What is Reality? A Look at How Subjective Perceptions of Financial Wellness Compare to Objective Measures for Older Americans

21 Pages Posted: 13 Sep 2017

See all articles by Jacob Tenney

Jacob Tenney

University of Charleston

Charlene M. Kalenkoski

Texas Tech University

Date Written: July 28, 2017

Abstract

Financial well-being is likely a factor in many individuals' utility function. Financial wellness can be measured using objective measures as well as subjective perceptions. In this study, objective measures are compared to subjective perceptions to see if there is a relationship between the two. Three financial ratios, including the liquidity ratio, the debt-to-asset ratio, and the investment ratio, are used as objective measures of financial wellness. Subjective perceptions are measured by a question in the Health and Retirement Study that asks respondents how satisfied they are with their present financial condition. The findings in this analysis suggest that as the investment ratio increases financial satisfaction increases. Financial planners should closely monitor their clients' investment ratio to help clients plan for future financial goals. There is also a statistically significant improvement in perceptions of financial wellness with increases in the liquidity ratio; however, the increase is small and lacks economic significance.

Keywords: Financial Satisfaction, ratios, financial planning

Suggested Citation

Tenney, Jacob and Kalenkoski, Charlene M., What is Reality? A Look at How Subjective Perceptions of Financial Wellness Compare to Objective Measures for Older Americans (July 28, 2017). 2018 Academic Research Colloquium for Financial Planning and Related Disciplines, Available at SSRN: https://ssrn.com/abstract=3010324 or http://dx.doi.org/10.2139/ssrn.3010324

Jacob Tenney (Contact Author)

University of Charleston ( email )

2300 MacCorkle Ave SE
Charleston, WV WV 25304
United States

Charlene M. Kalenkoski

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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