Financial Well-being and Its Psychological Determinants— An Emerging Country Perspective

Abstract

Financial well-being (FWB) is critical to subjective well-being—a crucial component in measuring social progress. This study explores the simultaneous influence of five psychological traits of financial self-efficacy, risk tolerance, a propensity to plan, materialism and the tendency for social comparison on FWB. The study is a cross-sectional causal investigation using a web-based survey. The survey was administered to individuals who were active in financial decision-making activities and selected using a combination of judgmental and snowball sampling. Structural equation modelling revealed a positive influence on financial self-efficacy and propensity to plan and the negative impact of risk-tolerance, materialism and a tendency for social comparison on subjective FWB. Financial institutions and educators may utilize the study results for improving characteristics that help their clients make better financial decisions and enjoy higher levels of financial and subjective well-being. The study makes two contributions to the existing literature on the subject. First, the study simultaneously investigates the effect of the five psychological traits on subjective FWB—not attempted hitherto. Additionally, the study provides an Indian perspective on the subject, an emerging country covering one-sixth of the world population.

Financial self‐efficacy of consumers: A review and research agenda

“…FSE has several behavioral outcomes that are manifested in consumers' financial behavior and actions. Thus, these include financial behavior (Farrell et al, 2016; Kim, Falconier, & Conway, 2023; Oquaye et al, 2022); FWB (Mathew et al, 2022; Montalto et al, 2019; Netemeyer et al, 2018; Sang, 2021); financial satisfaction (Asebedo & Payne, 2019; Xiao et al, 2014); financial help‐seeking behavior (Lim et al, 2014); subjective well‐being (Robb, 2017; Stone et al, 2010); savings behavior (Asebedo et al, 2022; Asebedo & Seay, 2018; Magendans et al, 2017). It is widely recognized that consumers who possess a higher degree of FSE are better equipped to withstand financial setbacks, overcome challenges, and possess the capacity to make informed decisions such as cutting expenses, increasing savings and investments, and managing debt prudently (Asebedo et al, 2022).…”

“…Self‐efficacy in dealing with finances was found to be a strong predictor of future FWB (Mathew et al, 2022). Consumer Financial Protection Bureau (CFPB) (2015) defines FWB as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.” However, the literature provides limited insights regarding the causal relationship between FSE and FWB.…”

“…In addition, the importance of FSE in anticipating emergency savings suggests that confidence in handling finances may hold greater significance when it comes to consumers making prudent financial decisions, such as setting aside funds for unforeseen The results of the study showed that women who reported higher levels of FSE were more likely to engage in holding investment-related products rather than debt-related products. Self-efficacy in dealing with finances was found to be a strong predictor of future FWB (Mathew et al, 2022). Consumer Financial Protection Bureau (CFPB) (2015) defines FWB as "a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life."…”

“…This section discusses the methodology and several analytical techniques utilized in 64 empirical investigations succinctly outlined in (Brooks & Williams, 2022;Furrebøe et al, 2023;Grimes et al, 2022;Noor et al, 2020;Reyers, 2019) and Ordinary Least Squares regression (Asebedo & Seay, 2018;Brady et al, 2021;Montford & Goldsmith, 2016;Salas-Velasco, 2022) followed by structural equation modeling (Asebedo et al, 2022;Bhatia et al, 2021;Fan, 2023;Hentzen et al, 2022;Kim, Falconier, & Conway, 2023;Lone & Bhat, 2022;Mathew et al, 2022;Oquaye et al, 2022).…”

“…While studies on FSE in particular (in contrast to self‐efficacy in general) are scarce, many researchers have been conducting research that can provide some direction on how self‐efficacy can be applied in a financial environment. For instance, researchers have investigated how FSE predicts financial behavior, well‐being, and satisfaction (Asebedo & Payne, 2019; Mathew et al, 2022); influences investment intentions (Bhatia et al, 2021); predicts financial vulnerability (Hoffmann et al, 2021); and the role of personality traits in determining financial risk tolerance (Brooks & Williams, 2021); as well as the impact of financial life skills training, financial socialization, and autonomy on FSE (Grimes et al, 2022; Vijaykumar, 2022). The psychological attributes of FSE are known to be both productive and protective, as consumers who possess higher degrees of FSE are more inclined towards establishing goals and exhibiting resilience when facing various hurdles and setbacks (Asebedo, Wilmarth, et al, 2019).…”