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Analysis of aggregation between the components of financial literacy through inconsistency in intertemporal choices

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Abstract

Financial literacy refers to skills and knowledge needed to make responsible financial decisions. It, therefore, consists of a set of components, including basic knowledge, money management skills, understanding of financial products, risk awareness, planning and self-control. It can be broken down into three main components: financial knowledge, financial behaviour and financial attitude. Since a good level of financial literacy leads to more informed choices, the present paper investigates which method of aggregation between the three main components is the best to quantify the degree of financial literacy. The operators under investigation, with respect to the sum operation, are the OWA and the Choquet integral. The comparison measure for ranking the quality of decision-making refers to the degree of inconsistency in intertemporal choices using a direct measure between normative and empirical preferences defined by recent research. Results prove that Choquet’s integral defines a better match between the aggregation of the components of financial literacy and the quality of choices in the intertemporal context. The applicability of the present work aims, through a multidisciplinary approach involving mathematical finance and multi-criteria methods, to support the client classification requirement of the Markets in Financial Instrument Directive.

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Data availability

The datasets generated and analysed during the current study are not publicly available for the presence of sensible data.

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Authors and Affiliations

  1. Department of Mathematics and Physics, University of Campania “L. Vanvitelli”, Viale A. Lincoln, 5, 81100, Caserta, Italy

    Roberta Martino & Viviana Ventre

Authors
  1. Roberta Martino
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  2. Viviana Ventre
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All authors contributed to the study’s conception and design equally. All authors read and approved the final manuscript.

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Correspondence to Roberta Martino.

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Martino, R., Ventre, V. Analysis of aggregation between the components of financial literacy through inconsistency in intertemporal choices. Soft Comput (2023). https://doi.org/10.1007/s00500-023-09445-6

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