What Do Subjective Assessments of Financial Well-Being Reflect?

CRR WP 2015-3

28 Pages Posted: 13 Mar 2015

See all articles by Steven A. Sass

Steven A. Sass

Boston College - Center for Retirement Research

Anek Belbase

Boston College - Center for Retirement Research

Thomas Cooperrider

Berkeley Research Group,LLC

Jorge D. Ramos-Mercado

Boston College - Center for Retirement Research

Date Written: March 2015

Abstract

Subjective financial assessments are used by social scientists as a measure of financial well-being and by households as the basis for action. Financial well-being, however, increasingly requires workers to build-up savings to meet hard-to-see future needs, specifically retirement, their children’s education, and paying off student loans.

This paper analyzes data from the FINRA Investor Education Foundation’s 2012 Financial Capability Survey to test whether subjective financial assessments 1) primarily reflect day-to-day, rather than distant, financial concerns; 2) increasingly reflect distant concerns if the household’s day-to-day finances are in reasonably good shape; and 3) increasingly reflect distant concerns if the worker is financially literate.

The paper found that:

* Subjective financial assessments primarily reflect day-to-day conditions. * This remains the case even if the household’s day-to-day finances are in reasonably good shape. * Financial literacy enhances sensitivity to the lack of a retirement plan and having a mortgage greater than the value of one’s house, but it has no noticeable effect on sensitivity to life and medical insurance deficits, having an inactive retirement plan, not saving for college, or student debt burdens. The policy implications of the findings are:

* Subjective financial assessments have become a poor measure of financial well-being. * Workers by themselves cannot be expected to devote much effort to addressing distant deficits. * Initiatives to improve well-being must raise awareness – or compensate for the lack of awareness – of hard-to-see distant future deficits.

Keywords: FINRA, subjective financial assessments, financial literacy, financial well-being

Suggested Citation

Sass, Steven A. and Belbase, Anek and Cooperrider, Thomas and Ramos-Mercado, Jorge D., What Do Subjective Assessments of Financial Well-Being Reflect? (March 2015). CRR WP 2015-3. Available at SSRN: https://ssrn.com/abstract=2577285 or http://dx.doi.org/10.2139/ssrn.2577285

Steven A. Sass (Contact Author)

Boston College - Center for Retirement Research ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Anek Belbase

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

Thomas Cooperrider

Berkeley Research Group,LLC ( email )

470 Atlantic Avenue
4th Floor
Boston, MA 02210
United States

Jorge D. Ramos-Mercado

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

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