The relationship between the level of financial education and literacy and financial capability of adults in Westbury

Abstract: The purpose of this study was to determine whether a higher score in financial literacy is associated with improved financial capability amongst households in Westbury. A quantitative correlational design was used. The dominant view in the literature is that those who are financially literate have fewer problems with debt (Lusardi & Tufano, 2009); are more likely to accumulate wealth (Stango & Zinman, 2007); more likely to plan for retirement (Lusardi & Mitchell 2006, 2009); and more likely to choose unit trusts with lower fees (Hastings & Tejeda-Ashton, 2008). All of this focuses on what Sen (1993:31; 2005:153) calls “achievements” rather than sets of functionings (or capability) which is a better measure of well-being, because as Sen (1990) argues, income and wealth levels alone do not reflect a person’s well-being. Sen (1999) proposes that the measurement should be what people are actually able to be and do, rather than what they know or earn. To accurately judge the benefits of financial literacy education, one should not focus on its effect on financial achievements, but on financial capabilities. Unfortunately, few studies investigate the relationship between financial literacy and financial capability. To date the most comprehensive application of the capability approach to financial literacy is Sibley (2010) who conducted a study in rural communities in the Pacific. The results of this study indicate that financial literacy and financial capability are positively related and agree with previous research (e.g. Sibley, 2010) that also found a positive relationship. The study also found that financial education improves financial literacy and financial capability individually, and that it enhances the benefit of financial experience. However, it is the presence of financial experience that strengthens the positive relationship between financial literacy and capability.M.Ed