Personality Traits and Financial Decisions of the Households

Abstract

Who makes the financial decisions within the household and how do the characteristics of decision-maker affect subsequent financial choices? I use the Health and Retirement Study data to directly identify the CFO of the family and consider the effects of personality traits on financial decisions above and beyond cognitive abilities, risk aversion, demographic and economic factors. Several findings are reported. First, I show that it is not necessarily the most able or income-rich, but the most determined and organized of the spouses takes the responsibility for financial decisions. Second, I observe an age-related shift in financial management of the household finances: for older households, higher score on conscientiousness and lower on agreeableness are two of the most significant predictors of stock ownership and of higher share of wealth invested in stocks, while for younger ones explanatory power lays with cognitive abilities and education. Third, the influence of the spouse on the financial decisions is documented.

Keywords: household's financial choices, intra-household decisions, personality traits, aging, Non-cognitive abilities, Cognitive abilities, Big Five, Conscientiousness, stock market

JEL Classification: D14, D11, D12, D13