Abstract:

The globally integrated nature of modern economies has increased the complexity of the socio-economic context, particularly with reference to economic and financial issues.

Individuals are increasingly required to make financial decisions, such as saving for retirement, expenditure on education and health, or buying a home, with the consequence that financial literacy is becoming an increasingly important and frequently investigated determinant of human capital formation and development.

Financial education is particularly important in the earliest stages of life, because young people need preparing themselves to deal with increasingly complex financial decisions in the future. According to OECD (Organisation for Economic Co-operation and Development) (2012) , financial literacy is a multidimensional measure that is a composite of individual traits such as cognitive ability, personality type, and preferences. This definition encompasses the motivation to seek information and advice in order to engage in financial activities, the confidence to do so, and the ability to manage emotional and psychological factors that can influence financial decision making.

In this light, our paper examines the latent determinants of financial literacy among Italian students using data from the 2012 Programme for International Student Assessment (PISA) survey.

A Multilevel Structural Equation Model (MSEM) is used to examine the effects on financial literacy achievement of several latent dimensions, as personal attitudes, socio-economic background, mathematic attitudes and school characteristics. The choice of this model is dictated by both the hierarchical nature of PISA data (student nested in schools) both from the possibility to deepen the interactions between latent dimensions and their effect on financial literacy.

The findings are intended to provide useful insights for policy makers in order to develop specific initiatives and tools for students with the aim of improving their financial skills.

Keywords:

Financial Literacy, Multilevel Structural Equation Model, PISA.