this research, the relationship between financial literacy and behavioural biases among young adults in Bristol, UK and Istanbul, Turkey was examined. A young adult can be defined as an individual within the age range of late teens or early twenties to thirties (Smith, 2018; OECD, 2019). The main aim of the research is to identify whether young adults can be prevented from behavioural biases by increasing their financial literacy. This research contributes to the literature by investigating the relationship between financial literacy and behavioural biases of young adults because this relationship has not been investigated adequately and also different target group have been examined in the literature. In the literature different components have been used in order to measure financial literacy. This research contributes to the literature by identifying the most important components of financial literacy. As a result of the investigation financial knowledge appears to be the most important factor. It also highlights the importance of the application of financial knowledge as another contribution. The critical point is that young adults may not improve their financial well-being unless financial knowledge is used in practices. Another contribution of this research is to reveal the most common behavioural biases among young adults in Bristol, UK and Istanbul. These biases among young adults in Bristol, UK, are over-optimism, anchoring, categorisation, conservatism while framing, cognitive dissonance, the illusion of knowledge, and cue competition in Istanbul. The relationship between financial literacy and behavioural biases was investigated via Structural Equation Modelling (SEM) and ANOVA analysis. The result of the research reveals that there is a positive relationship between financial literacy and behavioural biases. Therefore, a high level of financial literacy does not reduce behavioural biases.

Item Type: Thesis (PhD)
Keywords: financial literacy, financial well-being, financial knowledge, behavioural bias, rationality, Bristol - UK, Istanbul - Turkey, young adults, Structural equation modeling (SEM)
Divisions: Bath Business School
Date Deposited: 01 Oct 2021 16:42
Last Modified: 01 Oct 2021 16:48
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