The Impact of Financial Education
and Self-Efficacy on Financial Behavior
in Croatia: Are We More Similar to Homo
Economicus or Homer Simpson?
Irena Palić , Dajana Barbić , and Andrea Lučić
Abstract
This paper tends to reveal whether individuals are more
prone to behave like Homo economicus or irrational
individuals led by short-run motivation. According to the
traditional economic theory, individuals behave perfectly
rational and make their financial decisions based on their
knowledge. On the other hand, behavioral theory neglects
rational behavior assumed by traditional economics.
Individuals do not act in their best interest and are prone
to make irrational and wrong decisions. In the behavioral
economics literature, as opposed to homo economicus,
the irrational behavior is represented by the character of
Homer Simpson who is often unreasonable, short-runmotivated, responsibility-averse, and does not use the
acquired knowledge adequately. The purpose of this
paper is to investigate the impact of financial knowledge,
as a result of financial education and self-efficacy, on
subsequent financial behavior. Therefore, based on the
results of the survey conducted among Croatian citizens,
this research uses regression modeling to assess how
financial knowledge and self-efficacy affect responsible
financial behavior among Croatian consumers. Results of
the research are valuable for proper educational policy
and providing insight into motives behind the efficient
financial behavior.
Keywords
Financial behavior Á Financial education Á
Self-efficacy Á Survey research Á Regression
analysis
1 Introduction
Classical economic theory assumes that informed consumers
will demonstrate financially responsible behavior and act as
a “Homo economicus” or “rational economic man” (Franz,
2004). The main hypothesis of the classical theory states
that individuals will behave perfectly rational in the
decision-making process, and will fully utilize all the
available information. On the other hand, behavioral economics might be seen as rather depressing—showing that
human beings very often are incapable of making good
decisions since humans are “emotional, myopic, and easily
confused and distracted” (Ariely, 2009). The underlying
assumption of behavioral economics suggests that cognitive
biases often prevent individuals from behaving rationally,
despite their best efforts.
Some authors argue that poor financial behavior is a result
of low level of education or low quality of education,
complex and incomplete financial information (Chang &
Hanna, 1992; Schuchardt, 1998; Taylor & Overbey, 1999).
Several other studies conclude that individuals’ financial
behavior, besides knowledge and education, is determined
by many external and internal factors, including a number of
economic, demographic, social, and psychological factors.
However, they all conclude that no matter the situation,
decisions are ultimately always made by individuals themselves (Robb & Woodyard, 2011).
Failure to manage personal finance may have long-term
negative consequences on the life of individuals and entire
families. The latest financial and economic crisis exposed
that many individuals behave irrationally, engage in poor
financial decision-making and fail to manage their personal
finances. This implies the obvious fact—“if humans were
book characters, they would be more closely related to
Homer Simpson than to Superman” (Ariely, 2009).
The results of this study will indicate whether people
behave more like Homo economicus—according to the relevant knowledge and information—or more like Homer
I. Palić (&) Á D. Barbić Á A. Lučić
Faculty of Economics and Business, University of Zagreb, Trg
J. F. Kennedyja 6, HR-10000 Zagreb, Croatia
e-mail: ipalic@efzg.hr
D. Barbić
e-mail: dbarbic@efzg.hr
A. Lučić
e-mail: alucic4@efzg.hr
© Springer Nature Switzerland AG 2020
M. Mateev and J. Nightingale (eds.), Sustainable Development and Social Responsibility—Volume 1,
Advances in Science, Technology & Innovation, https://doi.org/10.1007/978-3-030-32922-8_24
247
and Self-Efficacy on Financial Behavior
in Croatia: Are We More Similar to Homo
Economicus or Homer Simpson?
Irena Palić , Dajana Barbić , and Andrea Lučić
Abstract
This paper tends to reveal whether individuals are more
prone to behave like Homo economicus or irrational
individuals led by short-run motivation. According to the
traditional economic theory, individuals behave perfectly
rational and make their financial decisions based on their
knowledge. On the other hand, behavioral theory neglects
rational behavior assumed by traditional economics.
Individuals do not act in their best interest and are prone
to make irrational and wrong decisions. In the behavioral
economics literature, as opposed to homo economicus,
the irrational behavior is represented by the character of
Homer Simpson who is often unreasonable, short-runmotivated, responsibility-averse, and does not use the
acquired knowledge adequately. The purpose of this
paper is to investigate the impact of financial knowledge,
as a result of financial education and self-efficacy, on
subsequent financial behavior. Therefore, based on the
results of the survey conducted among Croatian citizens,
this research uses regression modeling to assess how
financial knowledge and self-efficacy affect responsible
financial behavior among Croatian consumers. Results of
the research are valuable for proper educational policy
and providing insight into motives behind the efficient
financial behavior.
Keywords
Financial behavior Á Financial education Á
Self-efficacy Á Survey research Á Regression
analysis
1 Introduction
Classical economic theory assumes that informed consumers
will demonstrate financially responsible behavior and act as
a “Homo economicus” or “rational economic man” (Franz,
2004). The main hypothesis of the classical theory states
that individuals will behave perfectly rational in the
decision-making process, and will fully utilize all the
available information. On the other hand, behavioral economics might be seen as rather depressing—showing that
human beings very often are incapable of making good
decisions since humans are “emotional, myopic, and easily
confused and distracted” (Ariely, 2009). The underlying
assumption of behavioral economics suggests that cognitive
biases often prevent individuals from behaving rationally,
despite their best efforts.
Some authors argue that poor financial behavior is a result
of low level of education or low quality of education,
complex and incomplete financial information (Chang &
Hanna, 1992; Schuchardt, 1998; Taylor & Overbey, 1999).
Several other studies conclude that individuals’ financial
behavior, besides knowledge and education, is determined
by many external and internal factors, including a number of
economic, demographic, social, and psychological factors.
However, they all conclude that no matter the situation,
decisions are ultimately always made by individuals themselves (Robb & Woodyard, 2011).
Failure to manage personal finance may have long-term
negative consequences on the life of individuals and entire
families. The latest financial and economic crisis exposed
that many individuals behave irrationally, engage in poor
financial decision-making and fail to manage their personal
finances. This implies the obvious fact—“if humans were
book characters, they would be more closely related to
Homer Simpson than to Superman” (Ariely, 2009).
The results of this study will indicate whether people
behave more like Homo economicus—according to the relevant knowledge and information—or more like Homer
I. Palić (&) Á D. Barbić Á A. Lučić
Faculty of Economics and Business, University of Zagreb, Trg
J. F. Kennedyja 6, HR-10000 Zagreb, Croatia
e-mail: ipalic@efzg.hr
D. Barbić
e-mail: dbarbic@efzg.hr
A. Lučić
e-mail: alucic4@efzg.hr
© Springer Nature Switzerland AG 2020
M. Mateev and J. Nightingale (eds.), Sustainable Development and Social Responsibility—Volume 1,
Advances in Science, Technology & Innovation, https://doi.org/10.1007/978-3-030-32922-8_24
247