Dorien Bangma

GENERAL INTRODUCTION | 17 to fulfill actions as counting coins, paying bills or budgeting. In research, terms such as ‘financial capacity’, ‘financial competence’ or ‘money management skills’ are used interchangeably when describing financial knowledge (e.g., Goverover et al., 2016; Kershaw &Webber, 2004; Marson, 2001; Marson et al., 2000; Webber et al., 2002). Financial judgment, on the other hand, involves the ability to make financial decisions. It includes the ability to identify and understand information, appreciate and reason about options and expressing a choice (Appelbaum & Grisso, 1988). Financial performance is defined as “the individual’s degree of success in handling financial demands in the context of the stresses, supports, contextual cues and resources in his or her actual environment” (Appelbaum et al., 2016, p. 25). Financial performance requires adequate financial knowledge and judgment, but also relies on the possession of certain abilities, such as impulse control or the ability to resist external pressure. It can be influenced by several contextual factors, which makes it difficult to examine financial performance and contextual factors separately. Taken together, in order to draw careful and deliberate conclusions about the FDM capability of an individual, financial competence, financial performance as well as contextual factors need to be evaluated (Appelbaum et al., 2016; Engel et al., 2016). In the present thesis, a set of FDM tests and questionnaires are therefore composed focusing on financial competence, financial performances and contextual factors (see chapter 2 ). Vulnerability for problems with FDM Understanding the underlying psychological processes of decision-making can help to explain the vulnerability of some individuals for problems with (financial) decision-making. An important and widely accepted explanatory model in the field of decision-making is the dual processing theory (Evans, 2008; Kahneman, 2003). It suggests two simultaneously working systems of decision-making. The affective/experiential processing of information , also referred to as system 1, relies on our intuition and affect and is described as fast, automatic and subconscious (Evans, 2008; Kahneman, 2003; Peters et al., 2007). It is based on our personal experiences and the emotions related to these experiences. Adequate affective processing, personal knowledge and experience enhance the mechanisms of system 1 and may result in better decision-making. On the other hand, affective disorders (e.g., major depression or motivational dysregulation) seem to have a negative impact on the capability to make (financial) decisions (Bishop & Gagne, 2018; Peters et al., 2007). The deliberative/analytic processing of information , also referred to as system 2, relies on careful deliberation of options and is described as slow, effortful and conscious (Evans, 2008; Kahneman, 2003). This latter system is more dependent on cognitive control and relies on several cognitive functions (Evans, 2008). Intact cognitive functioning is therefore important when making (financial) decisions in a deliberative/analytic way. Both in the context of general decision-making and FDM, working memory, executive functioning and numeracy are consistently, but not exclusively, found to be related decision-making deficits (e.g., Chen et al., 2014; Czaja et al., 2017; Earnst et al., 2001; Martin et al., 2012; Niccolai et al., 2017; Reyna et al., 2009; Sherod et al., 2009). Therefore, individuals experiencing cognitive problems (e.g., as a result of a neurodegenerative or neurodevelopmental disease) might be vulnerable to experience difficulties with FDM.