National culture and financial capability : a global perspective

The origins of fnancial capability assessed at the country level can be traced back to the socio-economic and quality of life factors. However, the role of national culture should be considered equally important. Hence, diferences in national culture are hypothesized to correlate with average fnancial capability levels at the country level. This study attempts to answer an important question: What is the relationship between culture and fnancial capability at the country level? The data for this study originate from four diverse sources provided by the World Bank (two datasets), United Nations, and Hofstede Insights. The fnal dataset includes data from 137 countries. As a measure of fnancial capability, we use an aggregate index combining fnancial behavior (account ownership) and fnancial knowledge. Culture is measured using six dimensions of national cultures from Hofstede Insights: Power Distance, Masculinity, Uncertainty Avoidance, Individualism, LongTerm Orientation, and Indulgence. The results show that certain dimensions of culture are strongly correlated with fnancial capabilities at the country level even after controlling for the level of economic development. Positive relationships between fnancial capability and three cultural factors—Individualism, Long-Term Orientation, and Indulgence - are noted. In addition, Uncertainty Avoidance is negatively associated with fnancial capabilities. The observed relationships are non-linear. Specifcally, Individualism and Long-Term Orientation are positive correlates of fnancial capability up to a certain level (the score of 75 and 50, respectively, on the scale 0–100), Individualism is a positive correlate starting at the score of 25, while Uncertainty Avoidance is a negative correlate up to the score of 75.