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An Item Response Theory Approach to Constructing and Evaluating Brief and In-depth Financial Literacy Scales

Lookup NU author(s): Professor Darren DuxburyORCiD

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Abstract

We applied Item Response Theory (IRT) to construct and evaluate new brief and in-depth financial literacy scales. A survey of a UK adult sample (N = 589) included 50 questions to assess knowledge about managing financial resources and competence in using personal finance-related information, including five widely used items, on interest rates, inflation, investment diversification, mortgages and bonds. IRT applied to a scale of these items identified some limitations, overcome via further iterations to construct a new brief scale with sound psychometric properties. IRT was then applied iteratively to our pool, resulting in an in-depth, 20-item scale, also psychometrically sound, covering four broad financial domains: everyday money transactions; the concept of money; borrowing; and saving and investment. Parallel 10-item sub-scales were also evaluated. The validity of the new scales was demonstrated by regression analyses which found that, controlling for demographic variables, financial literacy predicted key indicators of financial well-being.

Publication metadata

Author(s): Ranyard R, McNair S, Nicolini G, Duxbury D

Publication type: Article

Publication status: Published

Journal: Journal of Consumer Affairs

Year: 2020

Volume: 54

Issue: 3

Pages: 1121-1156

Online publication date: 02/07/2020

Acceptance date: 01/06/2020

Date deposited: 11/06/2020

ISSN (print): 0022-0078

ISSN (electronic): 1745-6606

Publisher: Wiley

URL: https://doi.org/10.1111/joca.12322

DOI: 10.1111/joca.12322

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