Let your past define your future? How recalling successful financial experiences can increase beliefs of self‐efficacy in financial planning

Abstract

Financial self‐efficacy, or the perceived ability to succeed in managing one's personal financial affairs, is fundamental to effective consumer financial decision making. However, little is known about how to improve consumers' financial self‐efficacy and which consumers are more or less responsive to potential policy interventions. We address these questions through an experimental study among US consumers. We find that asking consumers to recall and analyze successful (unsuccessful) experiences regarding the management of their personal finances is associated with higher (lower) financial self‐efficacy. We provide insight into the underlying process of this effect through moderation and mediation analyses. In particular, we show that the effect of a recall and analyze intervention utilizing a successful previous experience is more pronounced for consumers with a more optimistic personality. Finally, consumers who develop greater financial self‐efficacy as a result of our intervention display more self‐control, leading to a higher financial planning propensity and actual planning.

The direct and indirect effects of financial socialization and psychological characteristics on young professionals' personal financial management behavior

“…Nowadays, people have more disposable income than ever, yet their financial management abilities are lagging behind. Due to the complexity of financial options, liberal credit laws and the increased self-responsibility for ensuring one's financial security in retirement, personal money management has recently assumed a position of preeminence (Hoffmann and Plotkina, 2021a, b). Mismanagement of one's financial resources, such as excessive spending or borrowing, is the result of a credit climate that is both hospitable in terms of the availability of credit and tolerant of those who use it (Tang et al.…”

“…Self-efficacy is the confidence people have in their ability to perform at a certain level and self-efficacy theory is related to human behavior in general (Bandura, 1994). Financial self-efficacy is related to financial behavior or consumer financial decision-making (Hoffmann and Plotkina, 2021a, b). According to Bandura (1989), in the absence of self-efficacy, knowledge, competence and prior success are insufficient indicators of future achievement.…”

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

“…Besides, ANOVA (Amagir et al, 2020;Hoffmann & Plotkina, 2021;Kim, 2021;Liu & Zhang, 2021;Loke et al, 2015) and factor analysis (Dare et al, 2022;Lin & Huang, 2021;Liu & Zhang, 2021;Naveed et al, 2021;Oquaye et al, 2022) have also been frequently used. The preceding section has provided a thorough overview of the current state of the literature on FSE.…”

“…On the contrary, troubling circumstances and negative experiences such as economic hardship or undesirable choices tend to reduce a consumer's level of FSE (Hoffmann & Plotkina, 2021). Another most critical factor determining FSE is loan literacy.…”

Financial planning propensity in working adults: exploring the role of media

“…According to Forbes and Kara (2010), financial self-efficacy is a person's belief or belief in his ability to achieve his financial goals. Financial self-efficacy is a very influential variable, as one's confidence in their abilities will only push one to be more responsible (Hoffmann and Plotkina, 2020, 2021). Individuals with higher financial self-efficacy are more likely to result in responsible financial management behavior and experience better financial well-being due to their proper financial planning.…”