A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance

Heo, Wookjae; Grable, John E.; Rabbani, Abed G.

doi:10.1108/rbf-06-2020-0121

Cited by 35 publications

(24 citation statements)

References 16 publications

(16 reference statements)

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“…Moreover, due to concerns of survey fatigue, the survey included a one‐item measure for risk attitude from Dohmen et al (2011) and did not incorporate a multi‐item construct for risk tolerance. A future study could use a robust measure of risk tolerance while accounting for the potential change in risk tolerance that can occur during times of significant crises and stress (Heo, Grable, & Rabbani, 2020). Last, Cronbach's alpha for objective financial literacy was low within this sample.…”

Section: Cares Act Eip Use Resultsmentioning

confidence: 99%

How Americans used their COVID‐19 economic impact payments

Asebedo

Liu²,

Gray

et al. 2020

Fin Plan Rev

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This study investigates how Americans used their CARES Act Economic Impact Payments (EIP) for their spending needs, spending wants, and financial transactions. The results from a sample of 1,172 Amazon MTurk users collected in July 2020 suggest that EIP use varied across spending and financial transaction categories. Those with job instability, less financial resources, and more people to care for received essential support. A smaller proportion of the population spent at least some of their EIP on their wants. Americans' primarily focused their EIP spending on housing, food, and hobbies. In addition, people were able to improve their financial situation through investing and debt reduction. Decisions to save the EIP were related to economic recovery concerns; a broad policy package and public messaging strategy that offers assurance of economic recovery and stability might enhance policy effectiveness for boosting immediate economic growth through EIP spending. K E Y W O R D S behavioral life cycle hypothesis, CARES Act, COVID-19, economic impact payments, marginal propensity to consume, spending 1 | INTRODUCTION The COVID-19 pandemic has had an unprecedented impact on U.S. society, the economy, and consumer spending. The pandemic has resulted in historically high unemployment rates (U.S. Bureau of Labor Statistics, 2020), with more than 51 million workers filing for unemployment benefits for the first time (Department of Labor, 2020). To alleviate the economic effects of COVID-19 and to stimulate the economy, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). One of the major components of the CARES Act consisted of direct payments to individuals, called Economic Impact Payments (EIPs), to provide immediate relief and to stimulate consumer spending (U.S. Department of the Treasury, 2020). The CARES Act offered people a financial safety net and a choice about how to allocate their EIPs across their spending needs and wants, and their financial situation (such as saving and debt reduction). Given the extensive cost of the CARES Act and the decision-making opportunity for EIP use placed before Americans, the purpose of this study is twofold: to investigate how Americans chose to use their EIPs, and to determine the behavioral, economic, and demographic factors associated with those decisions. Additionally, this study aims to discern how individuals allocated their EIPs within major subcategories, such as saving, investing, housing, transportation, travel, education, hobbies, and charitable donations. It is important for policymakers to determine how people tend to use stimulus payments, like the CARES Act EIPs, and the factors associated with their decision-making to inform future legislation aimed at supporting Americans' financial and overall well-being. Beyond public policy implications, more information about how people use their EIPs

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Section: Cares Act Eip Use Resultsmentioning

confidence: 99%

How Americans used their COVID‐19 economic impact payments

Asebedo

Liu²,

Gray

et al. 2020

Fin Plan Rev

View full text Add to dashboard Cite

show abstract

“…Amidst this economic fallout, people have become financially vulnerable. In fact, scholars argue that due to COVID-19, there is a substantial reduction in consumers' financial risk tolerance (Heo et al , 2021). Therefore, it is critical for banks and financial institutions to identify factors that can help consumers cope with financial shocks faced during the pandemic to restore financial stability.…”

Section: Introductionmentioning

confidence: 99%

Does financial literacy reduce financial fragility during COVID-19? The moderation effect of psychological, economic and social factors

Chhatwani

Mishra

2021

IJBM

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PurposeThe present study examines the linkage between financial literacy and financial fragility during COVID-19. It further examines if financial literacy has a differential impact on financial fragility based on psychological (financial confidence), economic (wealth) and social (race) factors.Design/methodology/approachThe authors used nationally representative data of the American working age-group. They collated six different datasets collected at different time-periods to conduct the present study. Based on 2,202 observations, they conducted logistic regression analyses to test the proposed relationships.FindingsThe authors find that financial literacy reduces the odds of being financially fragile by 9.1%. Furthermore, they find that financially literate consumers having high financial confidence are less financially fragile during COVID-19. Besides, the adverse impact of financial literacy on financial fragility is more for consumers having more than less wealth. The interaction with race is not significant, suggesting that financial literacy cuts across racial boundaries.Practical implicationsFinancial fragility is an important factor having numerous deleterious consequences. The authors’ study found that financial confidence, psychological factor and wealth economic factor enhances the negative effect of financial literacy on financial fragility. Banks and financial institutes can develop mechanisms to infuse confidence in individuals during the pandemic to reduce their financial fragility. Policymakers and governments may increase awareness related to debt management practices and design financial literacy interventions to reduce financial fragility among individuals.Originality/valueThe study is one of the initial studies to examine the antecedents of financial fragility. Based on a time-lagged data, the authors’ study examines the linkage between financial literacy and financial fragility. Though scholars have investigated financial literacy and its implications, scholarly work in this domain during COVID-19 is at best limited. The study contributes to the literature by testing the effects of boundary conditions that can change financial literacy's impact on financial fragility.

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“…Many studies explain the impact of social media such as Twitter (Saurabh and Dey, 2020;Ruan et al, 2018;Bollen et al, 2011) or views posted on micro-blogs (Oliveira et al, 2013;Li et al, 2019) on the stock market indices (Filiz et al, 2019;Prechter et al, 2012). Heo et al (2021) studied the impact of COVID-19 on FRT and concluded that the pandemic has shifted risk tolerance downward for the majority of financial decision-makers in this study.…”

Section: Discussionmentioning

confidence: 88%

A qualitative phenomenological exploration of social mood and investors’ risk tolerance in an emerging economy

Asad

Toqeer

Mahmood

2021

QRFM

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Purpose The authors design a theoretical perspective that explores how different phases of social mood influence financial risk tolerance (FRT) among investors. Risk is involved in almost all financial decision-making. For a better understanding of risk tolerance behavior, the role played by social mood cannot be ignored. This study aims to explore the linkage between social mood and FRT of investors in Pakistan. Design/methodology/approach Using qualitative phenomenology as the guiding framework, 22 interviews were conducted to have a deeper understanding of the lived experiences of investors with at least 10 years of investment experience. Thematic analysis was done to analyze data. Audio-recording, bracketing, triangulation and member checking were done to ensure validity and reliability. Findings A theoretical model is developed using the six themes identified through thematic analysis. This model presents an in-depth analysis of the determinants of social mood, its multiple phases and its impact on risk tolerance behavior. Findings reveal that the level of financial literacy, experience and purpose of investment moderate the effect of social mood on FRT. Practical implications Investors can manage risk and increase their profits by controlling the effects of social mood. They can benefit from the market situation by taking more risk when the market is extremely low. The advisors can frame their advice in the light of the model. Originality/value According to the authors’ knowledge, this is the first study that explores investors’ risk tolerance in response to variations in social mood in the context of an emerging economy. The paper has contributed conceptually and methodologically. It uses phenomenology as the method and develops a theoretical model that describes how different types of investors adjust their risk tolerance in response to changes in their social mood.

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A test of the association between the initial surge in COVID-19 cases and subsequent changes in financial risk tolerance

Cited by 35 publications

References 16 publications

How Americans used their COVID‐19 economic impact payments

How Americans used their COVID‐19 economic impact payments

Does financial literacy reduce financial fragility during COVID-19? The moderation effect of psychological, economic and social factors

A qualitative phenomenological exploration of social mood and investors’ risk tolerance in an emerging economy

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