A Structural Determinants Framework for Financial Well-Being
Thoughts
Based on Baker et al. (2019) and Lim et al. (2014), suggests financial stress ‘a psychological factor representing an increased uncertainty about one’s financial situation and perceived financial hardship’
Connects with: @archuleta2013 @aslund2014 @baker2019 @grable2015 @lazarevic2016 @lim2014 @prawitz2006 @siahpush2007
Annotations
fan2022 - p. 416
ccording to Consumer Financial Protection Bureau (CFPB) (2015), financial well-being is defined as being able to control everyday finances, absorb financial shocks, track and meet financial goals, and have financial freedom, with financial behaviors, knowledge, and personal traits as key driving elements. Financial well-being is also reflected by current money management stress and the expectations of future financial security that can have significant influences on overall life well-being (Netemeyer et al., 2018).
fan2022 - p. 417
Financial stress is a psychological factor representing an increased uncertainty about one’s financial situation and perceived financial hardship
fan2022 - p. 417
Financial behavior has been defined as any human behavior that is relevant to money management (Gutter & Copur, 2011).
fan2022 - p. 417
Positive financial behaviors refer to financial behavior and activities that can benefit the individual, such as paying bills and debt on time, budgeting, active saving, setting and working towards financial goals (Dew & Xiao, 2011; Kim et al., 2019; Wagner & Walstad, 2019)
fan2022 - p. 418
Financial satisfaction is often used interchangeably with financial well-being and in some studies used as a proxy for subjective financial well-being (Sorgente & Lanz, 2019; Xiao et al., 2009)
fan2022 - p. 418
In psychology studies, life satisfaction is one of the sub-components of and is positively associated with the overall subjective well-being that is a broad concept, along with positive and negative effects (Diener, 1984, 2000; Diener et al., 2002).
fan2022 - p. 418
Financial well-being is considered a sub-domain of overall subjective well-being, and financial satisfaction is a sub-domain of life satisfaction.
fan2022 - p. 419
our elements of the PFW framework that includes objective status (income, or financial status), financial satisfaction, financial behavior, and subjective perception (including financial attitudes and financial knowledge
fan2022 - p. 419
They found that financial satisfaction can be influenced by financial stress, financial behavior, financial knowledge, solvency, and risk tolerance, as well as income and education.
fan2022 - p. 419
Financial stress is a psychological factor representing an increased uncertainty about one’s financial situation and perceived financial hardship (e.g., Baker & Montallo, 2019; Lim et al., 2014).
fan2022 - p. 420
Financial stress was a latent construct measured by three observed items that have been used in the literature to measure financial stress and anxiety (Linciano et al., 2019).
fan2022 - p. 420
This study used the 2018 state-by-state National Financial Capability Study (NFCS), funded by the FINRA Investor Education Foundation and conducted by ARC Research.
fan2022 - p. 420
The financial well-being variable was constructed following the CFPB abbreviated scale and the 2-step scoring methods1 (CFPB, 2015a, 2015b). First, the measured five items were summated to generate an initial total response value from 0 to 20 (Some items were reverse coded). The five items were (1) “Because of my money situation, I feel like I will never have the things I want in life”, (2) “I am just getting by financially”, (3) “I am concerned that the money I have or will save won’t last”, (4) “I have money left over at the end of the month”, and (5) “My finances control my life”.
fan2022 - p. 421
Financial Satisfaction One question asked the respondents, “Overall, thinking of your assets, debts, and savings, how satisfied are you with your current personal financial condition?”, where 1 means “Not at all satisfied” and 10 means “Extremely satisfied”
fan2022 - p. 421
In the current study, both short- and long-term financial behaviors were responsible and positive financial behaviors. The short-term financial behavior composite variable was a summated score using four binary items, including (1) having emergency funds, (2) having no difficulty paying monthly bills, (3) spending less than one’s income, and (4) paying off credit cards in full. The long-term financial behavior variable was also a composite scale measured using four items: (1) calculating retirement needs,2 (2) having savings accounts,3 (3) having non-retirement investments, and (4) having retirement accounts.
fan2022 - p. 421
Perceived Financial Capability This variable was constructed as a latent variable measured by three observed items including perceived (or subjective) financial knowledge, perceived money management skill, and perceived goal-reaching ability. First, perceived financial knowledge was a self-assessed item, asking “On a scale from 1 to 7, where 1 means very low and 7 means very high, how would you assess your overall financial knowledge?” Secondly, one self-assessed item was used to measure the perceived money management skill, asking “How strongly do you agree or disagree with the following statements? … I am good at dealing with day-to-day financial matters, such s checking accounts, credit and debit card, and tracking expenses”, where 1 means “Strongly disagree” and 7 means “Strongly agree.” Last, perceived goal-reaching ability was examined using one item asking “If you were to set a financial goal for yourself today, how confident are you in your ability to achieve it?”, on a scale of 1–4, where 1 means not at all confident and 4 mean very confident. The Cronbach’s alpha was 0.643.
fan2022 - p. 421
Objective Financial Knowledge Objective financial knowledge was measured using six questions about personal finance topics, including inflation, compound interest, bonds, stocks, and mutual funds.
fan2022 - p. 421
One latent variable was constructed to measure financial stress with three observed items: (1) “I worry about running out of money in retirement”, (2) “Thinking about my personal finances can make me feel anxious”, and (3) “Discussing my finances can make my heart race or make me feel stressed”, each on a scale of 1–7. The Cronbach’s alpha was 0.886.
fan2022 - p. 421
Age, gender, race, income levels, educational attainment, and marital status were included and controlled
fan2022 - p. 423
The overall SEM model testing the structural relationships showed a good fit by the data (χ2 (61) = 5764.694, p < 0.000; RMSEA = 0.075; SRMR = 0.027; CFI = 0.945 (Hooper et al., 2008; Hu & Bentler, 1999). Note that the socio-demographic variables, including age, race, gender, education, marital status, and income, were controlled in the SEM analysis.4