Testing the effects of financial literacy on debt behavior of financial consumers using multivariate analysis methods

Abstract

The aim of this paper is threefold. First, to detect and categorize Croatian financial consumers’ financial literacy and analyze whether the different levels of financial literacy is statistically significant in terms of socio-demographic characteristics. The second objective is determining whether a respondent’s debt behavior differs based on their financial literacy. Further, the paper aims to examine sources of different debt behavior in relation to financial literacy. Cluster analysis is used to categorize financial literacy and determine whether a respondent’s financial literacy differs due to gender and level of disposable income. Here, the nonparametric chi-square test is applied. The effects of financial literacy on debt behavior are investigated using a rank-based nonparametric test, specifically the Kruskal Wallis H test. Finally, the paper will examine the source of differences in debt behavior based on different levels of financial literacy, and a post hoc analysis using Dunnett’s C test will be conducted. The results suggest that respondents exhibit different debt behavior due to different levels of financial literacy. In addition, the level of disposable household income per household member was found to be statistically insignificant with respect to different levels of financial literacy, while such levels were found to be statistically significantly different when compared to a respondent’s gender.