FINANCIAL LITERACY AND POLITICAL IDEOLOGY

As the conflict in politics becomes increasingly polarized, researchers in political science and psychology have become increasingly interested in determining the antecedents of individuals' attachment to ideologies. While some recent developments illustrate the relationship between political orientation and socio-demographic factors, personality traits, locus of control or risk aversion, this dissertation provides new insights for a possible relationship to financial literacy. A unidimensional model provides a simple understanding of the structure of political ideology; however, it has been shown to be implausible and insufficient. In this research, we highlight a model based on two dimensions: one for the economic freedom, and another for personal freedom. We construct a framework with data retrieved from a questionnaire connecting individual’s political orientation in the two-dimensional spectrum and its determinants with the use of ordered probit models. The results suggest an interplay between financial literacy and political orientation in the Left-Right dimension, in which being financially-literate increases the probability of an individual having Centre or Right-wing political views, in detriment of Left-wing views. We found no significance when considering the Libertarian-Authoritarian dimension. Furthermore, we analyse the effect of the highest level of education as an alternative measure of financial literacy and the results suggest that they capture different features and should, therefore, be interpreted as distinct variables. Several other variables included in the model were only proved significant in one of the dimensions. Our conclusions suggest that variables with economic links affect the dimension that refers to economic freedom such as financial literacy and average monthly income and, on the other hand, other variables such as region, age, ethnicity, or religion provide a better explanation of political orientation on a personal freedom dimension.