Predictors of Financial Capacity in Young Adults

Area of Science:

• Cognitive Psychology
• Neuropsychology
• Financial Literacy Research

Background:

• Financial capacity is crucial for independent living.
• Assessing financial capacity often involves evaluating both knowledge and practical skills.
• Predictors of financial capacity can include cognitive abilities and life experiences.

Purpose of the Study:

• To identify predictors of financial capacity using the Independent Living Scales Money Management (ILS-MM) subtest.
• To differentiate predictors for knowledge-based (Problem Solving) versus performance-based (Performance/Information) financial tasks.

Main Methods:

• One hundred and five college students completed measures of financial literacy, financial experience, and neuropsychological functions (language, processing speed, executive functioning, arithmetic).
• Hierarchical regression analyses were used to predict ILS-MM subscale performance.
• The study examined predictors for financial knowledge and financial abilities separately.

Main Results:

• Financial literacy and experience significantly predicted the Problem Solving subscale (financial knowledge).
• Neuropsychological measures, particularly arithmetic, predicted the Performance/Information subscale (financial abilities) after controlling for financial literacy and experience.
• Executive functioning measures did not predict financial capacity in this study.

Conclusions:

• Financial capacity is a complex construct requiring diverse assessment approaches.
• Knowledge-based financial skills are best predicted by financial literacy and experience.
• Performance-based financial skills are better predicted by specific neuropsychological abilities, notably arithmetic.