Financial Product Sensitivity Predicts Financial Health
Forthcoming, Journal of Behavioral Decision Making
37 Pages Posted: 6 Nov 2019
Date Written: May 13, 2019
Recent research has aimed to understand how people consider financial decisions because they have important consequences for well-being. Yet, existing research has largely failed to examine how attitudes and behaviors vary as a function of the specific financial product (e.g., debt type). We ask to what extent people differentiate between similarly categorized financial products (e.g., debt or investment) as a function of their terms (e.g., interest costs, expected returns), and whether such differentiation predicts financial health. Across four studies, we find not only that there are individual differences in attitudes toward similar financial products (e.g., two distinct loans), but also that the extent to which a consumer is averse to high-cost versus low-cost products predicts financial health. This relationship cannot be fully explained by financial literacy, numeracy, or intertemporal discounting. In addition, nudging people toward differentiating between financial products promotes decisions that are aligned with financial health.
Keywords: consumer financial decision making, debt, investment, well-being, financial literacy
JEL Classification: D14, G41, I31
Suggested Citation: Suggested Citation