Financial self-efficacy
Belief in one’s own ability to manage money: budget, cope with an unexpected bill, reach a saving goal, deal with banks and forms. It is about confidence in handling money, not knowledge of finance or the amount one has.
What drives it
Believing one can handle money makes it bearable to look at accounts and plan, which then builds skill. Low belief leads to handing it over or giving up. Useful for identification because people with the same income and knowledge behave very differently depending on it.
How it shows
Work
Low: avoids the budget side of a manager’s role, defers to finance on numbers they could check, won’t negotiate pay because they can’t argue the figures. High: asks about the pension, reads the payslip, spots the error.
Relationships
Low: one partner says ‘I’m just not a money person’ and has never logged into the joint account. After divorce or bereavement, the person who never handled money may freeze at the first tax letter.
Self
Notice what you say to yourself when a money task appears: ‘I can work this out’ or ‘I’m hopeless with this’.
What tells it apart
Self-efficacy: Self-efficacy is the general concept and is always tied to a task. Financial self-efficacy is the money version, and a person may be confident at work and helpless with a tax form.
Locus of control: Locus of control is whether outcomes feel caused by oneself or by outside forces. Financial self-efficacy is belief in one’s own skill, and someone may blame the economy for their debt yet still feel able to run a budget.
Learned helplessness: Learned helplessness is giving up after repeated failure that was out of one’s control. Low financial self-efficacy may be the issue when the person never learned the tasks, rather than tried and failed.
A test
Hand them a bank statement or a bill with an error and ask them to talk it through. Freezing or handing it back fast, when they could follow it, may point to low financial self-efficacy.
Questions to carry
- When the unexpected bill arrived, who in the house opened it, and who decided what to do?
- Which money task do I hand to someone else, and when did I decide I couldn’t do it?
How strong the research is
moderate. Measured with scales such as Lown’s (2011), and linked with holding savings rather than debt even after controlling for income and financial literacy in Australian women (Farrell, Fry and Risse, 2016) and with less perceived difficulty repaying student loans later on (Shim, Serido and Lee, 2019). Most studies are self-report and correlational, so confidence may follow good outcomes as much as cause them, and the validity evidence for the early scale was limited.
Where it comes from
Albert Bandura, self-efficacy, 1977. Financial Self-Efficacy Scale by Jodi Lown, 2011