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A COMPARATIVE ANALYSIS OF THE FINANCIAL LITERACY OF FINAL YEAR
DIPLOMA STUDENTS IN DIFFERENT FIELDS OF STUDY AT THE UNIVERSITY
OF JOHANNESBURG

by

MARIA BOTHA

MINOR DISSERTATION

submitted in partial fulfilment of the requirements for the degree

MAGISTER COMMERCII

in

FINANCIAL MANAGEMENT

in the

FACULTY OF ECONOMIC AND FINANCIAL SCIENCES

at the

UNIVERSITY OF JOHANNESBURG

SUPERVISOR: Mrs A Oosthuizen

CO-SUPERVISOR: Mrs R van Gaalen

January 2013
Abstract

Economically active individuals are frequently faced with the responsibility of making
financial decisions which may dramatically impact their financial wellbeing. In today’s world
of complex financial products and individuals increasingly being responsible for their own
financial wellbeing, higher levels of financial literacy are of the utmost importance. The main
aim of this study will be to determine whether students who study towards a diploma in a
finance-related field have higher financial literacy levels than those studying towards a
diploma in field of study that is not finance-related. A quantitative research methodology will
be employed to the study in the form of a survey. The population includes all the diplomas
presented on the University of Johannesburg (UJ), Bunting Road campus, and the sample
consists of one finance-related diploma and two non-finance-related diplomas. Although the
results of the study, in line with previous research, indicated that the finance group
performed better than the non-finance group, the margin was smaller than expected and the
average financial literacy score of both groups was low. Students performed the worst in the
savings and borrowings and the best in the basic concepts content area. Many of the
demographic and background characteristics identified by previous research to influence
financial literacy could not be analysed as there was not enough variation or adequate
representation within the total sample. In contrast to previous research many of the
remaining demographic and background characteristics that could be analysed did not
influence financial literacy. Only language (Sotho) and funding (NSFAS and my parents
and/or family paid) were found to influence financial literacy levels. As this study indicates
that the financial literacy levels of final year diploma students in South Africa are low, higher
education might have to consider introducing a financial curriculum to increase financial
literacy.

Keywords: Financial literacy; field of study; higher education; survey;

Johannesburg.

i
 DECLARATION OF ORIGINAL WORK

I, Maria Botha, declare that this minor dissertation is my own unaided work. Any
assistance that I have received has been duly acknowledged in the dissertation. It is
submitted in partial fulfilment of requirements for the degree of Master of Commerce
at the University of Johannesburg. It has not been submitted before for any degree
or examination at this or any other University.

___________________ __________________

Signature Date

ii
Acknowledgements

I would like to thank the following people for their ongong support, guidance and
contribution to this study and whom without this study would not have been possible:

 Adele Oosthuizen, my supervisor, for all the hours of dedication to this study. I
would like to thank you for all your help, empathy, inspiration, continuous
feedback and valuable contribution.

 My co-supervisor, Reinette van Gaalen, for your encouragement, support,

time and effort devoted to this study.

 Prof Riette Eiselen, for being such a wonderful, energetic, enthusiastic and
passionate lecturer and for your valuable contribution in getting me started on
this study. Also for doing the statistical analysis of the data and all your help in
general and interest in the study through a difficult time.

 The lecturers and respondents at the University of Johannesburg, Bunting

Road campus. Thank you to the lecturers for allowing the respondents to
complete the questionnaires during part of their lecture and to the
respondents for participating in the study. Without your valuable input this
study would not have been possible.

 Dirkie van der Watt for your understanding and giving me time off to complete
this study.

I would also like to thank my wonderful husband, Adrian Carter as well as my family
for your understanding, motivation, support and being so amazing throughout this
process.

iii
TABLE OF CONTENTS

Chapter 1

Financial literacy in final year students

1.1Introduction and background ................................................................................................... 1

1.2Financial literacy...................................................................................................................... 2
1.3Purpose of the study ................................................................................................................ 4
1.4Problem statement and research questions............................................................................... 5
1.5Perceived significance and contribution of the study.................................................................. 5
1.6 Scope of the research study ..................................................................................................... 6
1.7 Research methodology ............................................................................................................ 7
1.7.1 The research instrument and sample selection.............................................................. 7
1.7.2 Data collection and survey instrument.......................................................................... 8
1.7.3 Data analysis............................................................................................................... 9
1.8 Ethical considerations.............................................................................................................10
1.9 Limitations.............................................................................................................................11
1.10 Overview of remaining chapters (chapter outline) ..............................................................11

Chapter 2

Literature review

2.1Introduction ...........................................................................................................................13
2.2Financial literacy: definitions ...................................................................................................14
2.3Measurement of financial literacy............................................................................................19
2.3.1 Content areas............................................................................................................ 19
2.3.2 Structure..................................................................................................................212
2.3.3 Measurement/rating ................................................................................................. 22
2.4Importance of financial literacy 24
2.4.1 Adults and parents .................................................................................................... 25
2.4.2 High school, college and university students ............................................................... 25
2.5Importance of financial education............................................................................................28
2.6 Demographic and background characteristics that influence financial literacy ...........................30

iv
 2.6.1 Gender ..................................................................................................................... 30
2.6.2 Marital status............................................................................................................ 31
2.6.3 Language .................................................................................................................. 31
2.6.4 Race ......................................................................................................................... 31
2.6.5 Parental education .................................................................................................... 31
2.6.6 Access to financial institutions.................................................................................... 32
2.6.7 Age ........................................................................................................................... 32
2.6.8 Field of study ............................................................................................................ 33
2.7 ..Summary 34

Chapter 3

Research methodology

3.1 Introduction ..........................................................................................................................36

3.2 Research design .....................................................................................................................36
3.2.1 Research paradigm.................................................................................................... 36
3.3Research method....................................................................................................................37
3.3.1 Research instrument ................................................................................................. 38
3.4Questionnaire construction 40
3.4.1 Pre-testing the questionnaire ..................................................................................... 45
3.5Research sample.....................................................................................................................46
3.5.1 Sampling strategy...................................................................................................... 46
3.5.2 Target population...................................................................................................... 46
3.5.3 Sample selection ....................................................................................................... 47
3.5.4 Expected sample ....................................................................................................... 48
3.6Data collection........................................................................................................................48
3.7 Data analysis..........................................................................................................................49
3.7.1 Analysis by demographic and background questions ................................................... 50
3.7.2 Analysis by research questions ................................................................................... 50
3.8Validity and reliability..............................................................................................................52
3.8.1 Validity ..................................................................................................................... 52
3.8.2 Reliability.................................................................................................................. 53
3.9 Ethical considerations.............................................................................................................53
3.10Limitations............................................................................................................................54

v
3.11 Summary .............................................................................................................................54

Chapter 4

Results and findings

4.1 Introduction ..........................................................................................................................55

4.2 Description of the sample .......................................................................................................55
4.3Data collection........................................................................................................................55
4.4Analysis of data ......................................................................................................................56
4.4.1 Overall financial literacy levels of final year diploma students ...................................... 56
4.4.2 Impact of demographic and background characteristics on the financial literacy levels of
final year diploma students........................................................................................611
4.5 Limitations........................................................................................................................... 988
4.6 Conclusion.............................................................................................................................98

Chapter 5

Findings, conclusion and recommendations

5.1Introduction ....................................................................................................................... 1022

5.2Summary of findings and contribution of study....................................................................... 102
5.2.1 Overall financial literacy levels of third- year diploma students.................................. 1022
5.2.2 Influence of demographic and background factors on financial literacy ..................... 1033
5.2.3 Impact of the field of study on financial literacy levels ................................................104
5.2.4 Perceptions and financial literacy ............................................................................ 1055
5.3Limitations ......................................................................................................................... 1055
5.4Recommendations for future research ................................................................................. 1066
5.5 Conclusion ......................................................................................................................... 1077

Bibliography ........................................................................................................................109

Appendices

Appendix 1…………………………………………………………………………………………………………………………………….117

Appendix 2…………………………………………………………………………………………………………………………………….125

vi
LIST OF TABLES

Table 1.1: Summary of chapters and content ........................................................................11

Table 2.1: Summary of content areas included in the compilation of studies...........................20

Table 2.2: Summary of data collection methods included in the compilation of studies ...........22

Table 3.1: Disadvantages of questionnaires as survey instruments......................................... ...38

Table 3.2: Advantages of close-ended questions.........................................................................40

Table 3.3: Disadvantages of close-ended questions................................................................... .41

Table 3.4: Finance and non-finance-related diplomas on APB ................................................. ..46

Table 4.1: Average financial literacy score achieved by respondents..........................................56

Table 4.2: Financial literacy scores of extreme groups............................................................... .63

Table 4.3: Pearson Chi-Square test for gender............................................................................ 64

Table 4.4: Pearson Chi-Square test for age………………………….......................................................65

Table 4.5: Pearson Chi-Square tests for various languages........................................................ .67

Table 4.6: Fischer’s Exact Test for respondents falling below lower quartile and above upper
quartile (Sotho or not Sotho)..................................................................................... .69

Table 4.7: Pearson Chi-Square test for race.................................................................................70

Table 4.8: Pearson Chi-Square test for marital status…...............................................................72

Table 4.9: Pearson Chi-Square test for children......................................................................... .73

Table 4.10: Pearson Chi-Square test for accommodation…………………........................................ ..75

Table 4.11: Pearson Chi-Square test for work experience…………………..........................................76

Table 4.12: Pearson Chi-Square test for father’s highest level of schooling……......................... ...78

Table 4.13: Pearson Chi-Square test for mother’s highest level of schooling............................. ..79

Table 4.14: Pearson Chi-Square test of payments…………………………..............................................81

Table 4.15: Fischer’s Exact Test for respondents falling below lower quartile and above upper
quartile (sponsored/funded by parents or not sponsored/funded by parents) ..... ....83

Table 4.16: Fischer’s Exact Test for respondents falling below lower quartile and above upper
quartile (sponsored/funded by NSFAS or not sponsored/funded by NSFAS).......... ...83

vii
Table 4.17: Pearson Chi-Square test of bank account or credit card……...................................... .85

Table 4.18: Pearson Chi-Square test of personal finance course……............................................ .87

Table 4.19: Demographic and background characteristics of the finance and non-finance-related
group that indicate a statistically significant difference and which do not indicate a
statistically significant difference................................................................................88

Table 4.20: Pearson Chi-Square test of student perceptions of their financial literacy
levels……………………………………………………………………………………………………………………. ..89

Table 4.21: Pearson Chi-Square test of student perceptions of importance of financial

literacy………………………………………………………………………………………………………………… ...90

Table 4.22: Average financial literacy percentage of finance and non-finance students..............91

Table 4.23: Independent samples test………………………………………………………............................... ..92

Table 4.24: Pearson Chi-Square test of savings and borrowing…………..........................................93

Table 4.25: Pearson Chi-Square test of markets and instruments……………………………………....... ...94

Table 4.26: Pearson Chi-Square test of basic concepts…………………………………………………........... ..95

Table 4.27: Pearson Chi-Square test of financial planning……..................................................... ..96

Table 4.28: Pearson Chi-Square test of insurance…….................................................................. ..97

viii
LIST OF FIGURES

Figure 4.1: Financial literacy scores achieved by respondents................................................... ..57

Figure 4.2: Percentage savings and borrowing questions correct by total sample.......................58

Figure 4.3: Percentage markets and instrument questions correct by total sample....................59

Figure 4.4: Percentage basic concepts questions correct by total sample.................................. .59

Figure 4.5: Percentage financial planning questions correct by total sample........................... ...60

Figure 4.6: Percentage insurance questions correct by total sample......................................... ..61

Figure 4.7: Gender (finance- or non-finance)............................................................................... .64

Figure 4.8: Gender of total sample………………………………………..................................................... .64

Figure 4.9: Age (finance- or non-finance)………………………………………………………………………............65

Figure 4.10: Age of total sample..................................................................................................... 66

Figure 4.11: Language (finance- or non-finance)………………………………………………......................... ..67

Figure 4.12: Language of total sample............................................................................................ 68

Figure 4.13: Respondents falling below lower quartile and above upper quartile (Sotho or not
Sotho)......................................................................................................................... .69

Figure 4.14: Race (finance or non-finance).................................................................................... .70

Figure 4.15: Race of total sample…………………………………………………………………............................. ..71

Figure 4.16: Marital status (finance or non-finance).................................................................... ..71

Figure 4.17: Marital status of total sample.................................................................................... .72

Figure 4.18: Number of children of respondents (finance or non-finance).................................. ..73

Figure 4.19: Percentage of total sample respondents who had children……………………………....... ..74

Figure 4.20: Accomodation of respondents (finance or non-finance)............................................ 74

Figure 4.21: Accomodation of total sample respondents…………………………………………................. ..75

Figure 4.22: Work experience (finance or non-finance)..................................................................76

Figure 4.23: Work experience of total sample................................................................................ 77

Figure 4.24: Father’s highest level of schooling (finance or non-finance)...................................... 78

ix
Figure 4.25: Mother’s highest level of schooling (finance or non-finance)…………………..................78

Figure 4.26: Highest level of schooling of parents for total sample............................................... .80

Figure 4.27: Methods of funding (finance or non-finance)............................................................. 81

Figure 4.28: Methods of funding of total sample............................................................................82

Figure 4.29: Respondents falling below lower quartile and above upper quartile
(sponsored/funded by parents or not sponsored/funded by parents) ……………........ 84

Figure 4.30: Respondents falling below lower quartile and above upper quartile
(sponsored/funded by NSFAS or not sponsored/funded by NSFAS)……..................... 84

Figure 4.31: Percentage of respondents who have a bank account and/or credit card (finance or
non-finance)............................................................................................................... .85

Figure 4.32: Percentage of total sample respondents who have a bank account and/or credit
card..............................................................................................................................86

Figure 4.33: Percentage of respondents who have taken a personal finance course (finance or
non-finance)………………………………………………………………………………………......................86

Figure 4.34: Percentage of total sample respondents who have taken a personal finance
course……………………………………………………………………………………………………………………..87

Figure 4.35: Extent to which respondents consider themselves to be financially literate.............89

Figure 4.36: How important respondents consider it to be for diploma graduates to be financially
literate........................................................................................................................ .90

Figure 4.37: Savings and borrowing questions correct (finance related group compared to non-
finance related group)…………………………………............................................................. 93

Figure 4.38: Markets and instruments questions correct (finance related group compared to non-
finance related group)…………………..............................................................................94

Figure 4.39: Basic concepts questions correct (finance related group compared to non-finance
related group)……………............................................................................................... .95

Figure 4.40: Financial planning questions correct (finance related group compared to non-finance
related group)……....................................................................................................... .96

Figure 4.41: Savings and borrowing questions correct (finance related group compared to non-
finance related group)................................................................................................ .97

x
 CHAPTER 1

FINANCIAL LITERACY IN FINAL YEAR STUDENTS

1.1 INTRODUCTION AND BACKGROUND

Economically active individuals are frequently faced with the responsibility of making
financial decisions which may dramatically impact their financial wellbeing. Higher levels
of financial literacy lead to better decision-making, which in turn is vital to living a
prosperous, healthy and happy life (Beal & Delpachitra, 2003; Fresler, 2006; Mandell &
Schmid, 2009; Marcolin & Abraham, 2006). In today’s world of complex financial products
and individuals increasingly being responsible for their own financial wellbeing, higher
levels of financial literacy is of the utmost importance. The wrong financial decisions, due
to lack of financial literacy, could lead to financial problems, which often cause stress,
depression, a decrease in work productivity and lower self-esteem (Garman, Kim, Kratzer,
Brunson & Joo, 1999). In order for individuals to make the best financial decisions they
therefore need to be financially literate.

Although studies have found that individuals become more financially literate through
experience and age, individuals cannot afford to make financial mistakes when they are
young. According to Chen and Volpe (2002), it is important to possess high levels of
financial literacy early in life. A number of studies have however found that students
specifically are not financially literate and do not know how to manage their personal
finances or make informed decisions (Beal & Delpachitra, 2003; Borden, Lee, Serido &
Collins, 2008; Chen & Volpe, 1998; Cude, Lawrence, Lyons, Metzger, Lejeune, Marks &
Machtmes, 2006; Lyons & Hunt, 2003; Williams, 2008). This lack of financial literacy is a
cause for concern if one considers that some students finance their studies through
student loans and might not be aware of the terms and conditions or understand the
different interest rates (fixed or variable). Many of these students will therefore also be
near to entering the job market without being financially literate. Once they are working
they will be faced with even more financial responsibilities and decisions that vary from
balancing a household budget, entering into a cell phone contract, financing a car,
arranging a mortgage, taking out insurance and medical coverage, and starting to provide
for their children’s education and their own retirement. If students do not possess basic
financial skills they might not be able to make the best decisions for financial wealth
optimisation.

1
1.2 FINANCIAL LITERACY

Various studies have found that financial literacy improves financial decision-making
(Lusardi, 2008; Mandell & Schmid, 2009), and it has become increasingly important for
the following reasons:

 The shift from defined benefit to defined contribution pensions has moved the
responsibility for retirement security from employers to employees (Lusardi, 2008),
who now have the responsibility to decide how much to save and how to allocate
their retirement wealth. If individuals are not financially literate they may not plan or
save enough for retirement or make costly mistakes (Policy brief, July 2006).

 The variety and complexity of financial products can lead to individuals buying
inappropriate products and being victims of fraud and abuse if they do not possess
the necessary financial literacy skills to make informed decisions (Gordhan, 2012). If
individuals make unwise or uninformed decisions these can have a long lasting
negative impact on their lives. Symptoms of dire financial decisions due to lack of
financial literacy include irresponsible spending and credit usage, obtaining loans
from ‘loan sharks’ or disreputable financial institutions who charge inflated interest
rates, engaging in ‘get-rich-quick’ and Internet scams, and entering into contracts for
cellular telephone and satellite television that they cannot afford. This can result in
repossession, debt, insufficient or lack of financial independence, stress, decreasing
productivity in the workplace and even divorce (Marcolin & Abraham, 2006). Making
informed decisions is critical not only to the financial wellbeing of individuals but also
to the proper functioning of financial markets and the economy (Gaberlavage,
2009).

For individuals to make the right financial decisions, at least some kind of financial
knowledge or understanding is required (Lusardi, 2008; Mandell & Schmid, 2009). Studies
conducted in various countries amongst the following groups found that individuals are
neither financially literate nor in possession of the financial literacy skills necessary to
making informed decisions:

 High-school students (Danes, Huddleston-Casas & Boyce, 1999; Mandell &

Schmid, 2009; McCormick, 2009; Samy, Tawfik, Huang & Nagar, 2007; Varcoe,
Martin, Devitto & Go, 2005)

 College and university students (Beal & Delpachitra, 2003; Borden, Lee, Serido
& Collins, 2008; Chen & Volpe, 1998; Cude et al., 2006; Lyons & Hunt, 2003;
Williams, 2008)

2
  Adults and workers (Garman et al., 1999; Lusardi, 2008; Volpe, Chen & Liu,
2006).

Previous studies also identified the following demographic and background characteristics
to influence the financial literacy levels of individuals:

 Gender (Chen & Volpe,1998, 2002; Fonseca, Mullen, Zamarro & Zissimopoulos,
2010)

 Marital status (Fonseca et al., 2010; Taylor & Wagland, 2011)

 Language (Worthington, 2006)

 Race (Murphy, 2005; Mandell, 2009)

 Work experience (Taylor & Wagland, 2011; Worthington, 2006; Chen & Volpe,
2002)

 Parental education (Mandell, 2009; Lusardi, Mitchell & Curto, 2010)

 Access to financial institutions (Johnson & Sherraden, 2007)

 Age (Chen & Volpe, 1998, 2002)

 Field of study (Chen & Volpe, 1998, 2002; Hanna, Hill & Perdue, 2010; Marcolin
& Abraham, 2006; Beal & Delpachitra, 2003).

The literature offers varying perspectives on which demographic and background

characteristics influence financial literacy. Field of study, for example has been identified
by certain researchers as an influence on financial literacy, and the majority of studies
indicate that finance students are more financially literate than others (Chen & Volpe,
1998, 2002; Hanna et al., 2010; Marcolin & Abraham, 2006) while other researchers,
although in the minority, found no influence between field of study and financial literacy
(Ludlum, Tilker, Ritter, Cowart, Xu & Smith, 2012).

Researchers’ continue to use varying definitions and non-standardised measurement

criteria for financial literacy makes comparing studies difficult. However, a suitable
definition should include knowledge, skills and application, dimensions incorporated by
the Jump$tart Coalition (2007), as: “the ability to use knowledge and skills to manage
financial resources effectively for lifetime financial security”. This definition is also in line
with the standard definition of literacy developed by the Literacy Definition Committee,
which implies that individuals should have knowledge as well as skills or ability to be
considered financially literate.

3
Financial knowledge and application abilities will be tested with regards to the following
main financial literacy content areas as identified by numerous previous studies and
confirmed by Huston (2010) and Redmund (2010):

- basic concepts

- savings and borrowings

- insurance

- markets and instruments

- financial planning.

An adapted version of the Jump$tart coalition (2008) questionnaire will be used as it

provides questions on these content areas and has been used by the majority of studies
(Redmund, 2010).

The majority of research does not indicate whether respondents are financially as it is
uncertain what score a respondent should achieve in order to be considered financially
literate. Similarly, the current research will not rate a student as being financially literate or
illiterate if they achieve certain scores, but will rather focus on whether financial literacy
scores are high or low compared to the financial literacy rating score used by Jump$tart
coalition (2008), in which a respondent needs to obtain at least 60% to be considered
financially literate.

1.3 PURPOSE OF THE STUDY

Against this background, the overall purpose of the research is to determine whether field
of study (finance or non-finance students) influences the financial literacy levels of South
African third-year diploma students.

The further objectives of the research study are to:

- determine the financial literacy levels of third-year students studying towards a

diploma at the University of Johannesburg in 2011

- identify the content areas of financial literacy in which students achieve particularly
better or worse results

- examine which demographic and background characteristics influence financial

literacy

- compare students’ perceptions of financial literacy to their actual financial literacy

levels.

4
1.4 PROBLEM STATEMENT AND RESEARCH QUESTIONS

The main aim of this study is to determine whether the field of study (finance or non-
finance) influences the financial literacy of a group of third-year students studying towards
a diploma at the University of Johannesburg (UJ), South Africa. The overall research
question designed to address the problem statement has been formulated as follows:

Do students who study towards a diploma in a finance-related field have higher financial
literacy levels than those studying towards a diploma in a non-finance-related field of
study?

In order to answer this overall research question, the following sub-questions will be
addressed:

1. How financially literate are third-year University of Johannesburg diploma students

of 2011?

2. In which content areas of financial literacy do students demonstrate better or

worse results?

3. Which demographic and background characteristics influence financial literacy

levels?

4. How do students’ perceptions of financial literacy compare to their actual financial

literacy levels?

1.5 PERCEIVED SIGNIFICANCE AND CONTRIBUTION OF THE STUDY

The limited research on the financial literacy levels amongst South Africans (Engelbrecht,
2009; Shambare & Rugimbana, 2012) will be added to through examining the financial
literacy levels of final year diploma students at the University of Johannesburg, Bunting
Road campus. If its results are similar to those of previous research that have found
financial literacy levels of university students to be low (Danes et al., 1999; Mandell &
Schmid, 2009; McCormick, 2009; Samy et al., 2007; Varcoe et al., 2005; Beal &
Delpachitra, 2003; Borden et al., 2008; Chen & Volpe, 1998; Cude et al., 2006; Lyons &
Hunt, 2003; Williams, 2008; Garman et al., 1999; Lusardi, 2008; Volpe et al., 2006) then
introducing a financial curriculum at various educational levels might be considered by the
appropriate authorities.

This study will compare results of previous research into influence of financial literacy
levels, the majority of which found that finance or business majors possessed higher

5
levels of financial literacy than others (Chen & Volpe, 1998 & 2002; Hanna et al., 2010;
Marcolin & Abraham, 2006). It will also explore the financial areas in which students
achieved particularly high and low results, with emphasis on the latter. The influence of
demographic and background characteristics in literature vary, and the current study will
provide further insight into these.

The financial literacy levels of students are of relevance to potential stakeholders.

Diploma students should possess the financial literacy skills to make informed financial
decisions, but if the majority are found to be financially illiterate, personal finance
curriculums could be developed and incorporated to form part of the basic education of all
students. Loan providers and banks provide many students with study loans and later
might finance their vehicle or property. The study will determine whether students are
aware of and understand the terms and conditions of loan repayments (e.g., fixed or
variable rates).

The study may also be of significance to the government, taxpayers and employers,
because individuals who are financially illiterate are not likely to make sufficient provision
for their retirement. They will thus be dependent on government pensions, which are
indirectly funded by taxpayers. Previous studies have found that a lack of financial literacy
among employees leads to a decrease in work productivity (Volpe et al., 2006), and
higher levels of financial literacy are associated with positive financial behaviour such as
increased savings, higher retirement fund contributions and debt payments (Garman et
al., 1999).

1.6 SCOPE OF THE RESEARCH STUDY

The main purpose of the research is to determine the relationship between field of study
and financial literacy of final year diploma students at the University. The rationale for
collecting data only from third-year students was that they should be more financially
literate than first and second years, and if found to have low levels of literacy so would all
the years. Also, they would soon be entering the job market and it was therefore more
important for them to be financially literate than it was for first or second year students.
The objective of this study is not to compare students’ financially with their academic
progress, but rather to evaluate students at the same academic level in different
academic disciplines and to see whether certain demographic and background
characteristics influence their level of financial literacy.

The scope of the study is limited to one third-year diploma group with a finance
background, namely the diploma in Accounting, compared to two third-year diplomas

6
without a finance background, namely Architecture and Sports Management. Two non-
finance diplomas were selected as their classes were much smaller than the finance
group. Selection of the finance-related diploma was based on convenience and personal
interest, as the researcher lectured to the first year diploma Accounting students. The
non-finance diplomas were judgementally selected as their students were not away on
experimental learning and were more numerous.

For students to be regarded as financially literate they needed to possess knowledge and
understanding of the following financial content areas, namely basic concepts; saving and
borrowing; insurance; markets and instruments; and financial planning. The Jump$tart
coalition (2008) questionnaire was used as it provided questions on these content areas.
Where the questionnaire did not provide enough questions for each content area,
additional ones from other instruments were added (refer to section 3.5, questionnaire
construction). Students had to be familiar with everyday financial concepts within the
South African context, be able to calculate and answer basic finance questions, be able to
compare different financial options and choose the best one.

1.7 RESEARCH METHODOLOGY

This descriptive study will answer the research questions following a quantitative research
approach. Primary, cross-sectional data will be obtained through conducting a survey on
two samples, namely: students studying towards a finance-related diploma; and students
studying towards a non-finance-related diploma. The survey will be conducted in a field
setting. Descriptive statistics will be used to describe the demographic characteristics and
overall financial literacy levels of the combined samples. Comparative analysis will be
performed on the samples to identify certain commonalities and differences in terms of
their demographic factors and financial literacy levels in order to answer the research
questions set out in section 1.4 of this chapter.

1.7.1 The research instrument and sample selection

The survey will be conducted by means of a structured questionnaire, which will include
financial literacy questions covering the five content areas, i) basic concepts; ii) saving
and borrowing; iii) insurance; iv) markets and instruments; and v) financial planning. It will
also include certain demographic and background characteristic questions , including
gender, age, language, race, marital status, children, accommodation, work experience,
parental education, funding of studies, and whether respondents own a bank account or

7
credit card and have taken a personal finance course. The questionnaire will be examined
by professionals who are educated and well-informed on matters relating to personal
finance to ensure that the most fundamental personal finance questions are covered in
the questionnaire.

The population of the study is made up of all the diplomas presented on the Bunting Road
campus of the University of Johannesburg. As there were too many diplomas to include
all in the study, and the number of students enrolled for certain diplomas were very low or
away on experiential learning it will make use of a non-probability sampling method.

1.7.2 Data collection and survey instrument

Primary data in the form of a paper-based multiple choice questionnaire will be collected
from third-year diploma students studying at the Bunting Road campus of the University of
Johannesburg. The sample will be limited to one finance-related group (diploma in
Accounting) and two non-finance-related groups (diploma in Architecture and diploma in
Sports Management), and the questionnaire will consist of a financial literacy section
divided into five sub-sections with three to five questions under each section. The
financial literacy sections reflect the content areas identified by Redmund (2010) and
consist of basic financial concepts, saving and borrowing, insurance, markets and
instruments and financial planning. There will also be a section covering demographic and
background questions identified by literature to influence financial literacy, namely gender,
age, language, race, marital status, work experience, accommodation, parental
education, funding of studies, access to financial institutions and whether a personal
finance course has been taken. The questionnaire is adapted from the Jump$tart coalition
(2008) questionnaire which has been analysed by professionals knowledgeable in
personal finance and used in previous studies as financial literacy tests (Redmund, 2010).
The questions included under each one of the five financial literacy sections therefore
include the necessary knowledge and skill questions for a person to be regarded as
financially literate in terms of the scope of this study.

Before the questionnaire is administered to the actual sample it will first be pre-tested on
a pilot group to minimise errors due to improper design, such as poorly worded or
organised questions, as well as to determine the completion time. Students will not
require a calculator to answer questions as they will be able to answer the questions by
logical reasoning. They will complete the questionnaire either at the beginning or at the
end of one of their scheduled lectures thus enhancing the validity of responses as

8
students will not be able to discuss responses with anyone. Participation in the study is
entirely voluntary and all the data will be treated as confidential.

1.7.3 Data analysis

The SPSS commercial statistical analysis software program will be used to analyse the
data and present it in summarised graphic and tabular formats for ease of interpretation.

Data will be analysed by using a similar method to that used by Chen and Volpe (1998)
and Beal and Delpachitra (2003). The responses from each respondent will be used to
calculate the percentage of correct responses for each question, content area and the
entire survey.

Firstly, the researcher will be able to answer sub-question 1, “How financially literate are
third-year University of Johannesburg diploma students of 2011?” by calculating the
average financial literacy score of all respondents for the entire survey. The majority of
research does not indicate whether respondents are financially literate as it is uncertain
what score a respondent should achieve. Nor will the current research rate a student as
being financially literate if they achieve a certain score but rather will focus on whether
financial literacy scores are high or low compared to the rating score of 60% used by
Jump$tart coalition. Secondly, sub-question 2, “In which content areas of financial
literacy did students demonstrate better or worse results?” will be answered by comparing
the results of the various content areas (basic concepts, savings and borrowings,
insurance, markets and instruments and financial planning) and concluding in which
content areas students achieved the most and least number of questions correct.

Sub-question 3, “Which demographic and background characteristics influence financial

literacy levels?” will be answered by using descriptive statistics to describe the total
sample and only where there is adequate representation and enough variation within the
total sample to actually determine a significant difference, a further analysis will be
performed to establish whether any of these demographic factors have a significant
impact on the financial literacy levels of the students. In order to establish whether the
levels are affected by demographic or background factors the literacy scores of students
in the upper quartile and lower quartile will be calculated. Two extreme groups, namely
students who obtain a higher financial literacy score than the upper quartile and students
who obtain a lower financial literacy score than the lower quartile will be identified and
compared for any statistical variation in their demographic and background
characteristics. Fischer’s exact test will be used to test whether significant differences
exist between the two groups.

9
Sub-question 4, “How do students’ perceptions of financial literacy compare to their actual
financial literacy levels?” will be answered by comparing the responses of their financial
literacy perceptions to the actual financial literacy score achieved. The Pearson chi-
square test will also be used to compare the finance and non-finance students’
perceptions of their own financial literacy levels. Finally the main research question, “Do
students that study towards a diploma in a finance-related field have higher financial
literacy levels than those studying towards a diploma in a non-finance-related field of
study?”, will be answered by comparing the average financial literacy score of the finance
group to the non-finance group. t-tests will be used to compare the mean differences
between the finance-related and non-finance-related diplomas and Levene’s test for
equality of variances will also be used to test the t-test assumption that the variances
between the two samples are equal. As well as comparing the average financial literacy
score of each group for the entire survey, the percentage of correct responses of the
finance-related students in each one of the five content areas will be compared to the
non-finance-related students. Chi-square tests will be used to test for a statistical
significant difference between the results of the finance and non-finance group at a 5%
confidence level.

Descriptive statistics will be used to describe differences between the finance compared
to the non-finance-related groups and the Pearson chi-square test will be used to
determine whether there are significant differences in terms of the demographic and
background characteristics between the two groups.

Where there is adequate representation and enough variation exists within the
demographic and background characteristics of the total sample, and if Fischer’s exact
test is less than 0.05, indicating significant differences exist between the two extreme
groups demographic and background characteristics (refer to sub-question 3), then the
demographic and background characteristics that indicated significant differences
between the finance or the non-finance group will be analysed to establish whether this
could have an impact on the different literacy levels found between the two groups.

1.8 ETHICAL CONSIDERATIONS

As professionals and businesses are required to act in an ethical manner so it is essential

for researchers to adhere to certain ethical requirements. This research study was
submitted for review to ensure that the title was accepted and registered at the Faculty of
Economics and Financial Sciences of the University, and complied with its Professional
Code of Ethics. Proper citation and reference techniques were used to acknowledge the

10
words and ideas of other sources used during the research, and professional behaviour,
honesty and integrity were upheld throughout. Participation was voluntary and
respondents assured that the information provided by them will be anonymous.

1.9 LIMITATIONS

As indicated in the scope, this study will focus on third-year diploma students from the
University of Johannesburg on the Bunting Road Campus studying towards a diploma in
Accounting, diploma in Architecture and diploma in Sports Management in 2011.
Generalisation to all University of Johannesburg campuses, other South African
Universities and among different diplomas and year groups is limited. It will however still
provide a good indication of financial literacy skills of diploma students in their final
academic year of study. A further limitation is the lack of a standardised definition and
measurement criteria. The study addresses this by reviewing the literature and
incorporating what was most commonly used and found in the literature.

1.10 OVERVIEW OF REMAINING CHAPTERS (CHAPTER OUTLINE)

This study is divided into five chapters. The first chapter has presented the introduction
and background to the study. The second chapter will discuss the relevant literature of the
study. Chapter 3 explains the research methodology that will be utilised for this study. In
Chapter 4 the results and findings of the data analysis are presented and discussed. The
final chapter concludes with a summary of the findings and recommendations for future
research.

The outline of the chapters of this study is set out in Table 1.1 below.

Table 1.1: Summary of chapters and content

CHAPTER CONTENT
Chapter 1: Introduction and background to the study
The first chapter explained the background and research problem of the
study.

Chapter 2: Literature review

Chapter 2 will present the existing literature available for the research
problem.

Chapter 3: Research methodology

In the third chapter the research design and methodology used in the study

11
 is explained. This includes a discussion of aspects such as the research
instrument, sampling strategy, methods of collecting and analysing the data
as well as validity and reliability.

Chapter 4: Results and findings

The fourth chapter presents the results and findings of the study which was
obtained from the questionnaires. A descriptive analysis of the information
as well as a statistical analysis (graphs and tables) is presented to explain
and discuss the results and findings.

Findings, conclusions and recommendations

Chapter 5: In the final chapter the main findings of the study are highlighted. The
relationship of the findings of the current study is compared to findings from
prior research and recommendations for future research are also
addressed.

12
 CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

Financial literacy has become increasingly important, and not just for investors. It is
becoming essential for economically active individuals trying to decide how to balance
their budget, buy a home, fund their children’s education and ensure an income when
they retire. Although individuals have traditionally been in charge of managing their own
finances, the growing sophistication and complexity of financial markets and products
increased the importance of being financially literate (Gallery & Gallery, 2010). Individuals
may not fully comprehend the consequences of their choices in these financial products
and the people selling them may not be explaining the financial products properly, which
could in turn affect their financial well-being (South African Minister of Finance, Pravin
Gordhan, July 2012). The recent banking crisis has highlighted individuals’ ignorance in
terms of their personal finances and their inability to make appropriate financial decisions.
This has resulted in a renewed interest in financial literacy as a field of study (Huston,
2010).

This study aims to add to the body of knowledge in the field of financial literacy by
investigating financial literacy levels of third-year diploma students at the University. The
research will investigate in which content areas of financial literacy students obtained the
best and worst results. In addition it will determine whether certain demographic and
background characteristics as identified by previous research influence levels of financial
literacy. Students’ scores will be compared to their own perceptions of their financial
literacy levels. Lastly, the main aim of the study will be analysed, namely to compare if
there is a variation in the financial literacy levels of students with a finance background
compared to non-finance students.

In order to achieve the aims as set out above the remainder of this chapter is organised
as follows. Firstly, a closer look is taken at the literature in order to compare definitions of
financial literacy and the constructs used to measure it. A review of the literature should
ensure that the study incorporates the most appropriate and suitable financial literacy
definition and measurement criteria and also emphasise the importance of developing a
standardised financial literacy construct. Secondly, the importance of financial literacy will
be considered, followed by an analysis of financial literacy studies conducted in various
countries and on different consumer groups. Next the literature review will analyse the
importance and the effectiveness of various financial education programmes to increase

13
financial literacy and explore financial literacy studies that have been performed in the
South African context. Finally, the literature review will examine previous studies that
have identified certain demographic and background characteristics that influence
individuals’ levels of financial literacy. An examination of these studies will enable the
study to identify the demographic and background characteristics that could influence
financial literacy levels.

2.2 FINANCIAL LITERACY: DEFINITIONS

There is no commonly agreed upon definition of financial literacy with studies also using
varying measurement criteria. Although some comparative studies have been examined,
the lack of a standardised definition does pose a limitation to the validity and reliability of
the results. Huston (2010) and Redmund (2010) have identified a number of studies that
apply the same definition but the measurement varied. Finding a standardised definition
and measurement construct is complicated, with various factors to be taken into account,
such as country of origin and the consumer group being examined (teen or financial
expert). Although the concept of financial literacy dates back to the early 1900s, when
consumer education research and initiatives in the United States of America (USA)
(Jelley, 1958, cited in Redmund, 2010) were performed, there was little research on it
prior to the recent financial crisis, which has highlighted the importance and need for
financial literacy studies as it showed people were not financially literate and did not
understand the financial products they were using.

Financial literacy has also not always been referred to as such, with others including
empowerment (Jekwa, 2007), responsibilization (Williams, 2007), financial capability
(Johnson & Sherraden, 2007; Stone, Wier & Bryant, 2008), credit literacy (Lyons, Rachlis,
& Scherpf, 2007), financial knowledge (Howlett, Kees & Kemp, 2008; Stone, Wier &
Bryant, 2008; U.S. Department of Treasury, 2006) and economic literacy (Vitt, Anderson,
Kent, Lyter, Siegenthaler & Ward, 2000). These earlier names and phrases, for example
credit and economic literacy, only address certain content areas and not the whole.
Financial capability is defined as: “Participation in economic life should maximize life
chances and enable people to lead fulfilling lives; this requires knowledge and
competences, ability to act on that knowledge, and opportunity to act,” by Johnson and
Sherraden (2007, p.122), whilst for Redmund (2010) the statement that people need the
opportunity to put their knowledge and skills to the test hints at social equality and
requires more than an individual can achieve alone. Redmund (2010) adds that none of
the alternative names are appropriate substitutes for financial literacy, especially given the
scope of most financial literacy programmes. Empowerment, economic understanding

14
and other such terms allude to deeper outcomes that would be difficult, if not impossible,
to achieve through traditional literacy training programmes.

The National Institute for Literacy, a federally-funded American organisation that is

committed to literacy programmes, research on literacy rates, and learning techniques,
provides programmes that benefit all people, from early childhood to adulthood. The
programmes are available for all reading levels, and for adults who are learning English
as a second language. The results of the National Assessment of Adult Literacy provide a
clear picture of literacy among many different demographics within the American
population. The National Institute for Literacy (2008) defined literacy as an individual’s
ability to read, write and speak in English, compute and solve problems at levels of
proficiency necessary to function on the job, in the family and in society. The standard
definition of literacy developed by the Literacy Definition Committee and used by the
National Adult Literacy Survey (a program to quantify the literacy rate among American
adults over the age of 16) is “using printed and written information to function in society, to
achieve one’s goals, and to develop one’s knowledge and potential” (Kirsch et al., 2001,
p.3). Literacy in the broadest sense consists of understanding (i.e., knowledge of words,
symbols and arithmetic operations) and use (ability to read, write and calculate) of
materials related to written information, tabular and graphical information and arithmetic
and numerical information (Kirsch et al., 2001).

Financial literacy could thus be conceptualised as having two dimensions, namely,

understanding (personal finance knowledge) and use (personal finance application)
(Huston 2010). Financial knowledge can therefore not be used to refer to financial literacy
as it lacks the application dimension, necessary to make financial decisions. Although
most researchers and financial experts now use the term, the lack of a standardised
definition and measurement makes it difficult to develop effective consumer education
programmes. To assess current levels of financial literacy and explore means to improve
it, a construct is needed to measure consumers’ ability to make effective financial
decisions (Huston, 2010). In an attempt to assist researchers in establishing a
standardised, commonly accepted definition and measurement, Redmund (2010)
conducted a study of more than 100 resources since 2000, whilst Huston (2010)
examined 71 studies drawn from 52 data sets representing the majority of research
published on financial literacy measures between 1996 and 2008. Using Pedhazur and
Schmelkin’s logical analysis approach (1991, p.59, cited in Huston, 2010), prior studies
were analysed to validate the constructs into the main components of definition, content,
structure and rating procedure. The results of Huston’s (2010) research indicated that the
majority of the studies, 72%, did not include a definition, 15% included some discussion

15
beyond identifying the specific elements in their measure, but only 13% provided a formal
definition of the construct operationalised. The results from the 71 studies analysed by
Huston (2010) indicated the following eight definitions:

1. Financial literacy is the ability to make informed judgments and to take effective
decisions regarding the use and management of money (Noctor, Stoney &
Stradling, 1992, definition used by Beal & Delpachitra, 2003, and ANZ 2008).

2. Personal financial literacy is the ability to read, analyse, manage and

communicate about the personal financial conditions that affect material
wellbeing. It includes the ability to discern financial choices, discuss money and
financial issues without (or despite) discomfort, plan for the future and respond
competently to life events that affect every day financial decisions, including
events in the general economy (Vitt et al., 2000; also cited by Cude et al., 2006).

3. Financial literacy is a basic knowledge that people need in order to survive in a

modern society (Kim, 2001)

4. Financial literacy refers to a person’s ability to understand and make use of

financial concepts (Servon & Kaestner, 2008).

5. Financial literacy is the ability to use knowledge and skills to manage financial
resources effectively for lifetime financial security (Jump$tart Coalition, 2007).

6. Financial literacy is the ability to use knowledge and skills to manage financial
resources effectively for a lifetime of financial wellbeing (U.S. Financial Literacy
and Education Commission, 2007).

7. Financial knowledge is defined as understanding key financial terms and

concepts needed to function daily in American society (Bowen, 2002).

8. Consumer literacy, defined as self-assessed financial knowledge or objective

knowledge (Courchane & Zorn, 2005).

Of the eight definitions identified, two focused primarily on ability (1, 2) and three on
knowledge only (3, 7, 8). The definitions used by the U.S. Financial Literacy and
Education Commission (2007) and the Jump$tart Coalition (2007) (5, 6) were essentially
the same in that they included both knowledge and ability and stated an intended
outcome (i.e., lifetime financial security, wellbeing) within the definition. The definition of
Servon and Kaestner (2008, definition 4) also included both dimensions of knowledge and
ability with no additional stipulation. Forty-seven percent of the studies used the terms
‘financial literacy’ and ‘financial knowledge’ synonymously. Of those studies that included
both terms (62%), over three-quarters used these terms interchangeably. If these two

16
constructs are conceptually different, then using them interchangeably raises a potential
problem.

The results of the Redmund (2010) study classified the numerous definitions of financial
literacy into five categories:

Category 1: Knowledge of financial concepts

To manage finances effectively, one must first possess some knowledge about financial
concepts. Researchers confirm the importance of knowledge in improving one’s financial
wellbeing (Braunstein & Welch, 2002; Vitt et al., 2000) though the question of what is
required to be considered financially literate remains debatable. Varying knowledge has
been considered important or necessary by different studies. For example, The National
Foundation for Credit Counselling (2008) stated that understanding “the basic tenets of
sound financial health and responsibility” was important, while The USA’s initial
documentation for the National Strategy for Financial Literacy highlighted a need for “…
the information, knowledge, and skills to evaluate options and identify those that best suit
[a person’s] needs and circumstances” (U.S. Department of Treasury 2006: Foreword
Part 1, p.v). These explanations vary and are so vague that they offer little help in framing
future research. It is therefore essential to specify what knowledge is exactly required to
be considered financially literate.

Category 2: Ability to communicate about financial concepts

Fox, Bartholomae, and Lee (2005) are among several scholars who focus on an
individual’s ability to apply financial knowledge rather than on how much knowledge an
individual has. They define financial literacy as “crucial to effective consumer decision
making” (Fox et al., 2005, p.195), not having a knowledge component as in category 1,
but a broader application.

Category 3: Aptitude in managing personal finances

Category 3 is very similar to category 2 in that they both focus on the ability dimension of
financial literacy. Although many of these conceptual definitions include mention of an
ability or aptitude for managing personal finances, these are as brief as Americans having
“managed their finances poorly” due to poor financial literacy (Chen & Volpe, 2002, p.289)
or as: “…ability to keep track of cash resources and payment obligations, knowledge of
how to open an account for saving and how to apply for a loan, basic understanding of
health and life insurance, ability to compare competing offers, and plan for future financial
needs” (Emmons, 2005, p.336).

17
Lengthier definitions, such as the one used by Emmons (2005), tend to elaborate upon
specific attributes of financial literacy or, in some cases, possible ways to operationally
measure financial literacy. According to Redmund (2010), literacy is more than simply a
measure of knowledge and should reflect one’s ability to perform a host of tasks related to
money, including but not limited to earning, protecting and spending that money.
Researchers however need to consider which consumer group they are dealing with
when managing personal finances as not all have the same personal finances. For
example, high school students will vary considerably from working adults who earn
salaries, have a mortgage bond, insurance and other obligations. Students could however
be given case study scenarios and taught how to manage personal finance issue they will
encounter when they start working. This still does not answer the question of what exactly
consumers should be able to do in order for them to manage their personal finances.
Researchers should attempt to establish agreement on the tasks necessary to manage
personal finances.

Category 4: Skill in making appropriate financial decisions

According to Redmund (2010), decision-making skills are included in most financial

literacy definitions. Literacy cannot be measured unless it is tested, and making decisions
is essential to money management. Researchers and other experts define decision-
making in numerous ways, for example, as “successful financial decision making”
(Jump$tart Coalition for Personal Financial Literacy, 2008), “knowledge needed to make
informed decisions” (Rhine and Toussaint-Comeau, 2002: p.13) and “making smart
choices” (Financial Fitness for Life, 2008).

A number of researchers refer to the financially literate as individuals who “successfully

manage debt” while making financial decisions that reflect their personal values (Stone,
Wier & Bryant, 2008, p.12). This example brings ethics and integrity into the conceptual
definition, but other authors consider not only ethics and integrity but also individual needs
and goals: “a set of critical thinking skills to weigh and assess the pros and cons of a
particular decision relative to one’s own needs, values, and goals” (Kozup & Hogarth
2008, p.131). In these cases, decision-making skill is perceived as a fundamental
competency when it comes to financial literacy.

Category 5: Confidence to plan effectively for future financial needs

Not all scholars incorporate confidence in financial planning into the financial literacy
equation. A financial literacy programme targeted by the U.S. Department of Labour
toward Generation X and Y women (Wi$eUp 2008) notes that financial literacy involves

18
the development of “responsible saving habits for future retirement.” They explicitly
present planning as a skill essential to financial literacy.

Summary

While there is still a lack of consensus among researchers, the current research study
includes the most commonly used financial literacy definition as identified by previous
studies reviewed by Huston (2010). It incorporates the Jump$tart Coalition (2007)
definition 5, which defines financial literacy as: “the ability to use knowledge and skills to
manage financial resources effectively for lifetime financial security”. This is in line with
the standard definition of literacy developed by the Literacy Definition Committee which
implies that individuals should have knowledge as well as ability and skills dimension to
be considered financially literate. The Jump$tart Coalition (2007) definition also
incorporates four of the five categories included in financial literacy definitions as
identified by studies reviewed in the Redmund (2010) research, namely, knowledge of
financial concepts; ability to communicate about financial concepts; aptitude in managing
personal finances; and skill in making appropriate financial decisions.

Although confidence in planning effectively for future financial needs is not incorporated
by all researchers or explicitly stated in the Jump$tart Coalition (2007) definition,
“managing financial resources effectively for lifetime financial security,” does however
involve some planning for future financial needs. The current research thus decided to
include a financial planning content area in the questionnaire (refer to 2.3.1).

2.3 MEASUREMENT OF FINANCIAL LITERACY

To assess the measurement of financial literacy, the Huston (2010) and Redmund (2010)
studies were examined to identify the most distinct content areas included in their
questionnaire. Secondly, the structure was examined to identify the number of instrument
items used in the questionnaire to measure the financial literacy construct and how the
data was collected. Lastly, an interpretation of the financial literacy scores (rating system)
achieved was examined. The findings from these studies and their impact on and
incorporation in the current study will be discussed next.

2.3.1 Content areas

A review of the literature indicated that at least four distinct content areas were used to
varying degrees (Huston, 2010):

19
 - Money basics (including time value of money, purchasing power, personal
financial accounting concepts)

- Borrowing (i.e., bringing future resources into the present through the use of credit
cards, consumer loans or mortgages)

- Investing (i.e., saving present resources for future use through the use of saving
accounts, shares, bonds or mutual funds)

- Protecting resources (either through insurance products or other risk management

techniques).

Table 2.1: Summary of content areas included in the compilation of studies

Content
Basic concepts 63%
Borrowing concepts 52%
Saving/investment concepts 69%
Protection concepts 33%
Single focus (one content area) 35%
Comprehensive (all four content areas) 25%
Source: Huston (2010)

The studies reviewed by Huston (2010) indicated that more than 50% of the measures in
prior studies included basic, borrowing or saving/investment concepts, whereas one-third
included resource protection concepts. Forty percent of the measures comprised two or
three content areas. Just over one third (35%) were focused solely on one content area,
with over one-half devoted to saving/investment items only. Although financial literacy
should consist of all the content areas identified, only one-quarter (25%) of the measures
incorporated all four of the content areas.

Redmund (2010) also identified the same distinct content areas as Huston (2010), with
the exception of insurance which although not identified as a distinct content area was still
identified as a content area. Planning was also identified to be integrated with saving and
investing content areas. The experts should however refine or expand the key concepts
considered necessary to be financially literate.

Besides these four distinct financial literacy content areas identified, a number of
researchers and programmes refer to financial literacy when they are only measuring a
certain component of it. For example, Stone, Wier and Bryant (2008, p.12) define financial
literacy, in part, as “basic financial knowledge about how to successfully manage debt.”

20
Although debt literacy forms part of financial literacy, researchers need to specify that
they are only testing the former component and cannot refer to it as the latter. It is
essential to include all the content areas when testing financial literacy, not only some.

2.3.2 Structure

Huston (2010) found extensive variation among the studies in the number of instrument
items used to measure financial literacy (minimum = 3, maximum = 68). The mean and
mode were 16 and 10, respectively. In terms of data collection, 38% of the studies used
interview techniques; 58% relied on self-administered surveys and the remaining 4% did
not report the data collection method. The overwhelming majority of interview data, 95%,
was obtained via telephonic surveys. Much of the self-reported data was collected1
through the Internet, 38%, but the majority was obtained either in person or by mail, 62%
(refer to Table 2.2).

Table 2.2: Summary of data collection methods included in the compilation of studies

Data collection
Interview 38%
Telephone 36%
In person 2%

Self-report 58%
Internet 22%
Paper (either mail/in person) 36%
Not reported 4%
Source: Huston (2010)

Similar to Huston (2010), Redmund (2010) found that surveys were the preferred method
among researchers to measure financial literacy. Although some used custom -designed
instruments (Chen & Volpe 2002; Lusardi & Mitchell 2007), the majority relied upon one of
a handful of national benchmark surveys, including: Jump$tart Coalition for Personal
Financial Literacy (beginning in 1997): Annual survey of high school seniors,

1
Although ‘data’ is the Latin plural of datum it is generally treated as an uncountable ‘mass’ noun and so
takes a singular verb (Concise Oxford English Dictionary, 2011, Eds. Stevenson & Waite).

21
representative of the national population (Braunstein & Welch 2002; Fox, Bartholomae, &
Lee 2005; Norvilitis, Osberg, Young, Merwin, Roehling & Kamas, 2006).

A study conducted within a medium security correctional facility provides a strong

example of how existing financial literacy assessment methods could be applied
consistently in future research. In this particular study, 17 inmates ranging in age from 20
to 61 voluntarily chose to participate in a financial literacy class and related research
study. Researchers used a modified version of the Jump$tart test. The average level of
financial literacy, as measured by correct answers, increased from 66% to 74%, based on
pre- and post-test evaluations (Koenig, 2007). The largest score increases were in
understanding credit cards, insurance and retirement, presumably all financial matters
that are not commonly discussed within the prison walls. This study indic ated that it is
possible to use an existing survey tool, in combination with controlled exposure to
educational messages or lessons, to gauge the effect of a financial literacy initiative.

2.3.3 Measurement/Rating

Almost 90% of studies reviewed did not provide an indicator of whether a respondent was
financially literate (Huston, 2010), whilst the remainder were evenly split between a
financial literacy threshold and a grading system to interpret results from the measure. For
example, according to Volpe, Chen and Pavlicko (1996, cited in Huston, 2010), a
respondent with an investment IQ score of 70 or better was investment literate (i.e.,
mastered the investment basics). Another study used an A to F grading system, but did
not indicate which grade level represented financial literacy (Bankrate, 2003, cited in
Huston, 2010). In the Jump$tart survey, a student fails with a score below 60% (Mandell,
1997, cited in Huston, 2010).

An overwhelming majority (88%) of the studies reviewed did not include a guide for
measurement interpretation (Redmund, 2010), an example being The U.S. government’s
Taking Ownership National Strategy for Financial Literacy references surveys (conducted
separately by North Carolina State University, the Federal Deposit Insurance Corporation,
Department of Agriculture and National Bureau of Economic Research). Although they
mention the surveys they provide no operational measures (U.S. Department of Treasury
2006). Furthermore, comparing scores across surveys would be meaningless because
the constructs and evaluation criteria have not been disclosed.

22
Summary

Based upon a review of various research studies by Redmund (2010) and Huston (2010),
the most distinct content areas of financial literacy are money basics (basic concepts),
saving and borrowing, investing (markets and instruments) and protecting resources
(insurance). The current research will include all of these content areas identified by the
studies. The current researcher also felt it necessary to include an additional content area
of financial planning as it is important in many aspects of life, for instance saving for a
holiday, house, children’s education or retirement. It is prudent to plan how long, how
much and in which product to invest. Furthermore, although financial planning was not
identified as a distinct content area, it was incorporated in some financial literacy studies
viewed by Redmund (2010). The content areas will consist of the basic concepts, saving
and borrowing, insurance (protecting resources), markets and instruments (investing) and
financial planning, as they move beyond trying to assess broad knowledge or awareness
of financial matters to evaluating aptitude in managing specific aspects of personal
finance. Furthermore the Redmund (2010) research found that most studies use the
Jump$tart Coalition questionnaire. The current study will also adapt its questions from this
questionnaire as it incorporates the main financial literacy content areas identified by
research (Huston, 2010; Redmund, 2010).

The Jump$tart Coalition (2007) financial literacy definition and a modified survey (2008)
were incorporated for this research. According to the Redmund (2010) study, the majority
of research uses the Jump$tart Coalition survey to test financial literacy, and it provides a
strong example of how existing assessment methods may be applied consistently in
future research. The survey questions encompass the most distinct content areas of
financial literacy, namely basic concepts, saving and borrowing, insurance (protecting
resources), markets and instruments (investing) and financial planning. They have been
examined by professionals and found to be a valid measurement. The current study could
not include all instruments due to time constraints, but validity was not compromis ed as
questions that tested the same concept more than once or that were not applicable to a
South African context were excluded. Kim and Mueller (1978, p.29, cited in Huston, 2010)
states that at least three items should be included under each content area for adequate
representation. It was therefore decided that each of the five content areas should contain
a minimum of three, and due to time constraints a maximum of five items. The
questionnaire made use of a total of 19 items to measure financial literacy, which is also
in line with and close to the mean. As the majority of previous literature (58%) collected
data via questionnaires, the current study also decided to make use of questionnaires.
Self-administered questionnaires were used as these would increase the response rate

23
and mailing questionnaires would be too expensive. Furthermore, respondents might not
feel comfortable and be reluctant to answer questions via interviews.

The creation of a more narrowly defined measurement of financial literacy scores is

imperative. Student scores ranged from 48% to 52% of answers correct; however, adult
scores ranged from 53% to as high as 81% of answers correct (Redmund, 2010). With no
common, fundamental construct and such an extensive range of scores, the question
remains as to what is considered a satisfactory or good level of financial literacy. Although
developing and testing a national benchmark survey would help create a more narrow
range of values for what is satisfactory, or at least an average level of financial literacy,
financial literacy education should be tailored to suit different demographics and life
stages and not used as a univeral approach (Huston, 2010).

2.4 IMPORTANCE OF FINANCIAL LITERACY

Increasingly, individuals have become responsible for securing their own financial well-
being after retirement. With the shift from defined benefit to defined contribution pensions,
the responsibility and risk for financial decisions, such as how much to save and how to
allocate their retirement wealth, are being shifted to workers and away from employers
(Lusardi, 2009). These financial decisions will have a major impact on an individual’s
future financial wellbeing, especially with life expectancy increasing. Financial literacy is
therefore particularly important as individuals will be enjoying longer periods of retirement.

Research also shows a strong link between financial literacy and retirement planning and
saving. People who are more financially literate, especially those who understand key
concepts such as interest compounding, are more likely to plan for retirement and save
(Garman et al., 1999; Lusardi, 2009). Furthermore, Perry and Morris (2005) found that
financial literacy influences individuals’ planning behaviour. Those who are more
financially literate generally are more likely to behave in a financially responsible manner,
such as planning for the future by saving for an adequate income in retirement while
avoiding high levels of debt that might result in bankruptcy and foreclosures. They will
also be more likely to challenge financial service providers to develop products that
respond to their needs, and that should have positive effects on both investment levels
and economic growth (Policy brief, July 2006).

Investment opportunities have extended worldwide, allowing individuals to invest in an

extensive range of assets and currencies, however, as the financial crisis has made clear,
it is very difficult to navigate this new financial system and the costs of mistakes can be

24
devastating (Lusardi, 2009). Financial literacy is thus critical not only for the financial
wellbeing of individuals, but for the proper functioning of financial markets and the
economy. It is also of importance in South Africa as a significant number of people who
are accommodated within the social welfare system display a lack of understanding of
financial matters and are therefore financially vulnerable. Financial vulnerability (inability
to manage money, often leading to unmanageable debt) could be improved with
increased levels of financial literacy (Engelbrecht, 2009). Although few studies have been
conducted in the country, one among educated university students found only moderate
levels of financial literacy, suggesting a need to increase financial literacy, even among
the educated (Shambare & Rugimbana, 2012). Not only do individuals generally lack the
financial background or understanding needed to navigate today’s complex financial
markets, they also generally believe they are more financially literate than is really the
case (Policy brief, July 2006).

Although this study focuses on the financial literacy of university diploma students, that of
adults and parents, high school, college and university degree students was also
examined and included in the literature review to provide insight into how ill equipped the
youth are for their transition into the adult financial world (Ibrahim, Harun & Isa, 2009).

2.4.1 Adults and parents

Results of research performed on adults found that they do not understand basic financial
literacy concepts (Volpe et al., 2006). According to Bowen (2002), a cause for concern is
that many of these financially illiterate adults are parents who give misinformed financial
advice to their children. This could lead to children making the wrong financial choices
they could later regret in life. Williams (2008) confirms this in stating that many parents
have difficulty in teaching their children about finances because they are in financial
trouble themselves.

2.4.2 High school, college and university students

Prior studies performed in the USA, United Kingdom (UK) and New Zealand on high
school students, indicate results of poor financial literacy among teens (Fresler, 2006;
Samy et al., 2007; Varcoe et al., 2005). In order for an individual to grasp certain financial
concepts, they need to understand and be able to perform certain numeric al calculations.
Some found these to be low and contributing to low levels of financial literacy (Samy et
al., 2007). In South Africa the average of Grade 9 pupils was found to be only 13% in a

25
recent National Benchmark mathematics test conducted in 2012. Several countries thus
support the idea of incorporating financial skills and numeracy in the mathematics
syllabus and making it compulsory for all students. Currently there are however many
students who leave school and enter the job market without having the opportunity to
attend further education and without the ability to make important financial decisions that
influence their lives.

Marcolin and Abraham (2006) found similar results of financial illiteracy when comparing
financial literacy studies conducted among college and university students in the USA, UK
and Australia. In general, males, business major students and students with work
experience were found to possess higher levels of financial literacy than their
counterparts without. Students with higher levels of financial literacy were also found to be
more likely to maintain financial records and choose the right options (Chen & Volpe,
1998). Financial decisions made by students during college were found to have an
influence on academic performance and to affect the likelihood to complete their college
degree (Cude et al., 2006). A study conducted by Lyons and Hunt (2003) found that
financial literacy programmes can help educate students to utilise their student loans to
their full potential, drawing up a budget, managing their finances, avoiding fraud, avoiding
or managing debt, partaking in comparative shopping and informing themselves about
important financial terminology.

Avard, Manton, English and Walker (2005) analysed the basic knowledge of financial
issues which should be understood in order to function in everyday life amongst college
freshmen at Texas A&M University. The average score achieved by students was a mere
34.8%, indicating the need for a course in personal finance which is relevant to the
student’s present stage of life.

Ibrahim et al. (2009) conducted a study on Malaysian degree students and found them to
be lacking in financial literacy and thus having poor money management skills. Finance-
related seminars were mostly targeted at professionals or business/finance students , and
as a result children and young adults mainly learned about financial matters from
experience, family and peers. They were mostly inadequately prepared to manage their
personal finances when leaving school to enter university, and then the job market.

Beal and Delpachitra (2003) tested five different areas of financial literacy of Australian
university students, namely basic concepts, markets and instruments, planning, analysis
and decisions and insurance. Each section contained five and 25 questions respectively,
and the total number of correct responses ranged from 2 (8%) to 24 (96%), with an
average of 13 (52%). This study showed that the average financial literacy level was not

26
particularly high. Some of the questions students struggled with included those relating to
compound interest, where only 52.9% of the respondents answered it correctly, as well as
the bank reconciliation question which only 27.9% answered correctly.

Borodich, Deplazes, Kardash and Kovzik (2010) conducted a study by comparing the
levels of financial literacy of both high school and university students in Belarus and
Japan and of high school students with and without a personal finance course in the USA.
Their results showed Japanese high school and university students outperformed all
Belarus and U.S. students, regardless of coursework in personal finance or grade level.
Although Belarusian university students performed better than Belarusian high school
students (51.9% and 45.5%), suggesting an increase in financial literacy over time,
Japanese high school and university students showed no increase and achieved almost
identical test results (57,2% and 57,3%). Belarusian high school students and U.S. high
school students with no personal finance class were found to score similar grades (45.5%
and 44.7%). The U.S. students with a personal finance course did however outperform
Belarus high school and university students as well as U.S. students who had not taken a
personal finance course, and only scored slightly lower than Japanese students by
achieving 55.7% for the financial fitness for life test. These results indicate that financial
education improves financial literacy. Students from all three countries scored the highest
on the earning income topic and the lowest on the topic of saving. This could be attributed
to some students having part-time or summer jobs and therefore more first-hand
experience with matters relating to earning income. Savings, on the other hand, is a topic
with which they might not be as familiar, as they do not usually earn enough income to
save or invest. Belarusian and Japanese students also achieved better results at the
knowledge level while American students generally achieved better results at the
application level. This could be due to Americans having more access to application
opportunities.

The results of this international comparison study shows that there is variation in the
financial literacy levels throughout the different countries and suggest that differences and
type of instruction play a major role in the results. The findings of the current study should
provide some indication of the financial literacy levels of South African diploma students
and variation in financial literacy levels in different fields of study. The need for the
development of a financial education programme might be identified.

27
2.5 IMPORTANCE OF FINANCIAL EDUCATION

Increased financial literacy through financial education is especially important in light of

the current economic recession. Lower savings and increased borrowing have been
blamed on a lack of financial literacy, which in turn has been associated with the current
financial crisis (Klapper, Lusardi & Panos, 2011). According to Neesa Moodley-Isaacs,
(Weekend Argus personal finance newspaper, July 2011), South Africans are not saving
nearly as much as they should, with 46% of respondents saying that credit was part of
their lives because they would not be able to make ends meet without it, and according to
the National Credit Regulator, 8.5 million consumers had impaired credit records.

Other individuals blame lack of financial literacy combined with complex financial products
for the economic crisis (Gallery & Gallery, 2010). They propose mandatory education in
personal finance, simplification of financial products and increased regulation as a
solution to the problem. The simplification of financial products could however limit choice
in the marketplace as well as innovation of financial products. Education in personal
finance could increase financial literacy as studies have shown a positive relation
between financial education and financial literacy (Lusardi, 2003). Some studies have
found that there is little evidence that personal finance courses increase financial literacy
(Mandell, 2009), though there is compelling evidence that they will improve financial
behaviour and contribute to increased savings rates in later years (Bernheim, Garret &
Maki, 2001).

A study was conducted by Rosacker, Ragothaman and Gillispie (2009) on the effect of a
financial literacy training workshop conducted by upper-level accounting majors on
freshman level business school students. A pre/post-test was administered, covering
topics such as finance charges, comparative earnings, savings program mes, spending
instruments, credit card finance charges, safe saving, pay check deductions, retirement
income, credit card theft, business taxes, growth vehicles, income taxes and income
sources. The financial literacy workshops tended to improve knowledge relating to finance
charges, comparative earnings, savings programs, credit card theft and income taxes.
The findings for all the other topics were not statistically significant and the results showed
no indication of improvement in knowledge in those areas. These findings indicate that
some topics of financial literacy improve with financial education. Other topics, however,
might not be relevant or interest freshman students at present and could contribute to the
lack of increased financial knowledge on these topics. Another contributory factor could
be that upper-level accounting major students might not be experienced enough or be
well suited to teach those specific topics. The results indicate that not only did the
freshman students gain valuable benefits from the financial literacy training workshop, but

28
also that the student trainers gained valuable skills such as public speaking, team work,
project management, leadership and community service, while simultaneously expanding
their own financial literacy.

Gavin Opperman, the chief executive of Absa retail bank, stated that South Africans
needed to learn to manage their finances from a young age or they could be faced with
serious over-indebtedness (Weekend Argus personal finance newspaper, July 2011).
Although it is important to develop good financial habits from an early age, there is also a
great need for adult financial education. Many adults have not learned how to manage
their finances and continue to lack even basic financial literacy skills. The constant
changing financial markets and products also require a current update of an individual’s
financial education. McCormick (2009) supports the idea of financial education, but
stresses that there is a great need for more effective programme designs, especially at a
youth level and depending on the individual’s stage of life.

South Africa continues to lag behind various countries that have implemented several
financial education programmes, ranging from school-based ones for youth to specialised
training for adults. Research findings on the effectiveness of youth financial education
indicated changes in financial knowledge, attitude and behaviour (Fox, Bartholomae &
Lee, 2005). Adult financial education also indicated positive changes in savings, debt and
comparison shopping (Choi, 2009). Employees who engaged in financial literacy
education programmes also showed positive behaviour, such as saving more for
retirement and paying off more debt. They were perceived to be happier and more
confident when making financial decisions (Lusardi, 2008), and it was found that all
measures of financial literacy improved during the financial crisis. This may be due to
increased media coverage (Poole, 2009) and financial literacy campaigns , as well as a
growing interest from individuals to learn more due to hard times.

Stone, Wier and Bryant (2008) argue that individuals should spend only what they have,
but that sometimes they need credit, which is not necessarily bad if one can afford to
repay instalments. For instance, a car may be necessary to get to work, or a loan to
improve one’s education and so take up a higher-paying job. The problem with many
individuals though is that they choose a top of the range car instead of a second-hand
one. They do not consider the higher insurance premiums and maintenance costs.

Other studies referred to as “just-in-time education” found that improvement in financial

literacy prior to the financing of a house or car resulted in lower repossessions and lower
default rates (Hirad & Zorn, 2001). These early intervention initiatives seem like a more
promising approach than providing counselling during or after insolvency. Another study

29
performed in Indonesia and India found that financial literacy was strongly correlated with
the use of financial services, savings and retirement planning (Cole, Sampson & Zia,
2009). Credit card holders, who received credit counselling, were also found to be more
likely to pay on time and to have lower credit balances (Bernanke, 2006). These studies
provide further evidence and support linking financial literacy to financial behaviour.
Financial education should thus be highlighted as a priority in all countries to create
financially literate consumers who will in turn exert positive financial behaviour.

In South Africa there have also been some financial education attempts. The
Johannesburg Stock Exchange (JSE) partnered by the Reserve Bank, the Financial
Planning Institute, the South African Savings Institute and the National Credit Regulator,
attempted to improve financial literacy among youth by hosting a national youth financial
literacy day. Topics included basics in economics, savings and money management, the
role of the South African Reserve Bank, investment opportunities on the JSE, credit rights
and the importance of financial planning. Although this was a promising start and
initiative, it was not nearly enough to reach most of the South African community. Noah
Greenhill, former JSE executive, stated that making financial literacy part of the syllabus
would help develop an investment and saving savvy South African population.

2.6 DEMOGRAPHIC AND BACKGROUND CHARACTERISTICS THAT

INFLUENCE FINANCIAL LITERACY

Many of the financial literacy studies revealed similar results in terms of demographic and
background characteristics that influence it. Variables that have been explored and found
to have an effect are discussed in this section.

2.6.1 Gender

Past research has shown that gender is significant in explaining differences in financial
literacy and the majority of studies indicate that females tend to be less knowledgeable
than males in the areas of financial literacy (Chen & Volpe, 1998 & 2002; Fonseca, et al,.
2010). In the case of single mothers it is especially important to be financially literate as
they might have to take care of or provide for the family alone. In contrast, research by
Mandel (1997, 2002) showed that females tend to be slightly more financially literate than
males, owing to their becoming more independent and ambitious, and wanting to learn
more and do well to overcome the male status quo. There has also been a shift from
males traditionally providing for the family to a more jointly financial contribution by both

30
male and female. Still other researchers have found gender not to be statistically
significant in determining financial literacy, as there was only a marginal difference in
scores between the genders (Ludlum, Tilker, Ritter, Cowart, Xu & Smith, 2012; Wagland
& Taylor, 2009).

2.6.2 Marital status

Fonseca et al. (2010) found that marital status reduced the gap in financial literacy
between male and females by 25%. This may be due to females learning some financial
literacy from their male partners. The results of a study performed by Taylor and Wagland
(2011) also indicated that single people possessed lower levels of financial literacy.

2.6.3 Language

Language has been shown to influence financial literacy by studies, with Worthington
(2006) finding it to be lowest among the unemployed, females and those from a non-
English speaking background with a low level of education. This may however be as a
result of them not understanding the questions due to their poor English. Many of the
student respondents in the current study were from a non-English speaking background,
but most of whom would have been exposed to English at school and in their diploma
lectures. They should therefore be proficient in English, but the influence of language on
financial literacy will be included in the analysis for any statistical significance.

2.6.4 Race

Previous research that has found race to be a factor influencing financially literacy of
students includes Murphy (2005) and Mandell (2009). All of these studies found that
blacks scored lower in financial literacy tests than do other races. The demographic
make-up of the current study is predominantly black, but it will be interesting to see if the
findings yield the same results in terms of non-black students achieving better results than
black students in the financial literacy test.

2.6.5 Parental education

Mandell (2009), Lusardi, Mitchell and Curto (2010) found that parental education
influences financial literacy. Students whose parents had higher levels of education

31
scored higher in the financial literacy survey than those whose parents had lower levels.
Many children learn financial knowledge from their parents and yet there is evidence that
their parents are not knowledgeable in this area or that the informal teaching and learning
process between parents and children is ineffective (Chen & Volpe, 2002).

2.6.6 Access to financial institutions

Johnson and Sherraden (2007) found that youth who had access to financial institutions
and from higher income families scored significantly higher in financial literacy tests than
those with no access to financial institutions or from lower income families. This could be
due to their lack of interest as they did not apply what they learned due to lack of financial
access. Those who have access to financial institutions and come from higher income
families can learn from their parents and actively participate via a savings account, for
example, and learn more. It was further found that those who received an allowance, had
a bank account or investment when they were children, saved more of their income as
adults.

2.6.7 Age

Some studies found that financial literacy improved with age, however Chen and Volpe
(2002) argued that one cannot be more financially literate simply because one is older,
but rather one has to have had more financial exposure. Individuals learn through
experience, but one cannot afford to make numerous mistakes in the meantime and only
become more financially literate when one reaches a certain age. It is important, they
argued, to possess a higher level of financial literacy than is currently the state, and
earlier in one’s life.

A survey conducted by ANZ-Retirement Commission Financial Knowledge in 2006 on

New Zealanders found that financial literacy increased with age, income, education and
net worth. Although 83% of New Zealanders said they felt confident managing their
financial affairs, and over 50% saved regularly, only 8% had financial goals. Some 26%
said their greatest difficulty with managing money was that they did not have enough and
19% said that controlling their own spending was their greatest difficulty. The survey
results also highlighted some gaps in financial literacy; including 53% who did not
understand compound interest and 70% who did not believe that investments held in a
portfolio in the stock market would outperform any other form of wealth generation over

32
the long term. Respondents also lacked understanding of the relationship between risk
and return. New Zealanders possessed some financial literacy, but it was limited.

For Widdowson and Hailwood (2007), financial literacy is important at different levels,
namely, for the individual, for the financial system and for the wider economy: “The final
result is not to create financial experts; it is more important to equip individuals with
sufficient knowledge to make sense of financial activities, seek out appropriate
information, feel able to ask relevant questions and be able to understand and interpret
the information that they subsequently acquire”.

2.6.8 Field of study

There have been a number of studies that have found field of study to be significant in
determining financial literacy. Chen and Volpe (1998, 2002) found that business major
students tended to be more financially literate than other majors. Hanna, Hill and Perdue
(2010) found that school of study is statistically significant in explaining the level of
financial literacy. Even though business students only managed to score 47% in the
financial literacy survey, they were found to be the most financially literate out of all the
schools. This could be attributed to previous exposure in business courses, and due to
their interest in financial issues they may investigate some of these personal finance
issues on their own. Although this could explain why business students as a group
performed better than students studying towards other majors, it did not explain why
liberal arts students performed better than education students.

Marcolin and Abraham (2006) compared and analysed financial literacy studies
conducted in Australia, America and the UK, all of which showed that individuals with
higher education levels or students with business majors as opposed to other majors
generally possessed higher levels of financial literacy.

A study conducted on the financial literacy of Australian university students by Beal and
Delpachitra (2003) found that their financial literacy skills were low due to lack of financial
skills education in high school. It was further found that financial literacy improved with
work experience (Chen & Volpe, 2002) and income. Students from the business faculty,
even those in their first year of study, scored higher than those from other faculties. This
was attributed to their being more interested in and reading more about financial matters,
and being more likely to follow financial reports in the media.

33
2.7 SUMMARY

The literature analysed how financial literacy has been defined and measured by
researchers from 1996 to 2010. Although the U.S. government and the Jump$tart
Coalition for Personal Financial Literacy now adhere to a common conceptual definition
(also incorporated by the current study), many researchers do not. Moreover, there is
seemingly no common ground in measuring financial literacy in research studies and
education programmes. The question remains as to how financial education programmes
know if financial literacy has increased and how successful their programmes have been
if they do not incorporate a standard financial literacy measure. The literature currently
offers mixed evidence that education provides measurable benefits (Fox, Bartholomae, &
Lee 2005; Lusardi 2003; Mandell 2005; Willis 2008). Some research suggests that
financial education does not have a significant effect on improving financial knowledge
scores of high school students in the USA (Mandell 2005).

Willis (2008) contends that the costs of financial education programmes outweigh
potential benefits, in contrast to other studies that support a relationship between financial
education, financial literacy and positive financial outcomes (Fox, Bartholomae & Lee
2005; Lusardi 2003). These mixed results indicate that not all financial education
programmes are equally effective. If researchers and other stakeholders do not embrace
a common definition and measurement it will remain difficult to evaluate and assess
financial literacy.

After a review of the literature the current researcher decided to incorporate the Jump$tart
Coalition (2007) definition, which includes a knowledge as well as an ability dimension.
The main content areas of personal finance that every consumer needs to know were
identified from the literature. The research included these content areas, namely, basic
concepts, saving and borrowing, insurance (protecting resources), markets and
instruments (investing) and financial planning. The Jump$tart Coalition (2008) survey was
adapted as the survey questions include the main content areas of financial literacy and it
has been examined by professionals and found to be a valid measurement tool.

Financial literacy has become increasingly important for future economic wellbeing of
individuals as well as countries (Marcolin & Abraham, 2006). Research conducted on the
financial literacy of high school, college and university students as well as adults and
parents (Fresler, 2006; Samy et al., 2007 & Varcoe et al., 2005; Borodich, Deplazes,
Kardash & Kovzik, 2010; Volpe et al., 2006; Bowen, 2002; Williams, 2008; Marcolin et al.,
2006; Chen et al., 1998; Cude et al., 2006; Lyons et al., 2003; Avard, Manton, English &
Walker, 2005; Ibrahim, Harun & Isa, 2009; Beal & Delpachitra, 2003; Borodich, Deplazes,

34
Kardash & Kovzik, 2010) indicates that their financial literacy levels are low. There has
been a vast amount of research conducted on financial literacy in various countries, yet
that in South Africa is limited. Many South African students’ studies are funded by loans,
so it is important that they be aware of the terms and conditions when entering into them
as they will have to start repaying them when they finish their studies at the end of the
year and start working. They will also be faced with many challenging financial decisions
once they enter the job market, bearing in mind that the wrong decisions could have a
detrimental effect on their lives.

The focal point of this research is to determine whether field of study, as identified in
previous research, has an influence on financial literacy levels. The literature also
indicated additional demographic and background characteristics (gender, marital status,
age, work experience, race, language, parental education, personal finance course and
participation or access to financial institutions) to influence financial literacy. It was thus
considered empirical to include all of these demographic and background characteristics.

35
 CHAPTER 3

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter aims to describe the research methodology used to analyse the sample
data. It begins by justifying the research design (paradigm and research method) used,
followed by a description of the research instrument, the sample, data collection and data
analysis techniques. The measure taken to ensure validity and reliability of the data will
then be discussed. Finally, the ethical considerations of the study will be addressed and
the perceived limitations listed.

3.2 RESEARCH DESIGN

A research design is a master plan specifying how the chosen methods and procedures
for collecting and analysing data will be used to answer the research question. The
function is to ensure that the information collected is appropriate and enables the
researcher to answer the research question (Zikmund, 2003, p.65). This descriptive
comparative study aimed to answer the research questions following a positivist approach
to analysing the data. Cross-sectional data was obtained through conducting a survey on
a sample of students studying towards a finance-related diploma and a sample studying
towards a non-finance-related diploma. The two samples were then compared to identify
certain commonalities and differences in terms of their demographic factors and financial
literacy levels.

3.2.1 Research paradigm

Research can be classified as either quantitative or qualitative (Leedy & Ormrod, 2005,
p.94), the former being a systematic, objective investigation of phenomena and their
relationships as characterised by quantification and mathematical model developments.
This approach is referred to as the traditional, or positivist approach. The latter meanwhile
aims to examine the complexities of a particular phenomenon and involves looking at
characteristics or qualities that cannot be easily reduced to numerical values. It is
concerned with subjective assessment of attitudes, opinions and behaviour and is not
subjected to rigorous quantitative analysis.

36
Clasen and Jochen (2004) write that comparative studies normally make use of a
quantitative research approach, as did the current study. It seeks explanations and
predictions that can be generalised to other persons and places, and to establish, confirm
or validate relationships and to develop generalisations that contribute to existing theories
(Leedy & Ormrod, 2005, p.95). To do this, Leedy and Ormord (2005) suggest that the
quantitative research should explain, confirm and validate the research. This study
explains whether the field of study influences the financial literacy levels of diploma
students at the University. It also confirms and validates whether it agrees with the
findings of previous research that indicates finance-related students tend to be more
financially literate than non-finance-related students.

It used a large representative sample, with data obtained from the sample using a
standardised instrument. It could be presented numerically and was coded, for instance, 1
= males and 2 = females. The research consisted of a large sample (n=163) which was
representative of the target population as it contained diploma groups with a finance- as
well as a non-finance-related background. The data was collected through structured
questionnaires, which mainly consisted of a standardised instrument, namely the
Jump$tart coalition (2008) questionnaire.

In quantitative research, data is analysed by making use of statistics to determine its

meaning (Leedy & Ormrod, 2005:96). Data was thus analysed through a statistical
analysis of numerical data obtained through standarised instruments such as
questionnaires from a representative sample of third-year diploma students from the
campus. The findings are communicated statistically and numerically in an aggregated
format and thus were communicated by discussing and interpreting the data numerically
and statistically in an aggregated format (refer to section 3.7 on Data analysis). The
characteristics of the study are therefore similar to those of a quantitative approach and
are considered appropriate to address the research question. A qualitative approach was
not considered appropriate as it would have taken too long to interview all the
respondents. Respondents might not have felt comfortable in disclosing sensitive
information honestly if there was face-to-face interaction via interviews.

3.3 RESEARCH METHOD

The research method describes the methods used to collect data, analyse it and go about
the research in order to answer the research question. According to Zikmund (2003:65)
descriptive research describes the current state of affairs and includes data collection
methods such as surveys, in which raw (primary) data has to be collected and

37
transformed into a form that will make it easy to understand and interpret. In line with
other comparative studies (Huston, 2010; Redmund, 2010) the current research will make
use of a survey method conducted through a structured questionnaire to collect primary
data from the sample. This will then be used to compare and describe the differences
between financial literacy levels of the two groups of students.

3.3.1 Research instrument

No information regarding the financial literacy levels of the 2011 third-year diploma
students is available, so primary data was collected by means of a survey conducted
through a structured questionnaire. Surveys are a method of descriptive research, based
on the previous understanding of the nature of the research problem and describes
characteristics of a population or phenomenon (Zikmund, 2003:55). Questionnaires as
survey instruments specifically in relation to this study had the following advantages:

 there was generalisation to a large population (De Vos et al., 2008, p.167)
namely, all the diplomas presented on the campus in 2011;
 anonymity was ensured (Kumar, 2005, p.114; Leedy & Ormond, 2005, p.185),
 questionnaires were cheap (De Vos et al., 2008, p.167; Kumar, 2005, p.114;
Leedy & Ormond, 2005, p.185) as the researcher had financial constraints and
did not have to post them;
 questionnaires were easy to complete and did not require too much time from
respondents (De Vos et al., 2008, p.167; Maree, 2007, p.157) as the researcher
had time constraints and also did not have to explain to respondents how to
complete them.

Questionnaires also have a number of disadvantages that should be taken into

consideration. A list of generic disadvantages of questionnaires as a survey instrument is
set out in Table 3.1 below:

Table 3.1: Disadvantages of questionnaires as survey instruments

Disadvantages of questionnaires as survey

instruments Authors
A High non -response probability, low Kumar (2005, p.113), Leedy & Ormond (2005, p.185),
return rate Maree (2007, p.157), De Vos et al. (2008, p.167)
B Questions could be interpreted
Kumar (2005, p.114), De Vos et al. (2008, p.167)
incorrectly
C Respondents not always representative Kumar (2005, p.114), Leedy & Ormond (2005, p.185),
of the original sample selected Maree (2007, p.157), De Vos et al. (2008, p.167)

38
 D Reading and writing skills of
Kumar (2005, p.114), Leedy & Ormond (2005, p.185),
respondents might lead to
De Vos et al. (2008, p.167)
misinterpretation of questions
E A questionnaire could present limited
Leedy & Ormond (2005, p.185)
information about a phenomenon
F No opportunity for spontaneous
Kumar (2005, p.114)
responses

Each of these disadvantages will be addressed in the following manner for the purposes
of this study:

a. Normally questionnaires are mailed or e-mailed to respondents, leading to a high

non-response rate. The questionnaires for this study were completed during the
respondents’ lecture time, which ensured a high response rate.

b. The risk of incorrect interpretation of questions was addressed by having the

questionnaire examined by a professional and pre-testing it on a group of
respondents. Adjustments were made according to the feedback obtained during
the pre-testing.

c. Due to logistical constraints, the sample was chosen judgmentally to include a

finance- as well as a non-finance-related group. This could potentially lead to the
respondents not being representative of the sample. (Refer to section 3.5.1 for a
full explanation on the sampling methods followed in this study)

d. Third year diploma students should possess adequate reading skills to answer the
questionnaire so not much writing was required in the questionnaire. Furthermore,
students who do not have good numeracy skills were not disadvantaged as no
calculator was required to answer any of the questions.

e. All the required information was identified from the literature and included in the
questionnaire, as well as a standardised Jump$tart questionnaire. This ensured
the required information was collected.

f. Although there was no opportunity for spontaneous responses most questions

were straightforward and the answer was either right or wrong with all possible
solutions presented.

These advantages and disadvantages of questionnaires were considered before the

questionnaire construction took place.

39
3.4 QUESTIONNAIRE CONSTRUCTION

The task of writing a list of questions and designing the exact format of the printed or
written questionnaire is an essential aspect of the development of a survey research
design (Zikmund, 2003, p.66), therefore care was taken in the inclusion of the questions
in the questionnaire to ensure they answered the research questions and were as far as
possible valid and reliable (refer to sections 3.8.1 and 3.8.2).

The structured questionnaire (Appendix 1) consisted of 36 questions, divided into two

sections. Section A consisted of 17 background and demographic questions, section B of
19 financial literacy multiple choice questions addressing the five content areas of
financial literacy, namely, basic concepts; saving and borrowing; insurance; markets and
instruments; and financial planning (Huston, 2010; Redmund, 2010). The questionnaire
investigated the financial literacy of both groups of students who were about to embark on
their careers and to investigate their needs in terms of a personal finance course.
Respondents were assured that their responses were anonymous and that all the
information supplied by them would be treated as confidential.

A questionnaire can make use of either open-ended, unstructured questions, or close-

ended, structured questions, or a combination of both. Open-ended questions allow
respondents to answer in their own words (Zikmund, 2003, p.331), particualrly when the
researcher has no clear hypotheses regarding the answers (Zikmund, 2003, p.461),
whereas close-ended questions provide respondents with specific limited alternative
responses and they are asked to choose the one closest to their view point (Zikmund,
2003, p.332). Close-ended questions simplify the comparability of data obtained from the
completed questionnaires. The advantages and disadvantages of using close-ended
questions are outlined in Tables 3.4 and 3.5 respectively.

Table 3.2: Advantages of close-ended questions

Advantages of close-ended questions Authors

Responses are easy to compare and Kumar (2005, p.119), Maree (2007, p.161), De
analyse Vos et al. (2008, p.175), Zikmund (2003, p.333)
Close-ended questions are quick and Kumar (2005, p.119), Maree (2007, p.161),
easy to answer Zikmund (2003, p.333)
Sensitive questions are easier to
Maree (2007, p.161), Zikmund (2003, p.333)
answer
Respondents understand and answer De Vos et al. (2008, p.175)
questions in the same framework with

40
 fewer irrelevant answers provided
The results of the investigation are
De Vos et al. (2008, p.175)
readily available

Close-ended questions were suitable as the students had limited time available to
complete the questionnaire (quick and easy to answer). It also allowed for easy analysis
and comparison of the groups, and for irrelevant answers to be omitted. Questions on
such topics as the parents’ highest level of schooling, when answered using close-ended
questions, would allow respondents to answer in the same framework and allow for fewer
irrelevant answers. They would ensure easier categorisation of answers and assist in the
analysis of data.

Table 3.3: Disadvantages of close-ended questions

Disadvantages of close-ended questions Authors

Could suggest ideas or concepts that the Kumar (2005, p.119), Maree (2007, p.161), De
respondent would otherwise not have Vos et al. (2008, p.175), Zikmund (2003,
considered p.334)
 Kumar (2005, p.119), Maree (2007, p.161), De
The desired answers of respondents might
Vos et al. (2008, p.175), Zikmund (2003,
not be available
p.334)
Misinterpretation of a question may go Kumar (2005, p.119), Maree (2007, p.161), De
unnoticed Vos et al. (2008, p.175)
Answers are simple with no detail and lack
Kumar (2005, p.119), Maree (2007, p.161)
depth and variety
Respondents with no opinion or
knowledge or without thinking can answer Kumar (2005, p.119), Maree (2007, p.161)
a close-ended question

The disadvantages of close-ended questions did not greatly affect this research as
questions were straightforward and either right or wrong. Close-ended questions were
therefore appropriate and if the respondents’ desired answer was not available it would be
because it was incorrect. The research did not require much detail, depth or variety, but
that required could have been obtained via the close-ended questions. That respondents
with no opinion or knowledge could answer a close-ended question was not regarded as
a disadvantage for this research as those respondents would then answer incorrectly and
indicate low levels of financial literacy.

41
All of the questions in section A of the research questionnaire consisted of close-ended
nominal and ordinal scale questions, and section B of the research questionnaire only
consisted of close-ended multiple choice questions.

Demographic and background characteristics

In section A of the questionnaire (Appendix 1) respondents were asked questions relating

to their gender, age category, language, race, marital status, number of children, type of
accommodation, work experience, highest level of schooling of father, highest level of
schooling of mother, field of study, method of financing studies, bank account, credit card,
personal finance course taken, extent to which they consider themselves to be financially
literate and how important they believed it was for a diploma graduate to be financially
literate once they had completed their studies.

These questions were included to obtain a better understanding of the sample. Specific
factors such as gender, age, race, income, parental education, work experience and
finance courses were also included to determine their impact on financial literacy levels
(Beal & Delpachitra, 2003; Chen & Volpe, 1998; Hanna et al., 2010; Johnson &
Sherraden, 2007; Marcolin & Abraham, 2006; Monticone, 2010; Murphy, 2005).

To answer the questions in section A, two scales of measurement, namely, nominal and
ordinal scales were used.

 Nominal scales

A nominal scale is the simplest type of scale and consists of two or more categories.
Nominal scales assign numbers or letters to objects to serve as labels for identification or
classification (Zikmund, 2003:296). An example of a nominal scale is the coding of males
as 1 and females as 2. The nominal scales were used to identify and classify the
respondents of the questionnaire (Annexure 3.1, questions 1 – 15).

 Ordinal scales

Ordinal scales, such as Likert scales, are a useful tool to measure attitudes designed to
allow respondents to indicate how strongly they agree or disagree with carefully
constructed statements that range from very positive to very negative toward an attitudinal
object (Zikmund, 2003:312). Ordinal scales were used to assess the respondents’
attitude, opinion, and perception towards two statements in the questionnaire (Annexure
3.1, questions 16 – 17).

Likert scales also have certain advantages and disadvantages that need to be considered
before including it in the questionnaire (Cooper & Schindler, 2008, p.308-312). The
advantages of Likert scales are that they are relatively easy to use; quick to construct and

42
collect data; a reliable method of collecting data; and provide a greater volume of data
than other methods. Disadvantages of Likert scales are that honesty of respondents
cannot be guaranteed; they are time-consuming in that respondents have to read through
each statement; and the analysis of data can take a long time.

The Likert scales used in this research study consisted of a five-point categorical scale,
though only two of the questions in the demographic and background section made use of
them. The first question asked respondents to indicate to what extent they considered
themselves to be financially literate. The five-point categorical Likert scale was
constructed as follows: To no extent; To small extent; To a moderate extent; To a large
extent; and Completely financially literate.

The other question that made use of a Likert scale asked respondents to indicate how
important they believe it was for a diploma graduate to be financially literate once they
had completed their studies. The five-point categorical Likert scale was constructed as
follows: Totally unimportant; Unimportant; Marginally important; Important; and Very
important.

Financial literacy measurement

The purpose of section B of the questionnaire was to access financial literacy levels.
These questions (Appendix 1) consisted mainly of questions adapted to the South African
context from the Jump$tart Coalition (2008) questionnaire (Appendix 2). As discussed in
the literature review section of this study, it was decided to use the Jump$tart Coalition
(2008) questionnaire as it had been examined by professionals in finance and found to be
valid and reliable in measuring financial literacy. Furthermore, according to Redmund
(2010), although a few researchers have used custom-designed research instruments
(Chen & Volpe, 2002; Lusardi & Mitchel, 2007), most researchers rely upon one of a
handful of national benchmark surveys, including Jump$tart Coalition for Personal
Financial Literacy (beginning in 1997). The Jump$tart Coalition (2008) questionnaire also
includes the main financial literacy content areas as identified by the literature, namely,
basic concepts, saving and borrowing, insurance, markets and instruments and financial
planning that this study explores.

The first section of the Jump$tart coalition (2008) questionnaire asked respondents
questions on financial literacy (questions 1-31), while the second section asked
respondents about their demographic and background characteristics (questions 32-56).
The questionnaire began by asking respondents about their demographic and
background characteristics in section A (questions 1-17). It should be noted that this
questionnaire did not use the same questions as the Jump$tart coalition (2008)

43
questionnaire for the demographic and background section, but rather asked questions
about demographic and background characteristics as identified by literature as
influencing financial literacy levels. Secondly, the financial literacy questions (questions 1-
19) were asked in section B. The reasoning behind starting with the demographic rather
than literacy questions was that those on demographic and background characteristics
were easier to answer and would relax students before starting with the actual financial
literacy quiz.

Students had to complete the questionnaires during lecture time, with a maximum of 30
minutes being allowed to complete them. The standardised Jump$tart questionnaire had
too many financial literacy questions (31) in the Jump$tart Coalition (2008) questionnaire
and would take too much time to complete. It was therefore decided to remove questions
that were not applicable to the South African context. Some questions from the Jump$tart
questionnaire that tested the same concept were also removed to ensure that only one
question per concept (Appendix 1 and 2) was included. The survey questions will be
discussed next.

The literature identified five content areas that should be included when measuring
financial literacy, namely basic concepts, saving and borrowing, insurance, markets and
instruments and financial planning. Although the Jump$tart Coalition (2008) questionnaire
covered all the dimensions, some did not have enough questions so additional ones were
included from other standardised questionnaires. Kim and Mueller (1978, p.29, cited in
Huston, 2010) stated that in order for a content area to be tested adequately there should
be three to five instrument items under each content area included in a questionnaire.
Questions 4, 5, 7, 8 11, 14, 15, 17 and 18 were used directly from the Jump$tart coalition
(2008) questionnaire’s questions 8, 28, 20, 26, 23, 1, 17, 29, 16. Question 1 was taken
from question 5 of the South African SME Toolkit’s spending and credit section of the
financial literacy quiz to include under the saving and borrowings content area, as many
students have study loans and would be expected to know the consequences of a co-
signed loan. Questions 2 and 10 were adapted from the survey designed by the World
Bank and implemented in Russia in 2008 in preparation for the financial literacy
programme (Klapper, Lusardi & Panos, 2011), in order to test inflation and include under
the markets and instruments content area and to test respondents’ understanding of
compound interest under the saving and borrowings section.

Questions 3 and 12 were taken from questions 4 and 3, of the “Can you pass a high
school financial literacy test?” in which students across America took part in the National
Financial literacy challenge in March 2011. It was part of the Treasury Department’s goal
to ingrain basic financial savvy into the minds of youngsters (Reuters Wealth, 2011).

44
These questions were included in the current survey to test whether respondents knew
the relationship between risk and insurance premiums and were included under the
insurance section, and whether they could make everyday comparisons (lowest unit cost)
when shopping. It was included under the basic concepts section. Questions 6, 9, 13 and
19 were taken from of the Chen and Volpe (1998) survey of personal financial literacy.
The researcher decided to include question 16 to test whether students grasped the
concept of exchange rates. In addition, the names of people and currencies were adapted
to a South African context, with, for example the sign for $ (dollars) being changed to R
(rand). Appendices 1 and 2 present an analysis of all the changes that were made to the
questionnaire as discussed above, and a comparison with the Jump$tart Coalition (2008)
questionnaire.

There were three to five multiple choice questions for each one of the five content areas
that were randomly shuffled and only after respondents had completed the survey were
specific questions applicable to each content area grouped together to analyse how
students faired in each of the individual content areas. Students would not require a
calculator to answer any of the questions as they were able to answer them by logical
reasoning. The questionnaire was pre-tested by a pilot group as well as examined by an
academic authority on questionnaires.

3.4.1 Pre-testing the questionnaire

To ensure the validity of the adapted questionnaire a pre-test was administered to a pilot
group of first year Accounting students to test the clarity and completion time of the
questionnaire. The aim of the pilot study was not to test the students’ financial literacy
levels but rather to determine the completion time of the questionnaire and whether the
questionnaire was clear and understandable. It was assumed that if first year students
experienced no difficulties in completing it then neither would the research sample of
third-year students experience any problems.

The overall feedback received from the pilot sample before the questionnaire was
administered to the study sample was that the questionnaire was very clear and
understandable. Only two minor changes were made, the first being to extend the original
completion time from 20 to 30 minutes. Based on previous studies, it was expected that
this questionnaire would take approximately 20 minutes to complete. Some students
however took up to 30 minutes to complete the current study’s questionnaire as there
were some additional demographic and background questions added. It was therefore
decided to change the final questionnaire to state that the questionnaire completion time

45
would take between 20 and 30 minutes. The second adjustment prompted by the pilot
sample was to add the word ‘money’ and change one of the options in question 4 that
stated “…would make more…” to “…would make more money…”.

3.5 RESEARCH SAMPLE

This section will discuss the sampling strategy, target population, sample selection and
expected sample of the research.

3.5.1 Sampling strategy

Sampling refers to the process of using part of a population to make conclusions about
the whole population (Zikmund, 2003:369). Two sampling approaches are probability
sampling, in which each member of the population is selected randomly (Leedy et al.,
2005, p.205), and non-probability sampling, based on personal judgment or convenience
(Zikmund, 2003, pp.379-380).

The total population of this study consisted of 20 diploma groups presented on the
Bunting Road campus of the University of Johannesburg. Only three of these diploma
groups were selected for the sample by making use of a non-probability sampling
approach. The finance group was selected based on convenience of data collection. For
the non-finance group some diploma groups were automatically excluded from selection
as a result of insufficient number of students being enrolled for the diploma and/or
students being away on experiential learning.

3.5.2 Target population

The population of this study consisted of all the diplomas presented in 2011 on the
campus.

Table 3.4: Finance and non-finance-related diplomas on APB

Finance related diplomas Non-finance-related diplomas

Accountancy Hospitality Management
Banking Tourism Management
Credit Management Transportation Management
Financial information systems Sports Management
Logistics Architecture

46
 Marketing Management Clothing Management
Retail Business Management Fashion design
Fine Art
Three dimensional design
Interior design
Jewellery design
Multimedia
Graphic design

3.5.3 Sample selection

The scope of the study consisted of and was limited to third-year diploma students
studying at the Bunting Road campus of the University of Johannesburg. The rationale for
only collecting data from third-year students was that they should be more financially
literate than first and second years, which would imply that if they were found to be
financially illiterate it could be assumed that first and second year students would also be
financially illiterate. A further reason for choosing to collect data from only third-year
students is that they would be entering the job market at the end of that year of study so it
was crucial for them to be financially literate as they would be faced with various
important financial decisions. The objective of this study is also not to compare if students
become more financially literate as there is a progression in academic years, but rather to
evaluate students at the same academic level in different academic disciplines and to see
whether certain demographic and background characteristics influence their level of
financial literacy.

There were however too many diplomas to include the full population. The aim was to
determine if field of study, more specifically finance or non-finance, influences financial
literacy levels. It was therefore decided to select a diploma group with a finance
background and two diploma groups with non-finance backgrounds for the research
sample. The ratio was selected because the number of students enrolled for these
diplomas were much fewer than the finance groups. Some diplomas were automatically
excluded due to constraints in the number of students enrolled for those diplomas and the
difficulty in collecting data from those who were away on experimental learning. The
sample was judgementally selected based on the number of students enrolled for the
diploma as well as the convenience of collecting data. Given the above, a probability
sampling approach was not considered. Based on the fact that the financial literacy levels
of finance students was being compared to non-finance students and finance as well as

47
non-finance groups had been selected for inclusion in the sample, the sample was
considered to be representative of the population. The three diploma groups that formed
the target population of this study were:

 Diploma in Accounting (Finance group);

 Diploma in Architecture (Non-finance group) and

 Diploma in Sports Management (Non-finance group).

3.5.4 Expected sample

The lecturers confirmed that approximately 150 students were attending class for the
diploma in Accounting, 45 students for the diploma in Architecture and 25 students for the
diploma in Sports Management. Although more than 150 students were registered for the
diploma in Accounting and there were more than one class/group, only one of the diploma
in Accounting classes/groups was used for the sample as they had sufficient numbers in
that class. There was only one class for the diploma in Architecture and diploma in Sports
Management respectively, therefore it was expected that the sample size would be
approximately 150 students with a finance background and 70 with a non-finance
background.

It is important to ensure that the data collected from the sample is relevant to answer the
research question (Anon, n.d.). A structured questionnaire was used to collect data to
determine the financial literacy of students in different fields of studies and the
demographic and background characteristics that influence financial literacy.

3.6 DATA COLLECTION

Primary data in the form of a paper-based questionnaire adapted from the Jump$tart
coalition (2008) study was collected from the sample respondents. Data should be
relevant to the research problem, easily available within the required time as well as valid
and reliable (Zikmund, 2003). The questionnaires were therefore distributed to the
respondents specified in the target population at a specific time, and a cross-sectional
survey employed.

Lecturers from the three various diploma groups were contacted via email and/or phone
to discuss the study and to seek their participation in it. Each lecturer was presented with
an ethics clearance letter and agreed to set aside either the first or last 20-30 minutes of
their class time to allow students to complete the survey. Each lecturer’s timetable was

48
consulted and the surveys were organised to take place during one of the lecturer’s
allocated timetable slots and in the venue. The number of students in each class was
confirmed in order to provide each lecturer with sufficient number of questionnaires. It was
important for lecturers as well as students to be aware of what was required of them.
Each questionnaire thus had a cover letter explaining the purpose and significance of the
study, indicating the completion time of the study, as well as a section assuring students
that information supplied by them would be treated as confidential, their res ponses would
remain anonymous and their participation was entirely voluntary. It was thought best to
administer a paper-based questionnaire in a controlled environment as opposed to an
online survey to increase reliability as students would not be able to discuss responses.
Secondly, it was expected that the response rate would be significantly higher if students
completed the questionnaire during class time as opposed to online in their own free time.
The survey was scheduled to take place in September 2011.

3.7 DATA ANALYSIS

This section will consider the manner in which the data collected from respondents via
questionnaires will be analysed, using a similar method to that of Chen and Volpe (1998)
and Beal and Delpachitra (2003). The responses will be used to calculate the percentage
of correct responses for each question, content area and the entire survey. This will
enable the study to partly answer the overall research question as well as answer sub-
questions 1, 2 and 4. To answer research question 3 as well as the other part of the
overall research question, the data will be divided into quartiles, then used to test whether
students who obtain higher than the upper quartile differ from those who obtain less than
the lower quartile in terms of demographic and background characteristics.

The study will mainly use descriptive analysis to describe the demographic and
background characteristics of the sample and comparative analysis to compare
differences or similarities between the finance- and non-finance-related groups. Raw data
will be transformed into a form that is easy to understand and interpret by summarising
the data of the two groups and calculating averages and frequency distributions between
them. This should provide a good indication of the sample and variation. Inferential
statistics will mainly be used to answer the research questions. Techniques that will be
utilised in the analysis include tabulations, correlations, chi square tests and t-tests.
Statistical graphs (bar charts) will also be incorporated for more graphic presentation.

49
3.7.1 Analysis by demographic and background questions

Descriptive statistics will be used to describe the demographic and background

characteristics of the sample and comparative statistics will be used to compare the
demographic and background characteristics those of the two groups, and the Pearson
Chi-square used to test for any statistically significant differences between them.

3.7.2 Analysis by research questions

The SPSS commercial statistical analysis software program will be used to analyse the
data and present it in summarised graphic and tabular formats for ease of interpretation,
after which it will be discussed.

Sub-question 1:

How financially literate are third-year University of Johannesburg diploma students of

2011?

This sub-question will be analysed by creating an average financial literacy score for the
entire survey, using the answers to all 19 questions in section B of all respondents.

Sub-question 2:

In which areas of financial literacy did students demonstrate better or worse results?

This sub-question will be tested by finding in which of the five content areas (savings and
borrowing, markets and instruments, basic concepts, financial planning and insurance)
students answer the most and least questions correctly.

Sub-question 3:

Which demographic and background characteristics influence financial literacy?

This sub-question will be answered by using descriptive statistics to describe the total
sample. Only where there is adequate representation and enough variation within the total
sample to actually determine a significant difference will a further analysis be performed,
to establish whether any of these demographic factors have a significant impact on the
financial literacy levels of the students. In order to establish whether the financial literacy
levels of students are impacted by demographic or background factors the literacy scores
of students in the upper quartile and lower quartile will be calculated. Two extreme
groups, namely those who obtain a higher financial literacy score than the upper quartile
and those who obtain a lower financial literacy score than the lower quartile, will be
identified and compared for any statistical variation in their demographic and background

50
characteristics. Fischer’s exact test will be used to test whether significant differences
exist between the students who performed better than the upper quartile compared to
those who performed worse than the lower quartile in terms of demographic and
background characteristics.

Sub-question 4:

How do students perceptions of financial literacy compare to their actual financial literacy
levels?

The students’ responses and their financial literacy perceptions will be compared to the
actual financial literacy score achieved. The Pearson chi-square test will be used to
compare the perceptions of the two groups. This question was included as past research
has found that students think they are financially literate and do not need financial
education or help, but then the financial literacy scores they achieve are lower than their
perceptions of their financial literacy levels (Policy brief, July 2006).

Overall question:

Do students that study towards a diploma in a finance-related field have higher financial
literacy levels than those students studying towards a diploma in a non-finance-related
field of study?

The overall research question will be answered by comparing the average financial
literacy score of the two groups. t-tests will be used to compare the mean differences
between the respective groups and Levene’s test for equality of variances will also be
used to test the t-test assumption that the variances between the two samples are equal.
As well as comparing the average financial literacy score of each group for the entire
survey, the percentage of correct responses of the finance-related group in each of the
five content areas will be compared to the other group. Chi-square tests will be used to
test for a statistical significant difference between the results of the finance and non-
finance group at a 5% confidence level.

Descriptive statistics will be used to describe differences between the groups and the
Pearson chi-square test to determine whether there are significant differences in terms of
the demographic and background characteristics. Where there is adequate representation
and enough variation, and if Fischer’s exact test is less than 0.05, indicating significant
differences, (refer to sub-question 3), then those that indicated significant differences will
be analysed to establish whether this could have an impact on the different literacy levels
of the groups.

51
3.8 VALIDITY AND RELIABILITY

The importance of ensuring the validity and reliability of data had an influence on the
entire research design.

3.8.1 Validity

The validity of an instrument lies in its ability to measure what it is intended to measure
(Leedy et al., 2005:92). According to Zikmund (2003:302) there are three basic
approaches to evaluating validity:

1. Face or content validity – professional agreement that a scale logically appears

to accurately measure what it is intended to measure

2. Criterion validity – correlation of the results of the current instrument with other
measures of the same construct

3. Construct validity – correspondence of the instrument to different measuring

indicators.

In order to increase the validity of the research instrument the clarity and readability of the
instrument was tested and refined further by undertaking a pilot study. The respondents
were asked about wording and clarity of instructions and the questionnaire, the length and
completion time of the survey, and if any questions were confusing. The feedback
received from the pilot study was used to revise the instrument once more before the
questionnaire was issued to the actual sample respondents (Appendix 1). The instrument
was adapted from the Jump$tart Coalition (2008) questionnaire that was assessed by a
panel of financial and research experts, who found to be valid. A research instrument that
is so examined increases the likelihood it being valid (Leedy & Ormrod, 2005:93).

Various studies reviewed by Huston (2010) and Redmund (2010) that used the Jump$tart
Coalition (2008) questionnaire as an instrument found similar results of low financial
literacy levels. The questionnaire included the relevant financial literacy content areas as
identified by research as well as three to five instrument items under each content area
for adequate representation of each (Kim & Mueller, 1978, p.29, cited in Huston, 2010). It
was also considered necessary to include demographic and background characteristics
as identified by research to influence financial literacy levels and test if they influenced
financial literacy scores achieved by the two groups of students.

The study was enhanced by making use of a quantitative approach that allowed for
greater objectivity and accuracy of results and by using an existing method of data

52
analysis, similar to that of Chen et al., (1998) and Beal et al., (2003) to ensure validity and
reliability (O'Neill, 2006).

3.8.2 Reliability

Reliability is the extent to which an instrument is free from error and consistent in its
measurement over time and across situations (Leedy et al., 2005:93; Zikmund,
2003:300). If individuals were to take the survey numerous times their score should thus
remain fairly consistent. An instrument can be reliable without being valid but it cannot be
valid unless it is reliable. Before the questionnaire was administered to the selected
sample of students it was first administered to a pilot group of students to test its clarity.
Although the research sample consisted of third-year students, the pilot study was
conducted on first year students. The aim of the pilot study was not to test their financial
literacy but rather to determine the completion timeframe of the questionnaire and
whether it was clear and comprehensible. It was assumed that if first year students
experienced no difficulties in completing it, then neither should third-year students
experience any problems.

The reliability of the survey was enhanced by only administering paper-based

questionnaires that had to be completed and handed back during lecture time, as
opposed to online surveys. Students were therefore not able to discuss responses with
each other or anyone else, or attempt to find answers to questions online. Although it was
not possible to administer the questionnaires to the three groups on the same day and at
the same time it was unlikely that they contacted each other as they were all in different
faculties. Furthermore, the groups did not know which other groups were taking part in the
study and all questionnaires were handed back after completion.

3.9 ETHICAL CONSIDERATIONS

The research procedure began by obtaining approval for the research study from the
Higher Degrees Faculty Committee of the University, followed by ethical clearance for the
survey instrument to be issued to students from the Ethics Committee. The questionnaire
construction ensured respondents’ anonymity. They were also assured that the
information supplied by them would be confidential and that the results and findings of the
study would only be disclosed in a summarised format.

53
3.10 LIMITATIONS

Due to the specific focus and nature of the research questions, certain limitations are part
of this research study. The scope was limited to one finance-related diploma and two non-
finance-related diplomas from the campus, which was chosen judgmentally.
Generalisation to other universities and campuses can therefore not be made and this
could potentially lead to the sample not being representative of the wider population.

Although not all the Jump$tart coalition (2008) questions were included in this research
questionnaire, all of the content areas and the required finance concepts were however
tested. Due to the lack of a standardised financial literacy questionnaire, comparison with
other studies that did not incorporate the Jump$tart questionnaire was problematic. The
majority of previous research does not provide standard financial literacy measurement
criteria and it is unclear how much respondents should score in order to be classified as
financially literate. Furthermore, the honesty of responses cannot be guaranteed.

3.11 SUMMARY

This chapter has discussed the research methodology employed to answer the research
questions. The study made use of a multiple choice questionnaire as research instrument
to collect the data. The sample consisted of one finance-related diploma (Accounting) and
two non-finance diplomas (Architecture, and Sports Management) at the University. The
methods of data analysis were also discussed and the results will be presented in
Chapter 4.

54
 CHAPTER 4

RESULTS AND FINDINGS

4.1 INTRODUCTION

The main aim of the research study is to determine whether the field of study (finance or
non-finance) has an influence on financial literacy levels of final year diploma students.
Chapter 3 discussed the research method adopted in this study. This chapter will analyse
the data collected and report the findings in line with the research questions. It will firstly
describe the sample and how data was collected. Secondly, the results and findings will
be presented by examining and interpreting the data collected from the questionnaires
structured in such a way as to answer the research questions. Thirdly, the limitations of
the results and findings will be presented and the chapter will conclude with a summary of
the results and findings.

4.2 DESCRIPTION OF THE SAMPLE

Respondents to this study are third-year diploma students from the University of
Johannesburg, Bunting Road campus, classified as either studying towards a finance- or
a non-finance-related diploma. The scope of the study was limited to include one finance-
related diploma (Accounting) and two non-finance-related diplomas (Architecture, and
Sports Management). As discussed in Chapter 3, both the finance and non-finance
sample were judgementally selected based on the convenience of collecting the data.

4.3 DATA COLLECTION

To increase the reliability of the responses of the survey, the paper-based questionnaires
were distributed and collected from respondents during a lecture. Respondents were
allowed 30 minutes to complete it and were not allowed to discuss responses with one
another. The total sample consisted of 163 students, of whom 117 were finance and 46
non-finance. Although all 163 students invited to participate completed the questionnaire,
some did not answer all the questions. This may have been because, in line with the
Jump$tart questionnaire from which it was adapted, it did not provide students with an I
do not know option.

As all students completed the questionnaire in the allocated 30 minutes it was assumed
that instead of guessing they did not provide an answer to the questions they did not

55
know. In line with this assumption these omitted answers in section A (demographic and
background questions) were excluded from the reported data, resulting in the sample size
(n) for the purpose of analysis not always being equal to 163 as would be expected. In
section B omitted answers were treated as incorrect in terms of the data analysis.

4.4 ANALYSIS OF DATA

This section will provide an analysis and discussion of the data collected with the overall
aim of establishing whether the field of study influences financial literacy levels . In order to
achieve this aim, data obtained from the questionnaires will firstly be analysed and
findings presented to answer the following sub-questions:

1. How financially literate are the 2011 third-year diploma students studying at the
University of Johannesburg?
2. In which content areas of financial literacy did students demonstrate better or
worse achievements?
3. Which demographic and background characteristics influence financial literacy?
4. How do students’ perceptions of financial literacy compare to their actual
financial literacy levels?

4.4.1 Overall financial literacy levels of final year diploma students

This section will discuss and present the findings of sub-questions 1 and 2.

Sub-Question 1: How financially literate are the 2011 third-year diploma students
studying at the University of Johannesburg?

This question was analysed by creating an average financial literacy score for each
respondent for the entire survey. The sum of all respondent scores for the entire survey
(19 questions covering 5 content areas) was divided by the total number of respondents
(n=163) to get the average financial literacy score. The results are presented in the table
below.

Table 4.1: Average financial literacy score achieved by respondents

N Valid 163
Missing 0
Mean 53.4065%
Source: SPSS output

56
 Financial literacy percentage Frequency

84.21
78.95
73.68
68.42
63.16
57.89
52.63
47.37
42.11
36.84
31.58
26.32
21.05
15.79 13.5 14.7 14.7 16
6.7 9.8 9.2
5.26 6.1
0.6 1.8 2.5 0.6 1.8 1.2 0.6

Figure 4.1: Financial literacy scores achieved by respondents. Source: SPSS output

The results indicate that the average financial literacy score achieved by the respondents
is 53.4065%. One of the students, representing 0.6% of the total sample, only achieved
5.26% for the financial literacy survey and 1.8% (n=3) achieved a low 15.79%. More than
37% obtained less than 48% and 66.9% obtained less than 58%, these being less than
60% which is considered by the Jump$tart research as the percentage required to be
classified as financially literate. 33.1% of the students managed to obtain more than 60%,
with 11% of the sample managing to score more than 73% for the survey.

Question Two: In which areas of financial literacy did students demonstrate better or
worse achievements?

This was tested by examining in which of the following five content areas students
achieved the most or least questions correct.

 Savings and borrowing

 Markets and instruments
 Basic concepts
 Financial planning
 Insurance

57
Savings and borrowing:

This section of the questionnaire tested students’ literacy in terms of savings and
borrowings and consisted of five questions. The results are presented in Figure 4.2 below.

1.2 7.4
11

0 questions correct
21.5
1 question correct
2 questions correct
26.4
3 questions correct
4 questions correct
5 questions correct

32.5

Figure 4.2: Percentage savings and borrowing questions correct by total sample
Source: SPSS output

The majority of the total sample, 32.5% (n=53), only answered two out of the five savings-
and borrowings-related questions correctly. There were even 7.4% (n=12) who answered
all five questions incorrectly and only 1.2% (n=2) correctly. The percentage of the sample
with one out of five questions correct was 21.5% (n=35), three out of five 26.4% (n=43)
and four out of five 11% (n=18).

Markets and instruments:

There were three questions that tested the students’ literacy levels in terms of markets
and instruments. The results are presented in Figure 4.3.

58
 3.7
14.1

0 questions correct
39.3 1 question correct
2 questions correct
3 questions correct

42.9

Figure 4.3: Percentage markets and instrument questions correct by total sample
Source: SPSS output

The majority of the total sample, 42.9% (n=70), answered two out of the three markets
and instruments questions correctly, followed closely by 39.3% (n=64) who only managed
to answer one out of the three correctly. The other percentages were 3.7% (n=6) who did
not manage to get any questions right and 14.1% (n=23) who got all three questions right.

Basic concepts:

There were four questions that tested the students’ literacy levels in terms of basic
concepts. The results are presented in Figure 4.4 below.

1.8
9.8
18.4

0 questions correct
1 question correct
2 questions correct
29.4
3 questions correct
4 questions correct

40.5

Figure 4.4: Percentage basic concepts questions correct by total sample

Source: SPSS output

59
The majority of the total sample, 40.5% (n=66) had three out of the four basic concept
questions correct. This was also the section in which the lowest percentage of students
got all questions incorrect with only 1.8% (n=3), as well as the second highest section with
18.4% (n=30), just trailing behind the insurance section with 20.9% (n=34), where
students got all the questions correct. The other percentages were made up of 29.4%
(n=48) for two out of four correct answers and 9.8% (n=16) for one out of four correct
answers.

Financial planning:

There were four questions that tested the students’ literacy levels in terms of financial
planning. The results are presented in Figure 4.5 below.

4.9 4.3

23.3
28.2 0 questions correct
1 question correct
2 questions correct
3 questions correct
4 questions correct

39.3

Figure 4.5: Percentage financial planning questions correct by total sample

Source: SPSS output

The majority of the total sample, 39.3% (n=64) had two out of the four financial planning
questions correct. Almost the same percentage got all four questions correct, 4.9% (n=9)
compared to 4.3% (n=7) who got all questions incorrect. Three out of four questions were
correctly answered by 23.3% (n=38), and one out of four questions were correctly
answered by 28.2% (n=46).

60
Insurance:

There were three questions in the questionnaire that tested the students’ literacy levels in
terms of insurance. The results are presented in Figure 4.6 below.

8
20.9

0 questions correct
1 question correct
33.7
2 questions correct
3 questions correct

37.4

Figure 4.6: Percentage insurance questions correct by total sample

Source: SPSS output

The majority of the total sample, 37.4% (n=61), had two out of the three insurance
questions correct. Surprisingly, this section had the highest percentage of no correct
answers, 8% (n=13), as well as the highest percentage of all answers correct, 20.9%
(n=34). The remaining 37.4% (n=61) answered two out of the three questions correctly.

4.4.2 Impact of demographic and background characteristics on the

financial literacy levels of final year diploma students

A further objective of this study is to establish the impact of demographic and background
characteristics on the financial literacy levels of final year diploma students. The following
factors known to influence financial literacy levels were identified from literature and were
specifically included in the questionnaire:

- Gender
- Age
- Language
- Race

61
 - Marital status
- Children
- Accommodation
- Work experience
- Parental education
- Funding of studies
- Own a bank account and/or credit card
- Personal finance course

For each of these demographic and background factors, descriptive statistics will firstly be
used to describe differences between the two groups of students. The Pearson chi-square
test will be used to test whether there was a significant difference (indicated by a score of
less than 0.05). Although comprehensive statistical analysis using SPSS was used, only
the chi-square results will be presented in the report. Other statistical results could be
made available on request.

Secondly, descriptive statistics will be used to describe the total sample and only where
there is adequate representation and enough variation within the total sample to actually
determine a significant difference will further analysis be performed to establish whether
any of these demographic factors have a significant impact on the financial literacy levels
of the students. For example, age cannot be used for further analysis as most of the
respondents fell in the 21-23 year age category and there is not adequate representation
of other age categories or enough variation within the total sample to determine a
significant difference.

In order to establish whether the financial literacy levels of students were impacted by
demographic or background factors the literacy scores of those in the upper quartile and
lower quartile were calculated. Two extreme groups, namely students who obtained a
higher financial literacy score than the upper quartile and students who obtained a lower
financial literacy score than the lower quartile were identified and compared for any
statistical variation in their demographic and background characteristics. The groups were
relatively small, consisting of 17.2% (n=28) students above the top quartile and 23.9%
(n=39) students below the bottom quartile. The results are shown in Table 4.2.

62
Table 4.2: Financial literacy scores of extreme groups

Valid Cumulative
Frequency Percent Percent Percent
Valid Scores below lower 39 23.9 58.2 58.2
quartile
Scores above upper 28 17.2 41.8 100.0
quartile
Total 67 41.1 100.0
Missing System 96 58.9
Total 163 100.0
Source: SPSS output

Due to the small sample of the extreme groups, Fischer’s exact test was used as opposed
to the Pearson chi-square test to determine whether significant differences exist between
these two extreme groups’ demographic and background characteristics. If the Fischer’s
exact test is less than 0.05 then significant differences do exist between the two extreme
groups, whilst more than 0.05 shows they do not. Only the statistical results that
demonstrated a significant difference were reported. The statistical results with no
statistical difference found will be presented on request if so required.

Thirdly, where there is adequate representation and enough variation exists within the
demographic and background characteristics of the total sample, and if Fischer’s exact
test is less than 0.05 (indicating significant differences exist between the two extreme
groups demographic and background characteristics), then the demographic and
background characteristics that indicated significant differences between the two student
groups will be analysed to establish whether this could have an impact on the different
literacy levels found between them.

63
Gender:

Male Female

79.50%

57.80%
42.20%

20.50%

Non-finance related diploma Finance related diploma

Figure 4.7: Gender (finance- or non-finance)

Source: SPSS output

Table 4.3: Pearson Chi-Square test for gender

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 21.151 1 .000
Source: SPSS output

The non-finance-related diploma was represented by 57.8% (n=26) males and 42.2%
(n=19) females. The finance-related diploma was represented by 20.5% (n=24) males
and 79.5% (n=93) females. One of the respondents from the non-finance-related group
did not indicate their gender and therefore resulted in n=162 rather than 163. From the
Pearson chi-square test it is clear that there is a significant difference between the gender
compositions of the two groups (0.000 < 0.05). The finance-related group is represented
by a much larger female percentage than the non-finance group.

Gender

69.10%

30.90%

Male Female

Figure 4.8: Gender of total sample

Source: SPSS output

64
The total respondents consisted of 30.9% (n=50) males and 69.1% (n=112) females. As
there was adequate representation of males and females and enough variation within the
total sample, gender could be used for further analysis in the extreme groups to establish
whether it has a significant impact on the financial literacy levels of the students. The
statistical results from the Fisher exact test (>0.05) found no statistical difference between
the literacy levels of male and female diploma students. Although several previous studies
have identified gender to influence financial literacy levels (Chen & Volpe, 1998, 2002;
Fonseca, Mullen, Zamarro & Zissimopoulos, 2010; Mandel, 1997, 2002) the results of this
study agree with the studies of Mandel (2009), Ludlum, Tilker, Ritter, Cowart, Xu and
Smith, (2012), which found gender not to have a statistically significant impact on financial
literacy levels.

Age:

Non-finance related diploma Finance related diploma

65.90% 68.10%

22.70% 21.60%

6.80% 7.80% 4.50% 2.60%

18- 20 years 21-23 years 24-25 years Older than 25

Figure 4.9: Age (finance- or non-finance)

Source: SPSS output

Table 4.4: Pearson Chi-Square test for age

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square .472 3 .925

Source: SPSS output

The finance-related diploma represents 68.1% (n=79) and the non-finance-related

diploma represents 65.9% (n=29) of the 21-23 year age category. Other age categories

65
are 18-20 years, represented by 21.6% (n=25) from the finance-related diploma and
22.7% (n=10) from the non-finance-related diploma; 24-25 years, represented by 7.8%
(n=9) from the finance-related diploma and 6.8% (n=3) from the non-finance-related
diploma, and the older than 25 years age category represented by 2.6% (n=3) from the
finance-related diploma and 4.5% (n=2) from the non-finance-related diploma. Three
respondents, one from the finance-related group and two from the non-finance-related
group did not indicate their age and therefore n=160 rather than 163.

The Pearson chi-square test indicates that there is not a significant difference in the age
category of the two groups (0.925 > 0.05). Most of the finance- and non-finance-related
group were in the 21-23 year age category.

Age

67.50%

21.90%

7.50%
3.10%

18- 20 years 21-23 years 24-25 years Older than 25

Figure 4.10: Age of total sample

Source: SPSS output

The majority of all respondents, 67.5%, (n=108) were in the 21-23 year age category.
Other age ranges and respondent percentages were: 21.9% (n=35) in the 18-20 year age
category, 7.5% (n=12) in the 24-25 year age category and 3.1% (n=5) in the older than 25
years age category. As a great majority of the respondents fell in the 21-23 year age
category, there was not enough variation in the age of the total sample to determine the
impact of age on financial literacy levels. Age could therefore not be used for further
analysis in the extreme groups to establish whether it has a significant impact on the
financial literacy levels of the students.

66
Language

Non-finance related diploma Finance related diploma

48.90%
46.20%
38.50%

26.70%

11.10% 13.30%
9.40%
2.60% 2.20% 2.60% 2.20% 4.30% 2.20%4.30%

Afrikaans English Nguni (Zulu, Portuguese Sotho Venda Tsonga

Xhosa, Swati or (Northern
Ndebele) Sotho, Sesotho
or Setswana

Figure 4.11: Language (finance or non-finance)

Source: SPSS output

Table 4.5: Pearson Chi-Square tests for various languages

Pearson Chi-Square Value Df Asymp. Sig. (2-sided)

Afrikaans 5.057 1 .025
English 31.241 1 .000
Nguni 9.514 1 .002
Portuguese .016 1 .900
Sotho 5.112 1 .024
Venda .383 1 .536
Tsonga .383 1 .536

Source: SPSS output

The majority of finance-related respondents, 46.2% (n=54) identified themselves as Sotho

followed by 38.5% (n=45) identifying themselves as Nguni. Other language respondents
identified for the finance-related group are: 9.4% (n=11) English, 4.3% (n=5) Venda, 4.3%
(n=5) Tsonga, 2.6% (n=3) Afrikaans and 2.6% (n=3) Portuguese.

The majority of non-finance-related respondents, 48.9%, (n=22) identified themselves as

English, followed by 26.7% (n=12) identifying themselves as Sotho. Other ethnicities
respondents identified for the non-finance-related group were: 13.3% (n=6) Nguni, 11.1%
(n=5) Afrikaans, 2.2% (n=1) Portuguese, 2.2% (n=1) Venda and 2.2% (n=1) Tsonga.

67
None of the respondents from either group identified themselves as French. One of the
respondents from the non-finance-related group did not indicate language and therefore
n=162 rather than 163.

The Pearson chi-square test indicates that there was a significant difference in language
selected by the two groups for Afrikaans (0.025 < 0.05), English (0.000 < 0.05), Nguni
(0.002 < 0.05) and Sotho (0.024 < 0.05). There was no statistical significant difference
between the two groups language selected for Portuguese (0.900 > 0.05), Venda (0.536 >
0.05) and Tsonga (0.536 > 0.05). The majority of the finance-related respondents were
Sotho, compared to the majority of non-finance-related respondents who were English.

Language

40.7

31.5

20.4

4.9 3.7 3.7

2.5

Afrikaans English Nguni Portuguese Sotho Venda Tsonga

Figure 4.12: Language of total sample

Source: SPSS output

The majority of the total sample were Sotho, 40.7% (n=66), followed by 31.5% (n=51)
Nguni and 20.4% (n=33) English. Other language percentages were 4.9% (n=8)
Afrikaans, 3.7% (n=6) Venda and Tsonga, and 2.5% (n=4) Portuguese.

As there was adequate representation (enough variation) of Sotho, Nguni and English
within the total sample, these languages could be used for further analysis in the extreme
groups to establish whether they had a significant impact on the financial literacy levels of
the students.

68
Table 4.6: Fischer’s Exact Test for respondents falling below lower quartile and above
upper quartile (Sotho or not Sotho)

Asymp. Sig. Exact Sig. Exact Sig.

Value Df (2-sided) (2-sided) (1-sided)
Pearson Chi-Square 3.411 a 1 .065
b
Continuity Correction 2.548 1 .110
Likelihood Ratio 3.458 1 .063
Fisher's Exact Test .082 .055

Linear-by-Linear 3.359 1 .067

Association
N of Valid Cases 66

Source: SPSS output

The statistical results from the Fisher exact test for the Nguni and English respondents
(>0.05) indicated no statistical significance between these languages and financial literacy
levels. Although the statistical results from the Fisher exact test for the Sotho respondents
was (>0.05), it was (<0.1) and statistically significant at a 90% confidence interval (see
Table 4.12 above). This study thus agrees with previous ones that have identified
language as influencing financial literacy (Worthington, 2006).

Below lower quartile Above upper quartile

66.70
56.40
43.60
33.30

Sotho Not Sotho

Figure 4.13: Respondents falling below lower quartile and above upper quartile (Sotho or
not Sotho)

Source: SPSS output

The results indicate that Sotho speakers are more likely to have achieved below the lower
quartile (Figure 4.13 above).

69
Race:

Non-finance related diploma Finance related diploma

95.70%

50.00%
43.20%

2.30% 0.00% 4.50% 2.60%

0.00% 0.00% 1.70%

Asian Black Coloured White Other

Figure 4.14: Race (finance or non-finance)

Source: SPSS output

Table 4.7: Pearson Chi-Square test for race

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 73.165 4 .000
Source: SPSS output

The majority of the finance group, 95.7% (n=112), identified themselves as black
compared to 43.2% (n=19) of the non-finance group, the majority of whom, 50% (n=22),
identified themselves as white, while the finance group contained no white students. The
third largest racial group was coloured, represented by a minor 2.6% (n=3) finance- and
4.5% (n=2) non-finance students. Respondents who identified their racial group as ‘other’
represented 1.7% (n=2) of the finance group, with no respondents from the non-finance
group. No students from the finance group identified their race as Asian compared to
2.3% (n=1) from the non-finance group. Two of the respondents from the non-finance
group did not indicate their race, leaving n=161 rather than 163.

The Pearson chi-square test (0.000 < 0.05) indicates that there is a significant difference
in the racial composition of the two groups. The demographics of the finance group were
predominantly black and the non-finance group mostly white for the current study.

70
 Race

81.40%

13.70%
0.60% 3.10% 1.20%

Asian Black Coloured White Other

Figure 4.15: Race of total sample

Source: SPSS output

In terms of race, the majority of the sample, 81.4% (n=131), identified themselves as
black. This was followed by 13.7% (n=22) whites and 3.1% coloureds (n=5). Only 1.2%
(n=2) of the total sample identified their racial group as ‘other’ and a mere 0.6% (n=1) of
the total sample identified their race as Asian.

As a large majority of the respondents were black, there was not enough variation in the
race of the total sample to determine the impact of race on financial literacy levels. Race
could therefore not be used for further analysis in the extreme groups to establish whether
it had a significant impact on the financial literacy levels of the students.

Marital status

Non-finance related diploma Finance related diploma

95.60% 95.70%

0.00% 3.40% 4.40% 0.90%

Single Married Engaged or living together

Figure 4.16: Marital status (finance- or non-finance)

Source: SPSS output

71
 Table 4.8: Pearson Chi-Square test for marital status

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 3.800 2 .150

Source: SPSS output

Marital status was mostly reported as single by both finance, 95.7% (n=112) and non-
finance, 95.6% (n=43) groups. Of the finance students, 3.4% (n=4) were married and
0.9% (n=1) engaged or co-habiting. None of the non-finance students were married and
4.4% (n=2) of them were engaged or living together. One of the respondents from the
non-finance-related group did not indicate marital status, therefore n=162 rather than 163.

The Pearson chi-square test shows no significant difference (0.150 > 0.05) in marital
status of the two groups. The majority of the finance and non-finance-related group were
single.

Marital status

95.70%

2.50% 1.90%

Single Marrried Engaged or living together

Figure 4.17: Marital status of total sample

Source: SPSS output

The majority of the total sample were single, 95.7% (n=155), the rest represented by 2.5%
(n=4) who were married and 1.9% (n=3) engaged or living together.

As a large majority were single there was not enough variation in the marital status of the
total sample to perform statistical tests to determine whether marital status impacted the
financial literacy levels of students.

72
Children

Non-finance related diploma Finance related diploma

91.10%
87.90%

8.60%
4.40% 2.20% 0.90% 2.20% 0.90%
0.00% 1.70%

None 1 Child 2 Children 3 Children 4 or more

Figure 4.18: Number of children of respondents (finance- or non-finance)

Source: SPSS output

Table 4.9: Pearson Chi-Square test for children

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 2.537 4 .638

Source: SPSS output

Most of the non-finance, 91.1% (n=41) and finance students, 87.9% (n=102), did not have
any children. Of the non-finance group, 4.4% (n=2) had one child, 2.2% (n=1) had two
children, none had three children and 2.2% (n=1) had four or more children. The finance
group is represented by 8.6% (n=10) who had one child, 0.9% (n=1) who had two
children, 1.7% (n=2) who had three children and 0.9% (n=1) who had four or more
children. One of the finance-related respondents and one of the non-finance-related
respondents omitted to answer this question, leaving n=161 rather than 163.

The Pearson chi-square test shows that there is not a significant difference (0.638 > 0.05)
in the number of children of the two groups. The majority of the finance- as well as the
non-finance-related group did not have any children.

73
 Number of children

88.80%

7.50%
1.20% 1.20% 1.20%

None 1 Child 2 Children 3 Children 4 or more

Figure 4.19: Percentage of total sample respondents who had children

Source: SPSS output

The majority of the total sample had no children, 88.8% (n=143), followed by 7.5% (n=12)
who had one child and 1.2% (n=2) who had two, three and four or more children,
respectively. As the majority of the respondents did not have children there was not
enough variation in the number of children of the total sample to determine its impact on
the financial literacy levels. Number of children could therefore not be used for further
analysis in the extreme groups to establish whether it had a significant impact on the
financial literacy levels of the students.

Accommodation

Non-finance related diploma Finance related diploma

64.30%

31.60% 33.30%
22.20%
14.30% 16.70% 12.80%
4.80%

At home with parents At a university Shared student Other

residence on campus accommodation off
campus

Figure 4.20: Accommodation of respondents (finance- or non-finance)

Source: SPSS output

74
Table 4.10: Pearson Chi-Square test for accommodation

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 14.003 3 .003

Source: SPSS output

The greatest proportion of non-finance-related students live with their parents, 64.3%
(n=27), followed by shared student accommodation off campus, 16.7% (n=7) and a
university residence on campus, 14.3% (n=6). The other small proportion, 4.8% (n=2) is
made up of other accommodation. Finance students mostly stay in shared student
accommodation off campus, 33.3% (n=39), followed closely by students who live with
their parents, 31.6% (n=37) and a university residence on campus, 22.2% (n=26). The
remainder of the students stay in other accommodation, 12.8% (n=15). Four of the
respondents from the non-finance-related group did not answer this question and
therefore n=159 rather than 163.

The Pearson chi-square test shows a significant difference in the accommodation of the
two groups (0.03 < 0.05). The non-finance-related students mostly lived with their parents,
compared to the finance-related students who mostly stayed in shared student
accommodation off campus.

Accommodation

40.30%

28.90%

20.10%

10.70%

At home with At a university Shared student Other

parents residence on accommodation off
campus campus

Figure 4.21: Accommodation of total sample respondents

Source: SPSS output

The majority of the sample stay at home with their parents, 40.3% (n=64), followed by
28.9% (n=46) who stay in shared student accommodation off campus, 20.1% (n=32) who
stay in a university residence on campus, and 10.7% (n=17) who stay in other
accommodation.

75
As there was adequate representation (enough variation) for the different accommodation
groups within the total sample, accommodation could be used for further analysis in the
extreme groups to establish whether it has a significant impact on the financial literacy
levels of the students. The statistical results from the Fisher exact test (>0.05) indicated
no statistical significance between accommodation and financial literacy levels. Therefore,
whether students live at home or make use of other forms of accommodation, either on-
or off-campus, does not significantly impact their levels of financial literacy.

Work experience

Non-finance related diploma Finance related diploma

59.00%

31.10%

20.00% 22.20%20.00%

11.10% 13.30%
8.50%
2.60% 4.30%
2.20% 0.90% 2.20% 1.70%
0.00%0.90%
None 1 year part- 2 years part- 3 years part- 1 year full- 2 years full- 3 years full- 4 or more
time time time time time time years full-
time

Figure 4.22: Work experience (finance- or non-finance)

Source: SPSS output

Table 4.11: Pearson Chi-Square test for work experience

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 24.588 7 .001

Source: SPSS output

A much larger percentage of finance students, 59% (n=69), do not have any work
experience, compared to 20% (n=9) of non-finance students with no work experience. In
all the other categories of work experience the non-finance students have more than do
the finance students, except in the 2 years full-time work experience category. There was
one finance-related student, 0.9%, and no non-finance-related students. The other
categories were as follows: 22.2% (n=26) finance students and 31.1% non-finance

76
students in the 1 year part-time work experience category, 8.5% (n= 10) finance-related
students and 20% (n=9) non-finance-related students in the 2 years part-time work
experience category, 2.6% (n=3) finance-related students, 11.1% (n=5) non-finance-
related students in the 3 years part-time work experience category, 4.3% (n=5) in the
finance-related students, and 13.3% (n=6) in the non-finance-related students 1 year full-
time work experience category. One of the respondents from the non-finance-related
group did not indicate their work experience and therefore n=162 rather than 163.

The Pearson chi-square test also confirms that there is a significant difference in the work
experience of the two groups (0.01 < 0.05). The non-finance-related group tends to have
more work experience than the finance-related group.

Work experience

48.10%

24.70%

11.70%
4.90% 6.80%
0.60% 1.20% 1.90%

None 1 year 2 years 3 years 1 year 2 years 3 years 4 or more

part-time part-time part-time full-time full-time full-time years full-
time

Figure 4.23: Work experience of total sample

Source: SPSS output

The majority of the total sample have no work experience, 48.1% (n=78). In terms of part-
time experience the sample is represented by 24.7% (n=40), who have 1 year part-time
experience, 11.7% (n=19), who have 2 years part-time experience and 4.9% (n=8) who
have 3 years part-time experience. In terms of full-time experience the sample is
represented by 6.8% (n=11) who have 1 year full-time experience, 0.6% (n=1) who have
2 years full-time experience, 1.2% (n=2) who have 3 years full-time experience, and 1.9%
(n=3) who have 4 or more years full-time experience. As there was adequate
representation (enough variation for some of the work experience groups within the total
sample), these work experience groups could be used for further analysis in the extreme
groups to establish whether it has a significant impact on the financial literacy levels of the
students. The statistical results from the Fisher exact test (>0.05) indicated no statistical
significance between work experience and financial literacy levels. Therefore according to

77
the findings of this study work experience does not impact the financial literacy of third-
year diploma students.

This finding is in contradiction with previous research that found financial literacy
improved with work experience (Chen et al., 2002). This may be because most of the
respondents did not have decent or valuable work experience as none of the full time
work experience could be tested due to inadequate representation.

Parental education

Non-finance related diploma Finance related diploma

33.30%
28.90%
26.70%
21.40% 20.00% 18.80%
15.40% 13.30%
11.10% 11.10%

Did not complete Completed high Diploma Degree graduate I do not know
high school school graduate or higher

Figure 4.24: Father’s highest level of schooling (finance- or non-finance)

Source: SPSS output

Table 4.12: Pearson Chi-Square test for father’s highest level of schooling

Value df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 1.179 4 .882
Source: SPSS output

Non-finance related diploma Finance related diploma

33.30% 33.30%
24.40% 26.70%
19.70% 22.20%
17.90%
11.10%
4.40% 6.80%

Did not complete Completed high Diploma Degree graduate I do not know
high school school graduate or higher

Figure 4.25: Mother’s highest level of schooling (finance- or non-finance)

Source: SPSS output

78
Table 4.13: Pearson Chi-Square test for mother’s highest level of schooling

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 6.582 4 .160

Source: SPSS output

Education level of parents was relatively low, with only 22.8% (n=37) of fathers and 23.5%
(n=38) of mothers being graduates. Of these graduates, 21.4% (n=25) were fathers from
the finance-related group, and a slightly higher percentage, 26.7% (n=12) were fathers
from the non-finance-related group. The mothers from the non-finance-related group also
had a higher level of graduates, 26.7% (n=12) compared to 22.2% (n=26) of mothers from
the finance-related group. The non-finance-related group also had a higher percentage of
diploma graduates for both their fathers, 13.3% (n=6), and mothers, 24.4% (n=11),
compared to the finance group, who had 11.1% (n=13) fathers and 17.9% (n=21) mothers
who were diploma graduates. The number of fathers and mothers who had not completed
high school was much higher for finance-related students. More than 15% (n=18) of
fathers from the finance-related group had not completed high school, compared to 11.1%
(n=5) of the fathers from the non-finance-related group. Almost 20% (n=23) of the
finance-related group’s mothers had not completed high school compared to only 4.4%
(n=2) of the non-finance-related group. The number of fathers and mothers who
completed high school was very similar and there was little variation between the groups
in this regard. Almost 29% (n=13) of the non-finance-related group’s fathers had
completed high school and 33.3% (n=39) of the finance-related group’s fathers completed
high school. In both the finance (n=39) and non-finance (n=15) group, 33.3% of their
mothers had completed high school. One of the respondents from the non-finance-related
group did not answer this question and therefore n=162 rather than 163.

The Pearson chi-square test shows that there is not a significant difference in the parental
education of fathers (0.882 > 0.05) and mothers (0.16 > 0.05) of the two groups. The
majority of mothers and fathers from both the finance- and non-finance-related groups
had only completed high school.

79
 Education of father Education of mother

32.10% 33.30%

23.50%
22.80%
19.80% 19.10%
14.20% 15.40%
11.70%
8.00%

Did not Completed high Diploma Degree I do not know

complete high school graduate graduate or
school higher

Figure 4.26: Highest level of schooling of parents for total sample

Source: SPSS output

The majority of both fathers, 32.1% (n=52), and mothers, 33.3% (n=), had completed high
school. Other education of fathers for the total sample was 22.8% (n=37) who were
degree graduates or higher, 19.1% (n=31) unknown, 14.2% (n=23) had not completed
high school and 11.7% (n=19) were diploma graduates. Other education of mothers for
the total sample was 23.5% (n=38) who were degree graduates or higher, 19.8% (n=32)
were diploma graduates, 15.4% (n=25) had not completed high school and 8% (n=13)
were unknown. As there was adequate representation (enough variation) of parental
education within the total sample, parental education could be used for further analysis in
the extreme groups to establish whether it has a significant impact on the financial literacy
levels of the students. The statistical results from the Fisher exact test (>0.05) indicated
no statistical significance between parental education and financial literacy levels.

Although previous studies (Mandell, 2009; Lusardi, Mitchell and Curto, 2010) found that
parental education influences financial literacy levels the current study did not find any
statistical significance (>0.05) between parental education and financial literacy.

80
Funding

Non-finance related diploma Finance related diploma

56.50%

47.00%
38.50%

23.90%

10.90%
8.70% 6.80%
4.30% 6.80% 2.60% 2.60%
2.20%
0.00% 0.90%

I paid for it My parents I have a I have a NSFAS Edu-loan Bank loan

myself and/or family bursary sponsorship
paid

Figure 4.27: Methods of funding (finance- or non-finance)

Source: SPSS output

Table 4.14: Pearson Chi-Square test of payments

Pearson Chi-Square Value Df Asymp. Sig. (2-sided)

a
I paid for it myself .167 1 .683
a
parents and/or family paid 1.195 1 .274
a
Bursary .355 1 .551
a
sponsorship .396 1 .529
a
NSFAS 3.099 1 .078
a
Edu-loan .021 1 .885
a
bank loan 4.880 1 .027
Source: SPSS output

The majority of students from both the finance-, 47% (n=55), and non-finance group,
56.5% (n=26), were funded by their parents and/or family. 38.5% (n=45) of the finance
students and 23.9% (n=11) of the non-finance students made use of NSFAS funding and
10.9% (n=5) of non-finance students were funding their studies with bank loans,
compared to only 2.6% (n=3) of the finance students who were doing so. The survey
results indicate that 6.8% (n=8) of finance students and 8.7% (n=4) of non-finance
students were funding their own studies. A small proportion, 6.8% (n=8), of finance
students and 4.3% (n=2) of non-finance students had bursaries. The two least utilised
methods of funding were Edu-loans, used by 2.6% (n=3) of the finance group and 2.2%

81
(n=1) of the non-finance group and sponsorships, used by only 0.9% (n=1) of the finance
group and none of the non-finance group as a method of funding.

The Pearson chi-square test indicates that the following methods of funding, namely ‘I
paid for it myself’ (0.683 > 0.05), my parents and/or family paid (0.274 > 0.05), ‘I have a
bursary’ (0.551 > 0.05), ‘I have a sponsorship’ (0.529 > 0.05), NSFAS (0.078 > 0.05) and
Edu-loan (0.885 > 0.05), did not indicate a statistical significant difference between the
two groups. However, bank loans (0.027 < 0.05) were the only method in which a
significant difference existed between the two groups. More non-finance-related students
funded their studies with bank loans than did the finance-related students.

49.70%

34.40%

7.40% 6.10% 4.90%

0.60% 2.50%

I paid for it My parents I have a I have a NSFAS Edu-loan Bank loan

myself and/or bursary sponsorship
family paid

Figure 4.28: Methods of funding of total sample

Source: SPSS output

The majority of the sample were being funded by their parents, 49.7% (n=81), or NSFAS,
34.4% (n=56). Other funding was for the 37.4% (n=12) who paid for themselves, 6.10%
(n=10) who had a bursary, 4.9% (n=8) a bank loan, 2.5% (n=4) by Edu-loan, and 0.6%
(n=1) by sponsorship.

As there was adequate representation (enough variation) of funding via parents and
NSFAS within the total sample, these funding methods could be used for further analysis
in the extreme groups to establish whether they have a significant impact on the financial
literacy levels of the students.

82
Table 4.15: Fischer’s Exact Test for respondents falling below lower quartile and above
upper quartile (sponsored/funded by parents or not sponsored/funded by parents)

Asymp. Sig. Exact Sig. Exact Sig.

Value Df (2-sided) (2-sided) (1-sided)
Pearson Chi-Square 6.281 a 1 .012
b
Continuity Correction 5.098 1 .024
Likelihood Ratio 6.362 1 .012
Fisher's Exact Test .015 .012

Linear-by-Linear 6.187 1 .013

Association
N of Valid Cases 67

Source: SPSS output

Table 4.16: Fischer’s Exact Test for respondents falling below lower quartile and above upper
quartile (sponsored/funded by NSFAS or not sponsored/funded by NSFAS)

Asymp. Sig. Exact Sig. Exact Sig.

Value Df (2-sided) (2-sided) (1-sided)
Pearson Chi-Square 4.894 a 1 .027
b
Continuity Correction 3.796 1 .051
Likelihood Ratio 5.124 1 .024
Fisher's Exact Test .036 .024

Linear-by-Linear Association 4.821 1 .028

N of Valid Cases 67

Source: SPSS output

The statistical results from the Fisher exact test (<0.05) indicated a statistical significance
between these funding methods and financial literacy levels (see Table 4.27 and 4.28
above).

83
 Below lower quartile Above upper quartile

66.7 64.2

35.7 33.3

Not sponsored by parents Sponsored by parents

Figure 4.29: Respondents falling below lower quartile and above upper quartile
(sponsored/funded by parents or not sponsored/funded by parents)

Source: SPSS output

Below lower quartile Above upper quartile

82.1

56.4
43.6

17.9

Not sponsored by NSFAS Sponsored by NSFAS

Figure 4.30: Respondents falling below lower quartile and above upper quartile
(sponsored/funded by NSFAS or not sponsored/funded by NSFAS)

Source: SPSS output

The two statistically significant differences identified from the results (refer to Figures 4.29
and 4.30 above) indicated that firstly students whose parents funded for their studies were
more likely to possess higher levels of financial literacy than the top quartile (0.012 <
0.05). Secondly, students whose studies were funded through a NSFAS loan were more
likely to possess lower levels of financial literacy than the bottom quartile (0.024 < 0.05).
These findings are in line with previous research also conducted at the University which
indicated a relationship between performance in the first semester and the type of funding
option a student uses (Vermaak, 2011).

84
Bank account and credit card

Non-finance related diploma Finance related diploma

100.00%
91.50%

15.20% 12.80%

Bank account Credit card

Figure 4.31: Percentage of respondents who have a bank account and/or credit card
(finance or non-finance)

Source: SPSS output

Table 4.17: Pearson Chi-Square test of bank account or credit card

Value Df Asymp. Sig. (2-sided)

a
bank account 4.189 1 .041
a
credit card .162 1 .687
Source: SPSS output

All non-finance students had bank accounts, compared to 8.5% (n=10) non-finance
students who did not have a bank account. In the finance group, 12.8% (n=15) had a
credit card compared to 15.2% (n=7) in the non-finance group.

The Pearson chi-square test found that there was a significant difference between the two
groups in terms of having a bank account (0.041 < 0.05) and no statistical difference in
terms of having a credit card (0.687 > 0.05). All the non-finance students had bank
accounts, compared to 8.5% finance students who did not have a bank account. Most of
the finance and non-finance group did not own a credit card.

85
 Bank account Credit card
93.90%
86.50%

13.50%
6.10%

Yes No

Figure 4.32: Percentage of total sample respondents who have a bank account and/or
credit card

Source: SPSS output

The majority of the sample had a bank account, 93.9% (n=153), and not a credit card,
86.5% (n=141). As a large majority had a bank account there was not enough variation in
the total sample to determine the impact of a bank account on financial literacy levels.
Bank account could therefore not be used for further analysis in the extreme groups to
establish whether it had a significant impact on the financial literacy levels of the students.

Similarly, as a large majority of the respondents did not have a credit card there was not
enough variation in the total sample to determine the impact of having a credit card on
financial literacy levels. Credit card could therefore not be used for further analysis in the
extreme groups to establish whether it has a significant impact on the financial literacy
levels of the students.

Personal finance course

Non-finance related diploma Finance related diploma

91.30% 89.70%

8.70% 10.30%

Personal finance course taken No personal finance course taken

Figure 4.33: Percentage of respondents who have taken a personal finance course
(finance- or non-finance)

Source: SPSS output

86
Table 4.18: Pearson Chi-Square test of personal finance course

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square .091 1 .763

Source: SPSS output

Personal finance courses have been taken by 10.3% (n=12) of the finance students and
8.7% (n=4) of the non-finance students. The Pearson chi-square test indicates that there
is not a significant difference between the two groups in terms of having taken a personal
finance course (0.763 > 0.05). Most of the finance and non-finance students had not
taken a personal finance course.

Personal finance course taken

90.20%

9.80%

Yes No

Figure 4.34: Percentage of total sample respondents who have taken a personal finance
course.

Source: SPSS output

The majority of the sample had not taken a personal finance course, 90.2% (n=147). As a
large majority of the respondents had not taken a personal finance course, there was not
enough variation in the total sample to determine the impact of a personal finance course
on financial literacy levels. Personal finance course could therefore not be used for further
analysis in the extreme groups to establish whether it had a significant impact on the
financial literacy levels of the students.

87
Conclusion

In performing statistical analysis on the difference in demographic and background factors

between the finance- and non-finance-related diploma groups the following was found
(Table 4.19).

Table 4.19: Demographic and background characteristics of the finance and non-finance-
related group that indicate a statistically significant difference and which do not indicate a
statistically significant difference

Statistically significant difference No statistically significant difference

(Chi-Square <0.05) (Chi-Square >0.05)
Gender Language (Portuguese, Venda, Tsonga)
Language (Afrikaans, English, Nguni, Age
Sotho)
Race Marital status

Accommodation Children

Work experience Parental education

Funding (Bank loans) Funding (Myself, Parents and/or family,

bursary, sponsorship, NSFAS, Edu-loan)

Bank account Credit card

Personal finance course

Source: SPSS output

The following demographic and background characteristics could not be further analysed
to determine if they influence financial literacy levels because of a lack of variation or
adequate representation within the total sample, namely age, language (Afrikaans,
Portuguese, Venda Tsonga), race, marital status, children, work experience (3 years part-
time, 1 year full-time, 2 years full-time, 3 years full-time, 4 or more years full-time), funding
of studies (I paid for it myself, I have a bursary, I have a sponsorship, Edu-loan, bank
loan), bank account, credit card, personal finance course. Although the demographic and
background characteristics discussed were identified by past research to influence
financial literacy levels, in contradiction with prior research, gender, language (English
and Nguni), all accommodation, work experience (none, 1 year part-time, 2 years part-
time) and parental education did not indicate a statistical significant impact on the
financial literacy level of third-year diploma students as their Fischer exact test values
were more than 0.05. Only language (Sotho) and funding (via parents and NSFAS) were
found statistically significant in influencing financial literacy levels.

88
Perceptions of their own financial literacy

Students’ perceptions of their own financial literacy levels was analysed and compared to
the students’ actual financial literacy levels. The Pearson chi-square test was also used to
compare the finance or the non-finance students’ perceptions of their own financial
literacy levels.

Non-finance related diploma Finance related diploma

47.80%
44.60%

32.10%

21.70% 23.90%

9.80% 11.60%
1.80% 6.50%
0.00%
To no extent To a small extent To a moderate To a large extent Completely
extent financially literate

Figure 4.35: Extent to which respondents consider themselves to be financially literate

Source: SPSS output

Table 4.20: Pearson Chi-Square test of student perceptions of their financial literacy levels

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 5.954 4 .203

Source: SPSS output

Students were asked to use a likert scale to rate the extent to which they considered
themselves to be financially literate, ranging from no extent, to a small extent, to a
moderate extent, to a large extent, to completely financially literate. The finance, 44.6%
(n=50) and non-finance, 47.8% (n=22) students mostly considered themselves to be
financially literate to a moderate extent. This was followed by 32.1% (n=36) finance
students and 23.9% (n=11) non-finance students considering themselves to be financially
literate to a large extent, and 9.8% (n=11) finance students and 21.7% (n=10) non-finance
students considering themselves to be financially literate to a small extent. Furthermore
1.8% (n=2) of the finance students and none of the non-finance students considered
themselves to be financially literate to no extent. Of the finance-related group, 11.6%
89
(n=13) and of the non-finance-related group, 6.5% (n=3) considered themselves to be
completely financially literate. Five of the respondents from the finance-related group did
not answer this question and therefore n=158 rather than 163.

The Pearson chi-square test shows that there is not a statistical significant difference
(0.203 > 0.05) between the extent to which the finance and non-finance group consider
themselves to be financially literate. The finance and non-finance students mostly
considered themselves to be financially literate to a moderate extent (45.6%).

Importance of financial literacy

Non-finance related diploma Finance related diploma

78.60%

61.40%

25.00%
17.90%
11.40%
2.30% 0.90% 1.70% 0.90%
0.00%

Totally Unimportant Marginally Important Very important

unimportant important

Figure 4.36: How important respondents consider it to be for diploma graduates to be

financially literate

Source: SPSS output

Table 4.21: Pearson Chi-Square test of student perceptions of importance of financial literacy

Value Df Asymp. Sig. (2-sided)

a
Pearson Chi-Square 12.835 4 .012

Source: SPSS output

Students were also asked to use a likert scale to rate the importance of diploma
graduates being financially literate once they had completed their studies, ranging from
totally unimportant, unimportant, marginally important, important to very important. The
majority of the students, 73.9% (n=119), thought it was very important for a diploma
graduate to be financially literate once they had completed their studies. Of these
students 78.6% (n=92) were finance-related students and 61.4% (n=27) were non-

90
finance-related students. Furthermore, 19.9% (n=32) believed it was important for diploma
graduates to be financially literate and 3.7% (n=6) believed it to be marginally important.
Only 1.2% (n=2) believed it to be unimportant and totally unimportant, respectively. Two
of the respondents from the non-finance-related group did not answer this question and
therefore n=161 rather than 163.

Although the majority of finance and non-finance students consider financial literacy to be
very important, more respondents from the finance-related group seem to have this view
as the Pearson chi-square test shows that a statistical significant difference between the
extent to which the groups considered financial literacy to be important (0.012 < 0.05).

Overall Research Question: Do students who study towards a diploma in a finance-

related field have higher financial literacy levels than those studying towards a diploma in
a non-finance-related field of study?

The results from the questionnaire will be analysed and discussed by focusing on the
literacy levels of finance or non-finance students. The average financial literacy scores of
both groups were compared for the entire survey. t-tests were used to compare the mean
differences between the two diplomas, after Levene’s test for equality of variances had
been used to test the underlying t-test assumption that the variances between the two
samples are equal.

Table 4.22: Average financial literacy percentage of finance and non-finance students

Diploma groups Std. Std. Error

N Mean Deviation Mean
Financial literacy Non-finance - 46 49.4279 17.87334 2.63528
percentage related diploma
Finance-related 117 54.9708 12.11758 1.12027
diploma
Source: SPSS output

On average the finance students achieved better results for the financial literacy survey
with an average of 54.97% as opposed to the non-finance students with an average of
49.43%.

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 Table 4.23: Independent Samples Test

Levene's Test
for Equality of
Variances t-test for Equality of Means

95% Confidence
Interval of the
Sig. Difference
(2- Mean Std. Error
F Sig. T Df tailed) Difference Difference Low er Upper

Financial Equal 11.792 .001 -2.280 161 .024 -5.54284 2.43071 -10.34302 -.74267
literacy
variances
percentage
assumed

Equal -1.936 61.949 .057 -5.54284 2.86351 -11.26702 .18133

variances
not
assumed

Source: SPSS output

When analysing the statistical significance of the variances between the finance and non-
finance groups in terms of financial literacy levels, the following was found. The results of
the Levene test showed a significant difference in the equality of variances (0.001 which
is less than 0.05) resulting in the use of the t-test where equal variances are not assumed
to analyse the equality of means between the samples. The t-test for equality of means
where equal variances are not assumed is 0.057, which is more than 0.05 and therefore
not statistically significant at a 95% confidence interval. However, when considering
significance at a 90% confidence interval, where equality of means cannot be assumed,
the t-test shows a significant difference as 0.057 is less than 0.10. The results indicate
that at a 10% statistical significance level equal means cannot be assumed between the
finance and non-finance-related groups. This indicates that at a 90% confidence level
there is a significant variation in the average financial literacy score of the finance-related
group compared to the non-finance-related group.

Comparison of literacy scores per content area

Besides only comparing the average financial literacy score of the finance group to the
non-finance group for the entire survey, the percentage of correct responses in each of
the five content areas was also compared.

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Savings and borrowing

Finance related diploma Non-finance related diploma

5 questions correct 1.70%

0.00%

4 questions correct 11.10%

10.90%

3 questions correct 28.20%

21.70%

2 questions correct 34.20%

28.30%

1 question correct 17.10%

32.60%

0 questions correct 7.70%

6.50%

Figure 4.37: Savings and borrowing questions correct (finance-related

group compared to the non-finance-related group)

Source: SPSS output

Table 4.24: Pearson Chi-Square Test of savings and borrowings

Asymp. Sig.
Value Df (2-sided)

Pearson Chi-Square 5.431 a 5 .366

Source: SPSS output

When comparing the finance students to the non-finance students for this topic, the
majority of finance students, 34.2% (n=40), managed to answer two out of the five
questions correctly as opposed to the non-finance students who obtained 28.3% (n=13).
The majority of the non-finance students, 32.6% (n=15) obtained one out of five compared
to 17.1% (n=20) finance students. The other number of correct answers achieved for this
topic did not greatly vary. The Pearson chi-square test, performed to observe if there was
a significant difference between the two groups in terms of the percentage of the correctly
answered number of questions for this section, revealed that there was not a significant
difference (0.366 > 0.05) at a 5% confidence level between the finance and non-finance
groups in terms of their literacy regarding savings and borrowings. Field of study does
therefore not influence and is therefore not significant in determining the savings and
borrowing content area of financial literacy.

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Markets and instruments

Finance related diploma Non-finance related diploma

13.70%
3 questions correct
15.20%

42.70%
2 questions correct
43.50%

41.00%
1 question correct
34.80%

2.60%
0 questions correct
6.50%

Figure 4.38: Markets and instruments questions correct (finance-related group

compared to the non-finance-related group)

Source: SPSS output

Table 4.25: Pearson Chi-Square Test of markets and instruments

Value Df Asymp. Sig. (2-sided)

Pearson Chi-Square 1.793 a 3 .617

Source: SPSS output

When comparing the finance students to the non-finance students for this topic, the
majority of both finance, 42.7% (n=50) and non-finance, 43.5% (n=20) students managed
to correctly answer two out of the three questions. The non-finance students not only
performed slightly better than the finance students in correctly answering two out of the
three questions, but surprisingly also performed slightly better than the finance students
with 15.2% (n=7) compared to 13.7% (n=16) students who had all three questions correct.
The Pearson chi-square test performed to observe if there was a significant difference
between the two groups in terms of the percentage of correctly answered questions for
this section revealed that there was not a significant difference (0.617 > 0.05) at a 5%
confidence level between the finance and non-finance groups in terms of understanding
markets and instruments. Field of study does therefore not influence and is therefore not
significant in determining the markets and instrument content area of financial literacy.

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Basic concepts

Finance related diploma Non-finance related diploma

4 questions correct 19.70%

15.20%

3 questions correct 45.30%

28.30%

2 questions correct 29.90%

28.30%

1 question correct 4.30%

23.90%

0 questions correct 0.90%

4.30%

Figure 4.39: Basic concepts questions correct (finance-related group

compared to the non-finance-related group)

Source: SPSS output

Table 4.26: Pearson Chi-Square Test of basic concepts

Value Df Asymp. Sig. (2-sided)

Pearson Chi-Square 17.915 a 4 .001

Source: SPSS output

The majority of the finance group, 45.3% (n=53) had three out of four questions in this
section correct, followed by 29.9% (n=35) who had two out of four correct and 19.7%
(n=23) who had all four question correct. In the non-finance group there was an equal
number of students who had two and three out of four questions correct, namely 28.3%
(n=13) for both. This was followed by 23.9% (n=11) who only had one out of the four
questions correct and 15.2% (n=7) who had all the question correct. In the case of the
basic concepts, the Pearson chi-square test reveals a significant difference (0.001 < 0.05)
at a 5% confidence level between the finance and non-finance groups in terms of
grasping basic concepts. Field of study does therefore influence and is therefore
significant in determining the basic concepts content area of financial literacy. The finance
students tend to know more about basic concepts than the non-finance students.

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Financial planning

Finance related diploma Non-finance related diploma

4 questions correct 1.70%

13.00%

3 questions correct 23.10%

23.90%

2 questions correct 46.20%

21.70%

1 question correct 27.40%

30.40%

0 questions correct 1.70%

10.90%

Figure 4.40: Financial planning questions correct (finance-related group

compared to the non-finance-related group)

Source: SPSS output

Table 4.27: Pearson Chi-Square Test of financial planning

Value Df Asymp. Sig. (2-sided)

Pearson Chi-Square 20.227 a 4 .000

Source: SPSS output

The majority of the finance group, 46.2% (n=54) had two out of the four questions in this
section correct, followed by 27.4% (n=32) who had one out of four correct, 23.1% (n=27)
who had three out of four questions correct and an equal number of students who had
either all questions or no questions correct, namely 1.7% (n=2). The majority of non-
finance students only managed to score one out of four, 30.4% (n=14), followed by 23.9%
(n=11) who had three out of four questions correct and 21.7% (n=10) who had two out of
four questions correct. Significantly, although only 1.7% of the finance students had all
questions incorrect compared to 10.9% (n=5) non-finance students, only 1.7% finance
students also managed to get all questions correct compared to 13% (n=6) non-finance
students who had all questions correct. The Pearson chi-square test confirms that there is
a significant difference (0.000 < 0.05) at a 5% confidence level between the finance and

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non-finance groups in terms of understanding financial planning concepts. Field of study
does therefore influence and is therefore significant in determining the financial planning
content area of financial literacy. Interestingly enough the non-finance students tend to
know slightly more about financial planning than the finance students.

Insurance

Finance related diploma Non-finance related diploma

22.20%
3 questions correct
17.40%

41.00%
2 questions correct
28.30%

30.80%
1 question correct
41.30%

6.00%
0 questions correct
13.00%

Figure 4.41: Insurance questions correct (finance-related group compared

to the non-finance-related group)

Source: SPSS output

Table 4.28: Pearson Chi-Square Test of insurance

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 4.957 a 3 .175

Source: SPSS output

The majority of finance students, 41% (n=48), had two out of three questions correct
compared to 28.3% (n=13) obtained by non-finance students. The majority of non-finance
students, 41.3% (n=19) had one out of three questions correct and the finance students
30.8% (n=36). The finance students also did slightly better in both the percentage of
students who answered all questions correctly and in the section of students who
answered all questions incorrectly. Finance students obtained a higher percentage for all
three questions correct with 22.2% (n=26) compared to the non-finance students, 17.4%

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(n=8), and finance students obtained a lower percentage for all questions incorrect with
6% (n=7) compared to 13% (n=6) of non-finance students. According to the Pearson chi
square test there is not a significant difference (0.175 > 0.05) between the finance and
non-finance groups’ results at a 5% confidence level in terms of understanding insurance
concepts. Field of study does therefore not influence and is therefore not significant in
determining the insurance content area of financial literacy.

4.5 LIMITATIONS

Data was collected from the 2011 third-year diploma students of the University of
Johannesburg, Bunting Road campus. A limitation of the study is that it cannot be
generalised to other year groups, universities or campuses. Furthermore, the truthfulness
with which respondents answered the questions cannot be guaranteed. Although all 163
students invited to participate completed the questionnaire, some did not answer all the
questions. This may have been because the questionnaire, in line with the Jump$tart
questionnaire, did not provide students with an “I do not know” option as an alternative to
each of the questions. As all students completed the questionnaire in the allocated 30
minutes it was assumed that instead of guessing students did not provide an answer to
the questions they did not know. In line with this assumption these omitted answers in
section B were treated as incorrect in terms of the data analysis. Although there was not
always enough variation in the demographic and background characteristics of the total
sample to test their influence on financial literacy levels, this added to the reliability of the
main aim of the study, namely testing whether field of study (finance or non-finance-
related diploma) influences financial literacy levels without being influenced by these
demographic and background characteristics.

4.6 CONCLUSION

The demographic and background characteristics of the sample indicate that the majority
of the finance-related diploma was female, compared to the majority of the non-finance-
related diploma who were male. Most of the finance and non-finance-related group were
in the 21 to 23 year age category. The majority of the finance-related respondents were
Sotho compared to the majority of the non-finance-related respondents who were English.
In terms of demographics, the finance group were predominantly black and the non-
finance group mostly white for the current study. The majority of the finance and non-
finance-related group were single and did not have children. The non-finance-related

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students mostly lived with their parents, compared to the finance-related students who
mostly stayed in shared student accommodation off campus. The majority of finance
students did not have any work experience while the majority of non-finance students had
one year’s part-time work experience. The majority of both the finance and non-finance-
related groups indicated that the highest level of schooling completed by their mothers
and fathers was high school. The studies of the majority of students from both the finance
and non-finance group are funded by their parents and/or family. The majority of both the
finance and non-finance groups have a bank account, but do not have a credit card.
Furthermore, most of the finance and non-finance group have not taken a personal
finance course.

Sub-question One: How financially literate are the 2011 third-year diploma students
studying at the University of Johannesburg?

The financial literacy scores of the respondents range from 5.26% to 84.21%. The results
show students having low levels of financial literacy with an average financial literacy
score of 53.4%. According to the financial literacy rating score used by Jump$tart
coalition, a respondent needs to obtain at least 60% to be considered financially literate.
The average score achieved by the sample (53.4%) falls below this and indicates that the
financial literacy levels of the majority of third-year University of Johannesburg diploma
students of 2011 were low.

Sub-Question Two: In which content areas of financial literacy did students demonstrate
better or worse achievements?

The results indicate that students performed the worst in the savings and borrowings
section and achieved the best results in the basic concepts section. This may be because
they were more familiar with the questions in the basic concept section as they received
more exposure and actively participated in these basic concepts as opposed to saving
and borrowing. The findings and implications of these data are discussed in Chapter 5.

Sub-Question Three: Which demographic and background characteristics influence

financial literacy?

Many of the demographic and background characteristics could not be tested because of
a lack of variation in the total sample. In contradiction to previous research, the results
indicated that many of the demographic and background characteristics that could be

99
tested did not seem to have a significant impact on financial literacy levels. The only
significant differences identified from the results were students whose parents paid for
their studies were more likely to possess higher levels of financial literacy than the top
quartile and students whose studies were funded through a NSFAS loan or Sotho
students were more likely to possess lower levels of financial literacy than the bottom
quartile.

Sub-Question Four: How do students’ perceptions of financial literacy compare to their

actual financial literacy levels?

Although the finance and non-finance students mostly considered themselves to be

financially literate to a moderate extent (45.6%), there were a number of students (29.7%)
who considered themselves to be financially literate to a large extent. If these ratings
students gave themselves are compared to the results of their actual financial literacy
levels, with an average financial literacy score of 53.4%, it indicates that there is a gap
between what students think they know and what they actually know.

Overall Research Question: Do students who study towards a diploma in a finance-

related field have higher financial literacy levels than those students studying towards a
diploma in a non-finance-related field of study?

The results support the majority of previous research, showing that field of study
influences financial literacy and that on average finance students are more financially
literate than non-finance students. Although the finance students (54.97%) performed
better than the non-finance students (49.43%) the difference in their results was smaller
than anticipated. This could possibly be explained by looking at some of the demographic
and background characteristics identified as influencing financial literacy.

Question 3 looked at which demographic and background characteristics influence

financial literacy. The results (Fischer’s exact test) indicated language (Sotho) and
funding (Parents and NSFAS) influence financial literacy. Since students who are Sotho
tend to have lower levels of financial literacy and the Pearson Chi-square test indicated a
statistically significant difference between finance respondents who were Sotho compared
to non-finance-related respondents and 46.2% (n=54) finance students were Sotho
compared to only 26.7 (n=12) non-finance students, could explain why the margin in the
financial literacy results achieved by the finance and non-finance group were smaller than
anticipated. Although students whose studies were funded by an NSFAS loan tended to

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have lower levels of financial literacy and students whose parents funded their studies
tended to have higher levels of financial literacy, that the Pearson Chi-square test
indicated no statistically significant difference in the funding of finance compared to non-
finance students via NSFAS loans or parents respectively, indicates that it cannot be used
to explain the small variation in the financial literacy levels of the finance-related group
compared to the non-finance-related group. In terms of content area only the content
areas of basic concepts and financial planning indicated a statistically significant
difference between the finance compared to the non-finance group. The finance students
tended to know more about basic concepts than the non-finance students and the non-
finance students tended to know slightly more about financial planning than the finance
students.

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 CHAPTER 5

FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

In Chapter 4 a detailed analysis of the findings were provided. This chapter will firstly
provide a summary of the main findings reported for each research question as well as
the contribution of this study. Secondly, the limitations of the study and recommendations
of the findings for future research are discussed. Finally, some conclusions are drawn.

5.2 SUMMARY OF FINDINGS AND CONTRIBUTION OF STUDY

There were a number of significant findings from the research.

5.2.1 Overall financial literacy levels of third- year diploma students

The first sub-question examined the financial literacy levels of third-year university
students studying towards a diploma at the University in 2011. The average score
achieved by the entire sample (both finance and non-finance-related students) was a
meagre 53.4%. This score indicates that third-year diploma students of 2011 possessed
low levels of financial literacy and is in line with previous studies that have identified
financial literacy levels of university students to be low (Avard et al., 2005; Beal &
Delpachitra, 2003; Ibrahim et al., 2009; Marcolin & Abraham 2006). Low levels of financial
literacy thus seem to be a universal challenge as the findings of Question 1 of the study
correspond to those of other financial literacy studies undertaken in the USA, Australia,
New-Zealand, the UK and other European countries. This is of concern as these students
are about to embark on their journey into the working world, where they will be faced with
various financial decisions which require one to be financially literate in order to make the
best decisions from early on and secure their own financial wellbeing.

Sub-question 2 examined in which areas (savings and borrowings, markets and

instruments, basic concepts, financial planning and insurance) of financial literacy
students demonstrated better or worse achievements. The results indicated that students
faired the best in the basic concepts section. This may be due to the fact that they were
more familiar with the questions in this section and also actively participated in some of
these basic concepts in their daily lives. Students achieved the worst results in the
savings and borrowings section. This is also of concern, especially as some of these

102
students funded their studies through loans and may not understand the terms and
conditions of their loan repayments. Furthermore, South Africans have a high debt and
low savings culture and it is therefore crucial to increase the financial literacy content area
of savings and borrowings as it is important to know the benefits of saving from early on in
one’s life for adequate retirement. Introducing a financial curriculum and financial
education programme might be something to be considered by government and banks,
especially to promote saving and educate consumers about debt.

5.2.2 Influence of demographic and background factors on financial literacy

The third sub-question examined which demographic and background characteristics

influence financial literacy. In performing statistical analysis on the difference in
demographic and background factors between the finance and non-finance-related
diploma groups the following was found: only gender, language (Afrikaans, English,
Nguni, Sotho), race, accommodation, work experience, funding (bank loans) and bank
account indicated a statistically significant difference between the two groups (Table
4.32).

Furthermore, the following demographic and background characteristics could not be

further analysed to determine if they influence financial literacy levels because of a lack of
variation or adequate representation within the total sample, namely age, language
(Afrikaans, Portuguese, Venda Tsonga), race, marital status, children, work experience (3
years part-time, 1 year full-time, 2 years full-time, 3 years full-time, 4 or more years full-
time), funding (I paid for it myself, I have a bursary, I have a sponsorship, Edu-loan, bank
loan), bank account, credit card, personal finance course. Although the demographic and
background characteristics discussed were identified by past research to influence
financial literacy levels, in contradiction with prior research, gender, language (English
and Nguni), all accommodation, work experience (none, 1 year part-time, 2 years part-
time) and parental education did not indicate a statistical significant impact on the
financial literacy level of third-year diploma students as their Fischer exact test values
were more than 0.05. Only language (Sotho) and funding (via parents and NSFAS) were
identified to be statistically significant in explaining the variation in financial literacy levels
of respondents who achieved higher financial literacy scores compared to those who
scored lower. Firstly, students who are Sotho-speaking are more likely to possess lower
levels of financial literacy than the bottom quartile. Secondly, students whose parents paid
for their studies were more likely to possess higher levels of financial literacy than the top

103
quartile and students whose studies were funded through an NSFAS loan were more
likely to possess lower levels of financial literacy than the bottom quartile.

All the questions were asked in English and although all students should be proficient in
English as all their lectures are in English, which is not their home language, that students
who are Sotho speaking tend to have lower levels of financial literacy could indicate
language to be a barrier. This could potentially also influence their marks in their other
modules.

Method of funding studies via parents and/or family paying indicated higher levels of
financial literacy. This could be because of students realising the cost implications if they
do not pass and being more involved with the finances whereas the majority of students
who are funded through an NSFAS loan come from poor families who are not very
involved or do not have access to financial experience.

Of the demographic and background characteristic to influence financial literacy, namely

method of funding studies (parents and/or family paid and NSFAS) and language (Sotho),
language (Sotho) was the only one to also indicate a statistically significant difference
between the finance students who were Sotho compared to the non-finance students, and
could be used to explain the impact of field of study on financial literacy (refer to 5.2.3
below).

5.2.3 Impact of the field of study on financial literacy levels

The main research question addressed the influence of the field of study on the level of
financial literacy by comparing the financial literacy scores of the finance-related group
with those of the non-finance-related group. This study supports the majority of previous
research (Chen & Volpe, 1998 & 2002; Hanna, Hill & Perdue, 2010; Marcolin & Abraham,
2006) that has found field of study to influence financial literacy and that finance students
are more financially literate than other majors. Although the finance students (54.97%)
performed better than the non-finance students (49.43%), supporting previous research
studies in which business or finance students were found to achieve better results, the
difference in the scores was smaller than anticipated. This could possibly be explained by
the fact that language (Sotho) was identified as influencing financial literacy. Students
who were Sotho tend to have lower levels of financial literacy and the Pearson Chi-square
test indicated a statistically significant difference between finance respondents, who were
Sotho compared to non-finance-related respondents. More finance students, 46.2% are
Sotho-speaking compared to 26.7% of non-finance students.

104
When comparing the results of the finance and non-finance groups in the five different
content areas the findings showed that only basic concepts and financial planning
indicated a statistically significant difference between the finance compared to the non-
finance group. The finance students tend to know more about basic concepts than the
non-finance students and the non-finance students tend to know slightly more about
financial planning than the finance students. No statistically significant difference was
found in the results of the finance compared to the non-finance group for the content
areas of savings and borrowing, markets and instruments and insurance.

Finance students might be more financially literate and know more about basic concepts
than non-finance students as they receive more exposure to financial aspects through
their studies. Because they are studying in a finance-related field they are naturally more
interested and read more about financial matters than students from a non-finance field.
Non-finance students on the other hand might know more about financial planning due to
having more work experience.

5.2.4 Perceptions and financial literacy

Question 4 asked students for their perceptions on their own financial literacy levels. The
majority of both the finance and non-finance students considered themselves to be
moderately financially literate. In contradiction with student perceptions that they are
moderately financially literate, the financial literacy score achieved by both groups was
low. These findings are in line with previous research, which indicate that students
consider their financial literacy levels to be higher than they actually are (Policy brief, July
2006). As students thus think they are moderately financially literate, they may not make
an effort to increase their financial literacy levels or they may think that they do not need
financial education when the results indicate that they do.

5.3 LIMITATIONS

As a result of the limited scope and research methods used, the findings of this study
have to be considered in light of the limitations presented below. The results and findings
cannot be generalised to all South African Universities or other University of
Johannesburg campuses as they are university- and campus-specific. Although the
sample was representative of the population, the results could also have varied slightly if
different diploma groups were selected. This study was a cross-sectional study with data
taken at a specific time and all generalisations drawn should be limited to the population

105
sampled or cautiously applied to groups and settings that closely resemble those included
in this study. Many of the demographic and background characteristics identified by
previous research to influence financial literacy could not be analysed as there was not
enough variation or adequate representation within the total sample. For example, the
demographics of the majority of finance students on the Bunting Road campus were black
and therefore the influence of race on financial literacy could not be tested. Nor could the
honesty of respondents be guaranteed.

Although not all the Jump$tart coalition (2008) questionnaire questions were included in
this research questionnaire, all of the content areas and the required finance concepts
were however still tested. Due to the lack of a standardised financial literacy
questionnaire, comparison will be difficult with other studies that did not incorporate the
Jump$tart questionnaire. The majority of previous research does not provide standard
financial literacy measurement criteria and it is unclear how much respondents should
score in order to be classified as financially literate. Furthermore the questionnaire did not
provide students with an “I do not know” option as an answer to any of the questions and
all omitted questions were treated as incorrect in terms of the data analys is. The
questionnaire did not ask students whether they had Mathematics at school or what their
mark was. Low marks or not having taken the subject may also have influenced financial
literacy levels (Samy et al., 2007).

5.4 RECOMMENDATIONS FOR FUTURE RESEARCH

An opportunity for future research would be to develop a standardised financial literacy

definition, content areas and clear, consistent criteria when measuring financial literacy to
enable comparison studies. The current study also only examined the 2011 third-year
diploma students from the University of Johannesburg, Bunting Campus. Future research
could expand this study to include different South African universities and campuses, as
well as degree students and students graduating after 2011. Furthermore, various studies
have examined the demographic and background characteristics that influence financial
literacy and yet there have been some contradicting findings. It could be worth exploring
these demographic and background characteristics that influence financial literacy further
and why they influence financial literacy. Research has also shown that financial literacy
improves with financial education, but further research is required to test whether financial
literacy improves financial behaviour. Research on behavioural finance should thus also
be expanded to better understand the link between knowledge and behaviour. Studies
have also shown that numeracy skills influence financial literacy levels (Samy et al., 2007)

106
and future studies could explore the link between Mathematics marks and financial
literacy.

5.5 CONCLUSION

This study provides insight into the financial literacy levels of a sample of third-year
diploma students in the South African context. Although the majority of students thought it
to be very important for diploma graduates to be financially literate once they graduate,
the results of the study indicate financial literacy levels of the overall sample to be low.
Students obtained the worst results in the savings and borrowings section and achieved
the best results in the basic concepts section of the content areas of financial literacy.

When considering the impact of demographic factors on financial literacy levels it was
found that students whose parents paid for their studies were more likely to possess
higher levels of financial literacy than the upper quartile, and students whose studies were
funded through a NSFAS loan and/or were Sotho were more likely to possess lower
levels of financial literacy than the lower quartile.

When considering the impact of the field of study on financial literacy levels it was found
that on average the finance-related group was marginally more financially literate than the
non-finance group. When comparing the results of the two groups in the five different
content areas the findings showed that only basic concepts and financial planning
indicated a statistically significant difference between them. The finance students tended
to know more about basic concepts than the non-finance students and the non-finance
students tended to know slightly more about financial planning than the finance students.

The results further indicate that although financial literacy levels were low, the majority of
students considered themselves to be moderately financially literate and thought they did
not need financial education. Financial literacy through financial education is especially
important for them to have the ability to make informed financial decisions as these
decisions could affect them for the rest of their lives. Knowing that these university
students have low levels of financial literacy, the question arises as to what can or needs
to be done to increase financial literacy and would students be more financially literate if
they were presented with financial education. Using these questions, researchers,
politicians, and other stakeholders could work together to increase financial literacy. For
example, they could include a personal finance course as part of the curriculum of all high
school or university students. Many students fund their studies with loans and debt
literacy could be particularly valuable as part of the personal finance curriculum. This will
equip students with a better chance at succeeding in today’s increasingly complicated

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economy. Just as AIDS prevention/education is a priority and at the forefront of
awareness campaigns in South Africa, so should be financially literacy. Merely being
financially literate however is not enough. Individuals also require discipline and self-
control in order to change their financial behaviour.

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Appendix 1: Financial literacy questionnaire

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Appendix 2: Jump$tart coalition (2008) survey of personal financial literacy among
college students

Part 1 - 31 Jump$tart Questions

1. Inflation can cause difficulty in many ways. Which group would have the greatest problem
during periods of high inflation that last several years?

a.) Older, working couples saving for retirement.

b.) Older people living on fixed retirement income.
c.) Young couples with no children who both work.
d.) Young working couples with children.

2. Which of the following is true about sales taxes?

a.) The national sales tax percentage rate is 6%.

b.) The federal government will deduct it from your paycheck.
c.) You don’t have to pay the tax if your income is very low.
d.) It makes things more expensive for you to buy.

3. Rebecca has saved $12,000 for her college expenses by working part-time. Her plan is to
start college next year and she needs all of the money she saved. Which of the following is the
safest place for her college money?

a.) Locked in her closet at home.

b.) Stocks.
c.) Corporate bonds.
d.) A bank savings account.

4. Which of the following types of investment would best protect the purchasing power of a
family’s savings in the event of a sudden increase in inflation?

a.) A 10-year bond issued by a corporation.

b.) A certificate of deposit at a bank.
c.) A twenty-five year corporate bond.
d.) A house financed with a fixed-rate mortgage.

5. Under which of the following circumstances would it be financially beneficial to you to

borrow money to buy something now and repay it with future income?

a.) When you need to buy a car to get a much better paying job.
b.) When you really need a week vacation.
c.) When some clothes you like go on sale.
d.) When the interest on the loan is greater than the interest you get on your savings.

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6. Which of the following statements best describes your right to check your credit history for
accuracy?

a.) Your credit record can be checked once a year for free.
b.) You cannot see your credit record.
c.) All credit records are the property of the U.S. Government and access is only available tothe
FBI and Lenders.
d.) You can only check your record for free if you are turned down for credit based on a credit
report.

7. Your take home pay from your job is less than the total amount you earn. Which of the
following best describes what is taken out of your total pay?

a.) Social security and Medicare contributions.

b.) Federal income tax, property tax, and Medicare and Social Security contributions.
c.) Federal income tax, social security and Medicare contributions.
d.) Federal income tax, sales tax, and social security contribution.

8. Retirement income paid by a company is called:

a.) 401 (k).

b.) Pension.
c.) Rents and profits.
d.) Social Security.

9. Many people put aside money to take care of unexpected expenses. If Juan and Elva have
money put aside for emergencies, in which of the following forms would it be of LEAST benefit to
them if they needed it right away?

a.) Invested in a down payment on the house.

b.) Checking account.
c.) Stocks.
d.) Savings account.

10. David just found a job with a take-home pay of $2,000 per month. He must pay $900 for
rent and $150 for groceries each month. He also spends $250 per month on transportation. If he
budgets $100 each month for clothing, $200 for restaurants and $250 for everything else, how
long will it take him to accumulate savings of $600.

a.) 3 months.
b.) 4 months.
c.) 1 month.
d.) 2 months.

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11. Sara and Joshua just had a baby. They received money as baby gifts and want to put it away
for the baby’s education. Which of the following tends to have the highest growth over periods of
time as long as 18 years?

a.) A checking account.

b.) Stocks.
c.) A U.S. Govt. savings bond.
d.) A savings account.

12. Barbara has just applied for a credit card. She is an 18-year-old high school graduate with
few valuable possessions and no credit history. If Barbara is granted a credit card, which of the
following is the most likely way that the credit card company will reduce ITS risk?

a.) It will make Barbara’s parents pledge their home to repay Karen’s credit card debt.
b.) It will require Barbara to have both parents co-sign for the card.
c.) It will charge Barbara twice the finance charge rate it charges older cardholders.
d.) It will start Barbara out with a small line of credit to see how she handles the account.

13. Chelsea worked her way through college earning $15,000 per year. After graduation, her first
job pays $30,000. The total dollar amount Chelsea will have to pay in Federal Income taxes in her
new job will:

a.) Double, at least, from when she was in college.

b.) Go up a little from when she was in college.
c.) Stay the same as when she was in college.
d.) Be lower than when she was in college.

14. Which of the following best describes the primary sources of income for most people age
20-35?

a.) Dividends and interest.

b.) Salaries, wages, tips.
c.) Profits from business.
d.) Rents.

15. If you are behind on your debt payments and go to a responsible credit counseling service
such as the Consumer Credit Counseling Services, what help can they give you?

a.) They can cancel and cut up all of your credit cards without your permission.
b.) They can get the federal government to apply your income taxes to pay off your debts.
c.) They can work with those who loaned you money to set up a payment schedule that you
can meet.
d.) They can force those who loaned you money to forgive all your debts.

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16. Rob and Mary are the same age. At age 25 Mary began saving $2,000 a year while Rob saved
nothing. At age 50, Rob realized that he needed money for retirement and started saving $4,000
per year while Mary kept saving her $2,000. Now they are both 75 years old. Who has the most
money in his or her retirement account?

a.) They would each have the same amount because they put away exactly the same
b.) Rob, because he saved more each year
c.) Mary, because she has put away more money
d.) Mary, because her money has grown for a longer time at compound interest

17. Many young people receive health insurance benefits through their parents. Which of the
following statements is true about health insurance coverage?

a.) You are covered by your parents’ insurance until you marry, regardless of your age.
b.) If your parents become unemployed, your insurance coverage may stop, regardless of your
age.
c.) Young people don’t need health insurance because they are so healthy.
d.) You continue to be covered by your parents’ insurance as long as you live at home,
regardless of your age.

18. Don and Bill work together in the finance department of the same company and earn the
same pay. Bill spends his free time taking work-related classes to improve his computer skills;
while Don spends his free time socializing with friends and working out at a fitness center. After
five years, what is likely to be true?

a.) Don will make more because he is more social.

b.) Don will make more because Bill is likely to be laid off.
c.) Bill will make more money because he is more valuable to his company.
d.) Don and Bill will continue to make the same money.

19. If your credit card is stolen and the thief runs up a total debt of $1,000, but you notify the
issuer of the card as soon as you discover it is missing, what is the maximum amount that you can
be forced to pay according to Federal law?

a.) $500
b.) $1000
c.) Nothing
d.) $50

20. Which of the following statements is NOT correct about most ATM (Automated Teller
Machine) cards?

a.) You can generally get cash 24 hours-a-day.

b.) You can generally obtain information concerning your bank balance at an ATM machine.

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c.) You can get cash anywhere in the world with no fee.
d.) You must have a bank account to have an ATM Card.

21. Matt has a good job on the production line of a factory in his home town. During the past
year or two, the state in which Matt lives has been raising taxes on its businesses to the point
where they are much higher than in neighboring states. What effect i s this likely to have on
Matt’s job?

a.) Higher business taxes will cause more businesses to move into Matt’s state, raising wages.
b.) Higher business taxes can’t have any effect on Matt’s job.
c.) Mark’s company may consider moving to a lower-tax state, threatening Matt’s job.
d.) He is likely to get a large raise to offset the effect of higher taxes.

22. If you have caused an accident, which type of automobile insurance would cover damage to
your own car?

a.) Comprehensive.
b.) Liability.
c.) Term.
d.) Collision.

23. Scott and Eric are young men. Each has a good credit history. They work at the same
company and make approximately the same salary. Scott has borrowed $6,000 to take a foreign
vacation. Eric has borrowed $6,000 to buy a car. Who is likely to pay the lowest finance charge?

a.) Eric will pay less because the car is collateral for the loan.
b.) They will both pay the same because the rate is set by law.
c.) Scott will pay less because people who travel overseas are better risks.
d.) They will both pay the same because they have almost identical financial backgrounds.

24. If you went to college and earned a four-year degree, how much more money could you
expect to earn than if you only had a high school diploma?

a.) About 10 times as much.

b.) No more; I would make about the same either way.
c.) A little more; about 20% more.
d.) A lot more; about 70% more.

25. Many savings programs are protected by the Federal government against loss. Which of the
following is not?

a.) A U. S. Savings Bond.

b.) A certificate of deposit at the bank.
c.) A bond issued by one of the 50 States.

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d.) A U. S. Treasury Bond.

26. If each of the following persons had the same amount of take home pay, who would need
the greatest amount of life insurance?

a.) An elderly retired man, with a wife who is also retired.

b.) A young married man without children.
c.) A young single woman with two young children.
d.) A young single woman without children.

27. Which of the following instruments is NOT typically associated with spending?

a.) Debit card.

b.) Certificate of deposit.
c.) Cash.
d.) Credit card.

28. Which of the following credit card users is likely to pay the GREATEST dollar amount in
finance charges per year, if they all charge the same amount per year on their cards?

a.) Jessica, who pays at least the minimum amount each month and more, when she has the
money.
b.) Vera, who generally pays off her credit card in full but, occasionally, will pay the
minimum when she is short of cash.
c.) Megan, who always pays off her credit card bill in full shortly after she receives it.
d.) Erin, who only pays the minimum amount each month.

29. Which of the following statements is true?

a.) Banks and other lenders share the credit history of their borrowers with each other and are
likely to know of any loan payments that you have missed.
b.) People have so many loans it is very unlikely that one bank will know your history with
another bank.
c.) Your bad loan payment record with one bank will not be considered if you apply to another
bank for a loan.
d.) If you missed a payment more than 2 years ago, it cannot be considered in a loan decision.

30. Dan must borrow $12,000 to complete his college education. Which of the following would
NOT be likely to reduce the finance charge rate?

a.) If he went to a state college rather than a private college.

b.) If his parents cosigned the loan.
c.) If his parents took out an additional mortgage on their house for the loan.
d.) If the loan was insured by the Federal Government.

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31. If you had a savings account at a bank, which of the following would be correct concerning
the interest that you would earn on this account?

a.) Earnings from savings account interest may not be taxed.

b.) Income tax may be charged on the interest if your income is high enough.
c.) Sales tax may be charged on the interest that you earn.
d.) You cannot earn interest until you pass your 18th birthday.

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