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ASSET: new measure of economic and financial literacy

ASSET is a new short scale that evaluates financial literacy in teenagers and young adults, developed by researchers at Cambridge Judge Business School.

A new measure of financial literacy in young people.

It covers key concepts such as compound interest, risk diversification and inflation. The team carried this work out in order to improve on existing tests by involving practical scenarios that match the life experiences of young people. As a result, it goes beyond theoretical understanding of financial concepts to capture how such concepts are applied to everyday decision making.

It has been widely reported that young people tend to have poor financial literacy. For example, a study involving Australian teenagers suggest that even those with good theoretical knowledge might not be able to apply that knowledge to their everyday decision-making. This is particularly problematic because the rising cost of higher education in most countries require young people to make high-stakes financial decisions that will have a long-term impact on their future. Over the past 30 years, tuition costs have increased nine-fold in England, more than four times the rate of inflation. In order to develop teaching materials and tools that empower young people to make informed decisions the ability to accurately measure their financial literacy is a prerequisite.

The ASSET scale was originally developed by Jovana Gjorgijovska (Caius College) as part of her MPhil in Social and Developmental Psychology. The measure was developed with British secondary school students from a wide range of backgrounds. Researchers, including Dr Tomas Folke at the Centre for Business Research at Cambridge Judge Business School, then conducted additional studies and analyses, including validating the method on young adults in the US. The new scale has better psychometric properties than existing assessments, which means that it is more likely to capture real differences between groups. It captures a wider range of financial skill levels, which is important when evaluating interventions because it helps to determine how much better people get. Finally, questions were framed in terms of real-life decisions, in order to make sure that responses captured applied rather than abstract financial knowledge. As a result, students that scored highly on the new scale also reported engaging in more responsible budgeting and savings behaviours.

We hope ASSET will be used both to help flag young people with poor financial literacy so that they can get additional support, as well as to evaluate financial literacy education to inform the way we teach. In the long run, this research can help ensure that young people are better equipped to make informed financial decisions.

Dr Tomas Folke, one of the co-authors of the study