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
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: Suggested Citation