Personality and young adult financial distress

Abstract

JEL classification: D14 D12PsycINFO classification: 3900 3920 a b s t r a c t Researchers have become increasingly interested in understanding the sources of heterogeneity in individual financial behaviors. In this paper, we examine how the Big Five personality traits are related to measures of young adults' financial distress. Using data from the National Longitudinal Study of Adolescent to Adult Health in the United States, we find that conscientiousness is negatively correlated, and neuroticism positively correlated with financial distress. These correlations are robust to controlling for early life background and other demographic and socioeconomic factors. Young adulthood sets the stage for financial security in later life; as such, this study provides insight for lifelong financial wellbeing. Based on the empirical results, we discuss potential behavioral and policy interventions that can be used to improve financial wellbeing.

Parental educational attainment and adult offspring personality: An intergenerational life span approach to the origin of adult personality traits.

“…Response options ranged from 1 ( strongly agree ) to 5 ( strongly disagree ). The Mini-IPIP has good reliability and validity in young adult populations in general (Donnellan et al, 2006) and specifically in Add Health (Baldasaro, Shanahan, & Bauer, 2013) and has been used extensively to examine the association between personality and health (Sutin & Terracciano, 2016) and financial (Xu, Beller, Roberts, & Brown, 2015) outcomes.…”

Repeated payment delinquency among young adults in the United States

“…People who score higher in neuroticism are more likely to take up smoking and to maintain the habit (Stein, Newcomb, & Bentler, ). Conscientiousness and neuroticism are the personality of traits of interest because of their direct relationship to self‐control and existing empirical research that links these traits to financial behaviours and outcomes (Xu et al, ; Peijnenburg & Parise, in press).…”

“…Standard economic models suggest that debt repayment is a trade‐off between remaining solvent by forgoing other spending or increasing labour market participation or defaulting and facing the aforementioned negative consequences (Chatterjee, Corbae, Nakajima, & Rios‐Rull, ). However, research in a diverse range fields are finding that this not a straightforward economic trade‐off (Hodson, Dwyer, & Neilson, ; Kuhnen & Melzer, ; Xu, Beller, Roberts, & Brown, ). For example, Getter () considers whether payment delinquency is due to economic shocks or from “excessive” household spending and mounting financial stress.…”

“…Research exploring payment delinquency has focused on economic determinants such as income shocks (Elul, Souleles, Chomsisengphet, Glennon, & Hunt, ; Getter, ; Keys, ); social determinants such as socioeconomic status, education and gender (Hodson et al, ; Oksanen, Aaltonen, & Rantala, ); structural issues such as insolvency laws (Fay, Hurst, & White, ); and more recently behavioural factors such as personality traits and self‐efficacy (Kuhnen & Melzer, ; Peijnenburg & Parise, in press; Xu et al, ).…”

“…They are also less likely to become delinquent following a negative shock such as job loss or an illness (Kuhnen & Melzer, ). A study examining the relationship between financial distress and personality traits found that conscientiousness consistently had a negative correlation with measures of financial distress, while neuroticism consistently had a positive correlation (Xu et al, ). Another study found that individuals in the bottom quintile of noncognitive aptitude are significantly more likely to experience financial distress than those in the top quintile.…”