Open Access Peer-reviewed Research Article

Comparative effects of self-evaluated and test-based financial literacy on choosing life insurance policies in a multi-racial context

Main Article Content

Florent Nkouaga corresponding author


This study investigates the relationship between financial literacy and the choice of life insurance policies in the multi-racial context of the United States. Both subjective and objective measures of financial literacy are considered important factors in shaping consumer behavior in the life insurance market. Methods: Logistic regression analyses were conducted using data from the 2022 Survey of Consumer Finance to explore how financial literacy is related to the ownership of different types of life insurance, including term insurance, cash value insurance, and a combination of both. The analysis controlled for demographic variables such as age, race, and marital status. Results: The results show that subjective financial literacy significantly influences the ownership of all types of life insurance, while objective financial literacy only affects ownership of term insurance. Demographic factors, such as belonging to Generation X, or being married, also have a positive impact on life insurance ownership. Higher levels of education and income are associated with a higher likelihood of owning life insurance, while unemployment has a negative impact. Conclusion: The findings highlight the central role of subjective financial literacy in motivating individuals to purchase life insurance. Confidence in one's financial knowledge appears to be more influential than actual knowledge when making insurance decisions. Therefore, financial education programs should aim to improve both financial knowledge and confidence to encourage wider adoption of life insurance, ensuring greater financial security for diverse populations.

life insurance, term policy, racial disparities, financial literacy, consumer behavior

Article Details

How to Cite
Nkouaga, F. (2024). Comparative effects of self-evaluated and test-based financial literacy on choosing life insurance policies in a multi-racial context. Frontiers in Management and Business, 5(1), 352-371.


  1. American Council of Life Insurance and Institute of Life Insurance. Life Insurance Fact Book. New York: Institute of Life Insurance, 1999.
  2. Mulholland B, Finke M, Huston S. Understanding the Shift in Demand for Cash Value Life Insurance. Risk Management and Insurance Review. 2015, 19(1): 7-36.
  3. Graves E. McGill’s Life Insurance. The American College, 1994.
  4. Research and Markets (2023). United States (US) Life Insurance Market Summary, Competitive Analysis and Forecast to 2027.
  5. GlobalData (2023). US Life Insurance Market Size, Trends, Landscape and Forecast to 2027.
  6. Brown J. Private Pensions, Mortality Risk, and the Decision to Annuitize. National Bureau of Economic Research, 1999.
  7. Holtz-Eakin D, Phillips J, Rosen H. Estate Taxes, Life Insurance, and Small Business. National Bureau of Economic Research, 1999.
  8. Temkin B. The Future of Insurance Regulation: The Globalization of Insurance Markets. The National Association of Insurance Commissioners (NAIC), 1998.
  9. Klauber M. E-commerce and the insurance industry: Challenges and opportunities. In: Journal of Insurance Regulation. 2000, 18(4): 462-484.
  10. Jnawali G, Jaiswal A. Determinants of Demand for Life Insurance Policy in Kapilvastu District. The Lumbini Journal of Business and Economics. 2022, 10(1-2): 20-44.
  11. Anderson DR, Nevin JR. Determinants of Young Marrieds’ Life Insurance Purchasing Behavior: An Empirical Investigation. The Journal of Risk and Insurance. 1975, 42(3): 375.
  12. Derakhshideh S, Jalaee AS. Evaluating life insurance demand in Iran. International Journal of Economy, Management and Social Sciences. 2014, 3(10): 574-581.
  13. Lu W. The Impacts of Financial Literacy on Chinese Financially Excluded Households’ Retirement Planning Behaviors. SSRN Electronic Journal. Published online 2018.
  14. Robb CA, Babiarz P, Woodyard A. The demand for financial professionals' advice: The role of financial knowledge, satisfaction, and confidence. Financial Services Review. 2012, 21(4): 291-306.
  15. Hald A. On the early history of life insurance mathematics. Scandinavian Actuarial Journal. 1987, 1987(1-2): 4-18.
  16. O'Donnell T. History of life insurance in its formative years. 1936.
  17. Williamson HF, Buley RC. The American Life Convention, 1906-1952: A Study in the History of Life Insurance. The Mississippi Valley Historical Review. 1954, 41(2): 355.
  18. Knight CK. The History of Life Insurance in the United States to 1870: With an Introduction to Its Development Abroad. 2010.
  19. Clough SB. A Short History of Life Insurance. By Mildred A. Stone. Indianapolis: The Insurance Research and Review Service, 1942: 92. $1.25. The Journal of Economic History. 1943, 3(1): 104.
  20. Proschansky H. The American Life Convention (1906–1950): A Study in the History of Life Insurance. By R. Carlyle Buley. New York: Appleton-Century-Crofts, Inc., 1953. 2 Vols. Pp. 1,397. $15.00. The Journal of Economic History. 1955, 15(1): 73-74.
  21. Zartman IW. The Life Insurance Industry and the Internet. Working Paper No. 2016-04. Introduction. Federal Reserve Bank of Chicago. 1909.
  22. Stalson HO. The Life Insurance Industry and the Internet. Working Paper No. 2016-04. Introduction. Federal Reserve Bank of Chicago. 1969.
  23. Rabbani AG. Cash value life insurance ownership among young adults: The role of self-discipline and risk tolerance. Journal of Behavioral and Experimental Finance. 2020, 27: 100385.
  24. Mulholland BS, Finke MS, Huston SJ. Understanding the Shift in Demand for Cash Value Life Insurance. SSRN Electronic Journal. Published online 2013.
  25. Siegert P. Evolution of Life Expectancies in the Life Insurance Secondary Market... Current Trends and New Developments. SSRN Electronic Journal. Published online 2010.
  26. Moss P, Lazonick W, Weitz J. Employment and Earnings of African Americans Fifty Years After: Progress? Institute for New Economic Thinking Working Paper Series. Published online July 13, 2020: 1-49.
  27. Benlagha N, Hemrit W. Internet use and insurance growth: evidence from a panel of OECD countries. Technology in Society. 2020, 62: 101289.
  28. Klauber A. Insurance on the Internet. Risk Management and Insurance Review. 2000, 3(1): 45-62.
  29. Andersson LF, Eriksson L, Lindmark M. Life insurance and income growth: the case of Sweden 1830–1950. Scandinavian Economic History Review. 2010, 58(3): 203-219.
  30. Melnychuk Y, Chvertko L, Korniienko T, et al. Analysis of the Factors Influencing the Market of Insurance Services in Life Insurance. Tem Journal. 2019, 8(1).
  31. Tretiak KV, Demchenko VO. Development of life insurance market in Ukraine. Innovative Economy. 2020(3-4): 169-174.
  32. Pralhad CAS. Creative and Innovative Trends in Investment Management of Life Insurance Companies in India. 2012.
  33. Ionescu OC. Life insurance-Their characteristics importance and actuality on the Romanian market. Journal of Knowledge Management, Economics and Information Technology, Scientific Papers. 2012 (4).
  34. Russell DT, Chong JT, Phillips GM. Raising Cash Under Duress And The Role Of Cash Value Life Insurance: An Educational Example. American Journal of Business Education (AJBE). 2018, 11(2): 23-26.
  35. Scott J. Using household panels to study micro‐social change. Innovation: The European Journal of Social Science Research. 1995, 8(1): 61-73.
  36. Qin Y. Data Informed Health Simulation Modeling. PhD thesis. University of Saskatchewan. 2020.
  37. Zarubica S, Korica S. Protection of consumers rights in life insurance contracts. Pravoteorija i praksa. 2023, 40(suppl): 27-42.
  38. Toshmurzaevich YO. Developing the Underwriting Process in Life Insurance. European Journal of Business and Management Research. 2020, 5(6).
  39. Ikeda MMS, Carvalho JV de F. Viability of Universal Life insurance in Brazil from the supply and demand perspectives. Revista Contabilidade & Finanças. 2022, 33(89): 343-358.
  40. Yao Z, Rabbani A. Risk Tolerance Profile of Cash-Value Life Insurance Owners. SSRN Electronic Journal. Published online 2017.
  41. Belth JM. The Rate of Return on the Savings Element in Cash-Value Life Insurance. The Journal of Risk and Insurance. 1968, 35(4): 569.
  42. Murray ML. Analyzing the Investment Value of Cash Value Life Insurance. The Journal of Risk and Insurance. 1976, 43(1): 121.
  43. Sass SA, Belbase A, Cooperrider T, et al. What Do Subjective Assessments of Financial Well-Being Reflect? SSRN Electronic Journal. Published online 2015.
  44. Aren S, Hamamci HN. The Moderating Effect of Subjective Financial Literacy on the Relationship between Coping Strategies and Financial Risk Tolerance. International Journal of Social Sciences Perspectives. 2022, 12(1): 28-40.
  45. Munawar S. Effect of Financial Literacy on Financial Decision and Consumer Behavior. Pakistan Journal of Humanities and Social Sciences. 2023, 11(2).
  46. Simon HA. A Behavioral Model of Rational Choice. The Quarterly Journal of Economics. 1955, 69(1): 99.
  47. Simon HA. Bounded Rationality and Organizational Learning. Organization Science. 1991, 2(1): 125-134.
  48. Gigerenzer G, Selten R, eds. Bounded Rationality. Published online 2002.
  49. Conlisk J. Why bounded rationality? Journal of economic literature. 1996, 34(2): 669-700.
  50. Thaler RH. Misbehaving: The making of behavioral economics. WW Norton & Company, 2015.
  51. Kahneman D. Thinking, fast and slow. Farrar, Straus and Giroux. 2011.
  52. Bandura A. Self-efficacy mechanism in human agency. American Psychologist. 1982, 37(2): 122-147.
  53. Callan MJ, Ellard JH, Nicol JE. The Belief in a Just World and Immanent Justice Reasoning in Adults. Personality and Social Psychology Bulletin. 2006, 32(12): 1646-1658.
  54. Heath C, Larrick RP, Wu G. Goals as Reference Points. Cognitive Psychology. 1999, 38(1): 79-109.
  55. Lerner JS, Keltner D. Fear, anger, and risk. Journal of Personality and Social Psychology. 2001, 81(1): 146-159.
  56. Lusardi A, Mitchell OS. The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Literature. 2014, 52(1): 5-44.
  57. Lusardi A, Tufano P. Debt literacy, financial experiences, and overindebtedness. Journal of Pension Economics and Finance. 2015, 14(4): 332-368.
  58. Hastings J, Mitchell OS. How financial literacy and impatience shape retirement wealth and investment behaviors. Journal of Pension Economics & Finance. 2020, 19(1): 1-20.
  59. Fernandes D, Lynch JG, Netemeyer RG. Financial Literacy, Financial Education, and Downstream Financial Behaviors. Management Science. 2014, 60(8): 1861-1883.
  60. Lusardi A, Mitchell O. Financial Literacy around the World: An Overview. National Bureau of Economic Research, 2011.
  61. Hung A, Parker AM, Yoong J. Defining and Measuring Financial Literacy. SSRN Electronic Journal. Published online 2009.
  62. Atkinson A, Messy FA. Measuring financial literacy: Results of the OECD/International Network on Financial Education (INFE) pilot study. 2012.
  63. Lusardi A, Mitchell Os, Curto V. Financial Literacy among the Young. Journal of Consumer Affairs. 2010, 44(2): 358-380.
  64. Huston SJ. Assessing Financial Literacy. Student Financial Literacy. Published online 2012: 109-124.
  65. Huston SJ. Financial literacy and the cost of borrowing. International Journal of Consumer Studies. 2012, 36(5): 566-572.
  66. Yao Z, Rabbani A. Risk Tolerance Profile of Cash-Value Life Insurance Owners. SSRN Electronic Journal. Published online 2017.
  67. Huang FL. Multiple imputation in R (with regression output, clustering, and weights). 2023. url:
  68. Elove T. Chapter 16 Multiple Imputation and Linear Regression. In: Data Science for Biological, Medical and Health Research: Notes for 432. 2020.
  69. Katitas A. Getting Started with Multiple Imputation in R. University of Virginia Library-Statlab Articles, 2019.
  70. Kim KT, Yuh Y. Financial Knowledge and Household Saving: Evidence from the Survey of Consumer Finances. Family and Consumer Sciences Research Journal. 2018, 47(1): 5-24.
  71. Huston SJ, Finke MS, Smith H. A financial sophistication proxy for the Survey of Consumer Finances. Applied Economics Letters. 2012, 19(13): 1275-1278.
  72. She L, Rasiah R, Turner JJ, et al. Psychological beliefs and financial well-being among working adults: the mediating role of financial behaviour. International Journal of Social Economics. 2021, 49(2): 190-209.
  73. Frost J. Multicollinearity in regression analysis: problems, detection, and solutions. Statistics by Jim, 2017, 2.
  74. Dormann CF, Elith J, Bacher S, et al. Collinearity: a review of methods to deal with it and a simulation study evaluating their performance. Ecography. 2012, 36(1): 27-46.
  75. Tomaschek F, Hendrix P, Baayen RH. Strategies for addressing collinearity in multivariate linguistic data. Journal of Phonetics. 2018, 71: 249-267.
  76. Rawlings JO, Pantula SG, Dickey DA, et al. Applied Regression Analysis. Springer-Verlag, 1998.
  77. Hanna SD, Kim KT, Lindamood S. Behind the Numbers: Understanding the Survey of Consumer Finances. Journal of Financial Counseling and Planning. 2018, 29(2): 410-418.
  78. Fei G, Lin Z, Zhixin L. Reliability of self-reported data in college student engagement surveys: social desirability bias in self-reported survey. Journal of East China Normal University (Educational Sciences). 2018, 36(4): 53.
  79. Lee ST, Hanna SD. What, Me Worry? Financial Knowledge Overconfidence and the Perception of Emergency Fund Needs. Journal of Financial Counseling and Planning. 2022, 33(1): 140-155.
  80. Coulibaly B, Li G. Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances. SSRN Electronic Journal. Published online 2007.
  81. Xiao JJ, Ahn SY, Serido J, et al. Earlier financial literacy and later financial behaviour of college students. International Journal of Consumer Studies. 2014, 38(6): 593-601.