Culture and confidence in financial knowledge testing

This paper studies the effect of cultural differences in confidence on financial knowledge test answering behaviour. Using Australian household survey data, I examine a sample of second generation and early arriving first generation immigrants as their differing cultures can be separated from the common economic and institutional environment they experience. Individuals from collectivist countries of ancestry are 9.1% more likely to respond with 'don't know' compared to those from individualist countries of ancestry. Results are robust to controlling for individual and country level factors, alternative measures of culture, a battery of sensitivity tests on sample selection criteria and subsample analysis. Additional analysis reveals that women from a collectivist country of ancestry are 21% more likely to respond with 'don't know' than males from an individualist country of ancestry. These findings call into the question the validity of financial knowledge tests in solely assessing knowledge.