Dorien Bangma

16 | CHAPTER 1 consuming and consequently rather costly. As an alternative, performance-based tests are often applied which are a practical and adequate alternative for real life observations. Performance- based tests include the observation of an individual’s performance on tasks or activities administered and scored in an experimental or clinical setting using standardized scoring techniques (Moore et al., 2007; Nuijten et al., 2003). They provide a reliable and objective approach to evaluate FDM. Nevertheless, performance-based tests are not necessarily superior to indirect assessment methods of FDM. Both methods are related to and unique significant predictors of direct observations of everyday functioning (Schmitter-Edgecombe et al., 2011). Ideally, a combination of assessment methods should therefore be used to evaluate a person’s FDM capability (Appelbaum et al., 2016). Conceptualization of FDM Recently, a group of international experts formulated several recommendations for the assessment of FDM and argued that multiple components of FDM should be evaluated when drawing conclusions and formulating (clinical) recommendations regarding someone’s ability to deal with his or her finances (Appelbaum et al., 2016). They composed a conceptual model of FDM capability and stated that FDM or financial capability is determined by a person’s financial competence, financial performance as well as contextual factors (Figure 1.1). Financial competence can be described as the skills of an individual needed to make financial decisions and distinguishes financial knowledge and financial judgment. Financial knowledge involves both the declarative knowledge (i.e., ‘knowing what’) and procedural knowledge (i.e., ‘knowing how’) needed to adequately manage one’s finances. Financial knowledge is needed Contextual Factors Financial Competence Financial Performance Financial Decision-Making Capability Financial Knowledge Financial Judgment Figure 1.1. Conceptual model of financial decision-making capability, or financial capability, obtained from Appelbaum et al. (2016).