Towards an Understanding of Low-Income Individuals’ Financial Resiliency: Exploration of Risk Preferences, Personality Traits, and Savings Behavior

Carlos M. Parra; Ranjita Poudel; Matthew T. Sutherland

doi:10.22610/jebs.v13i5(J).3219

Author

Carlos M. Parra
- College of Business, Florida International University (FIU)
Ranjita Poudel
- Department of Psychology, Florida International University (FIU)
Matthew T. Sutherland
- Department of Psychology, Florida International University (FIU)

Abstract

The Coronavirus disease 2019 (COVID-19) pandemic has helped expose and exacerbate individuals’ and households’ financial vulnerability worldwide. Meanwhile, behavioral elements affecting low-income populations’ ability to save and become more financially resilient have yet to receive sufficient academic attention. This exploratory study aims at beginning to help elucidate the determinants of lowincome individuals’ real-life savings behavior by utilizing laboratory performance measures (to characterize participants’ risk preferences by using the Balloon Analog Risk Task – BART, in study 1), as well as self-report surveys (to characterize participants’ personality traits, in study 2). Combining results from both studies, latent personality traits (i.e., attitude towards risk, perseverance, distractibility, and state anxiety) are found to affect the risk preferences of low-income individuals (captured using a novel BART performance measure indicative of an individual’s strategic risk preference adaptation), which in turn impact their ability to successfully complete matched savings programs and, thus, their ability to save and enhance their financial resilience.

Keywords

References

Aklin, W. M., Lejuez, C., Zvolensky, M. J., Kahler, C. W. & Gwadz, M. (2005). Evaluation of behavioral measures of risk-taking propensity with inner-city adolescents. Behavior Research and Therapy, 43(2), 215– 228. https://doi.org/10.1016/j.brat.2003.12.007 DOI: https://doi.org/10.1016/j.brat.2003.12.007
Arrow, K. . (196 ). Aspects of the Theory of Risk-Bearing. rjo ahnsonian Sa tio .
Bagby, R. M., Parker, J. D. & Taylor, G. J. (1994). The twenty-item Toronto Alexithymia Scale—I. Item selection and cross-validation of the factor structure. Journal of psychosomatic research, 38(1), 23-32. https://doi.org/https://doi.org/10.1016/0022-3999(94)90005-1 DOI: https://doi.org/10.1016/0022-3999(94)90005-1
Barratt, E. S. (1993). Impulsivity: Integrating cognitive, behavioral, biological, and environmental data. In The Impulsive Client: Theory, Research, and Treatment (pp. 39–56). American Psychological Association. https://doi.org/https://doi.org/10.1037/10500-003 DOI: https://doi.org/10.1037/10500-003
Birkenmaier, J., Curley, J. & Kelly, P. (2014). Matched savings account program participation and goal completion for low-income participants: Does financial credit matter? Journal of Social Service Research, 40(2), 215–231. https://doi.org/10.1080/01488376.2013.875095 DOI: https://doi.org/10.1080/01488376.2013.875095
Broadbent, D. E., Cooper, P. F., FitzGerald, P. & Parkes, K. R. (1982). The cognitive failures questionnaire (CFQ) and its correlates. British journal of clinical psychology, 21(1), 1-16. https://doi.org/https://doi.org/10.1111/j.2044-8260.1982.tb01421.x DOI: https://doi.org/10.1111/j.2044-8260.1982.tb01421.x
Brown, S. & Taylor, K. (2014). Household finances and the ‘Big Five’personality traits. Journal of Economic Psychology, 45, 197-212. DOI: https://doi.org/10.1016/j.joep.2014.10.006
Brunell, A. B. & Buelow, M. T. (2017). Narcissism and performance on behavioral decision‐making tasks. Journal of Behavioral Decision Making, 30(1), 3-14. DOI: https://doi.org/10.1002/bdm.1900
Carvalho, L. S., Prina, S. & Sydnor, J. (2016). The effect of saving on risk attitudes and intertemporal choices. Journal of Development Economics, 120, 41–52. https://doi.org/10.1016/j.jdeveco.2016.01.001 DOI: https://doi.org/10.1016/j.jdeveco.2016.01.001
CBPP. (2020). Tracking the COVID-19 Recession’s Effects on Food, Housing, and Employment Hardships. Center on Budget and Policy Priorities. https://www.cbpp.org/research/poverty-andinequality/tracking-the-covid-19-recessions-effects-on-food-housing-and
Claus, E. D. & Hutchison, K. E. (2012). Neural mechanisms of risk-taking and relationships with hazardous drinking. Alcoholism: Clinical and Experimental Research, 36(6), 932–940. https://doi.org/10.1111/j.1530-0277.2011.01694.x DOI: https://doi.org/10.1111/j.1530-0277.2011.01694.x
Cloninger, C. R., Przybeck, T. R., Svrakic, D. M. & Wetzel, R. D. (1994). The Temperament and Character Inventory (TCI): A guide to its development and use. Center for Psychobiology of Personality, Washington University. DOI: https://doi.org/10.1037/t03902-000
Conell-Price, L. & Jamison, J. (2015). Predicting health behaviors with economic preferences & locus of control. Journal of Behavioral and Experimental Economics, 54, 1–9. https://doi.org/10.1016/j.socec.2014.10.003 DOI: https://doi.org/10.1016/j.socec.2014.10.003
De Jong, S. (1993). SIMPLS: An alternative approach to partial least squares regression. Chemometrics and Intelligent Laboratory Systems, 18(3), 251–263. https://doi.org/10.1016/0169-7439(93)85002-X DOI: https://doi.org/10.1016/0169-7439(93)85002-X
Duflo, E., Gale, W., Liebman, J., Orszag, P. & Saez, E. (2006). Saving incentives for low-and middle-income families: Evidence from a field experiment with H&R Block. The Quarterly Journal of Economics, 121(4), 1311–1346. https://doi.org/10.1162/qjec.121.4.1311 DOI: https://doi.org/10.1162/qjec.121.4.1311
Everitt, B. S., Landau, S., Leese, M. & Stahl, D. (2011). Cluster Analysis. John Wiley & Sons. DOI: https://doi.org/10.1002/9780470977811
Fairley, K., Parelman, J. M., Jones, M. & Carter, R. M. (2019). Risky health choices and the balloon economic risk protocol. Journal of Economic Psychology, 73, 15-33. DOI: https://doi.org/10.1016/j.joep.2019.04.005
Franken, R. E., Gibson, K. J. & Rowland, G. L. (1992). Sensation seeking and the tendency to view the world as threatening. Personality and Individual Differences, 13(1), 31–38. https://doi.org/10.1016/01918869(92)90214-A DOI: https://doi.org/10.1016/0191-8869(92)90214-A
Gabler, N. (2016, May 2016). The secret shame of middle-class Americans. The Atlantic, 317.
Gambetti, E. & Giusberti, F. (2019). Personality, decision-making styles and investments. Journal of Behavioral and Experimental Economics, 80, 14–24. https://doi.org/10.1016/j.socec.2019.03.002 DOI: https://doi.org/10.1016/j.socec.2019.03.002
Gauthier, A. H. & Furstenberg, F. F. (2010). The experience of financial strain among families with children in the United States. Working Paper WP-10-17. National Center for Family & Marriage Research.
Greenberg, A. E., Sussman, A. B. & Hershfield, H. E. (2020). Financial product sensitivity predicts financial health. Journal of Behavioral Decision Making, 33(1), 15-26. DOI: https://doi.org/10.1002/bdm.2142
Gutter, M. S., Hayhoe, C. R., DeVaney, S. A., Kim, J., Bowen, C. F., Cheang, M., Cho, S. H., Evans, D. A., Gorham, E. & Lown, J. M. (2012). Exploring the relationship of economic, sociological, and psychological factors to the savings behavior of low‐to moderate‐income households. Family and Consumer Sciences Research Journal, 41(1), 86–101. https://doi.org/10.1111/j.1552-3934.2012.02130.x DOI: https://doi.org/10.1111/j.1552-3934.2012.02130.x
Guven, C. (2012). Reversing the question: Does happiness affect consumption and savings behavior? Journal of Economic Psychology, 33(4), 701–717. https://doi.org/10.1016/j.joep.2012.01.002 DOI: https://doi.org/10.1016/j.joep.2012.01.002
Hadlington, L. J. (2015). Cognitive failures in daily life: Exploring the link with Internet addiction and problematic mobile phone use. Computers in Human Behavior, 51, 75–81. https://doi.org/10.1016/j.chb.2015.04.036 DOI: https://doi.org/10.1016/j.chb.2015.04.036
Hall, C. C. (2021). Promoting savings for financial resilience: Expanding the psychological perspective. Current Directions in Psychological Science, 30(1), 49–54. https://doi.org/10.1177/0963721420979603 DOI: https://doi.org/10.1177/0963721420979603
Hayhoe, C. R., Cho, S. H., DeVaney, S. A., Worthy, S. L., Kim, J. & Gorham, E. (2012). How do distrust and anxiety affect saving behavior? Family and Consumer Sciences Research Journal, 41(1), 69–85. https://doi.org/10.1111/j.1552-3934.2012.02129.x DOI: https://doi.org/10.1111/j.1552-3934.2012.02129.x
Holzmeister, F. (2017). oTree: Ready-made apps for risk preference elicitation methods. Journal of Behavioral and Experimental Finance, 16, 33–38. https://doi.org/10.1016/j.jbef.2017.08.003 DOI: https://doi.org/10.1016/j.jbef.2017.08.003
Kass, S. J., Beede, K. E. & Vodanovich, S. J. (2010). Self-report measures of distractibility as correlates of simulated driving performance. Accident Analysis & Prevention, 42(3), 874–880. https://doi.org/10.1016/j.aap.2009.04.012 DOI: https://doi.org/10.1016/j.aap.2009.04.012
Kesavayuth, D., Ko, K. M. & Zikos, V. (2018). Locus of control and financial risk attitudes. Economic Modeling, 72, 122–131. https://doi.org/10.1016/j.econmod.2018.01.010 DOI: https://doi.org/10.1016/j.econmod.2018.01.010
Kirby, K. N. & Maraković, N. N. (1996). Delay-discounting probabilistic rewards: Rates decrease as amounts increase. Psychonomic bulletin & review, 3(1), 100-104. https://doi.org/https://doi.org/10.3758/BF03210748 DOI: https://doi.org/10.3758/BF03210748
Kohno, M., Nurmi, E. L., Laughlin, C. P., Morales, A. M., Gail, E. H., Hellemann, G. S. & London, E. D. (2016). Functional genetic variation in dopamine signaling moderates prefrontal cortical activity during risky decision making. Neuropsychopharmacology, 41(3), 695–703. https://doi.org/10.1038/npp.2015.192 DOI: https://doi.org/10.1038/npp.2015.192
Krijnen, J. M., Zeelenberg, M., Breugelmans, S. M. & van Putten, M. (2020). Inaction inertia in retirement saving. Journal of Behavioral Decision Making, 33(1), 52-62. DOI: https://doi.org/10.1002/bdm.2145
Lejuez, C. W., Aklin, W. M., Jones, H. A., Richards, J. B., Strong, D. R., Kahler, C. W. & Read, J. P. (2003). The balloon analog risk task (BART) differentiates smokers and nonsmokers. Experimental and Clinical Psychopharmacology, 11(1), 26–33. https://doi.org/10.1037/1064-1297.11.1.26 DOI: https://doi.org/10.1037/1064-1297.11.1.26
Lejuez, C. W., Read, J. P., Kahler, C. W., Richards, J. B., Ramsey, S. E., Stuart, G. L., Strong, D. R. & Brown, R. A. (2002). Evaluation of a behavioral measure of risk-taking: The Balloon Analogue Risk Task (BART). Journal of Experimental Psychology: Applied, 8(2), 75–84. https://doi.org/10.1037/1076-898X.8.2.75 DOI: https://doi.org/10.1037/1076-898X.8.2.75
Liu, H. H. & Chou, H. Y. (2018). Promotional formats and inaction inertia. Journal of Economic Psychology, 66, 22-32. DOI: https://doi.org/10.1016/j.joep.2018.04.001
Loibl, C., Jones, L. & Haisley, E. (2018). Testing strategies to increase saving in individual development account programs. Journal of Economic Psychology, 66, 45-63. DOI: https://doi.org/10.1016/j.joep.2018.04.002
Loibl, C., Kraybill, D. S. & DeMay, S. W. (2011). Accounting for the role of habit in regular saving. Journal of Economic Psychology, 32(4), 581-592. DOI: https://doi.org/10.1016/j.joep.2011.04.004
Loke, Y. J. (2016). Financial preparedness for income shock among Malaysians. Malaysian Journal of Economic Studies, 53(2), 279–295.
Ludwig, J., Jaudas, A. & Achtziger, A. (2020). The role of motivation and volition in economic decisions: Evidence from eye movements and pupillometry. Journal of Behavioral Decision Making, 33(2), 180195. DOI: https://doi.org/10.1002/bdm.2152
Lusardi, A. (2011). Americans' Financial Capability. National Bureau of Economic Research (NBER) Working Paper 17103. National Bureau of Economic Research. DOI: https://doi.org/10.3386/w17103
Lusardi, A., Schneider, D. J. & Tufano, P. (2011). Financially fragile households: Evidence and implications. National Bureau of Economic Research (NBER) Working Paper No. 17072. National Bureau of Economic Research. DOI: https://doi.org/10.3386/w17072
Mason, C. L. J. & Wilson, R. M. S. (2000). Conceptualizing Financial Literacy (Vol. 7). Business School, Loughborough University.
McElroy, T., Seta, J. J. & Waring, D. A. (2007). Reflections of the self: how self‐esteem determines decision framing and increases risk-taking. Journal of Behavioral Decision Making, 20(3), 223-240. DOI: https://doi.org/10.1002/bdm.551
Mullainathan, S. & Shafir, E. (2013). Scarcity: Why Having too Little Means So Much. Macmillan.
Schürmann, O., Frey, R. & Pleskac, T. . (2019). Mapping risk perceptions in dynamic risk‐taking environments. Journal of Behavioral Decision Making, 32(1), 94-105. DOI: https://doi.org/10.1002/bdm.2098
Sherraden, M. (2000). From research to policy: Lessons from individual development accounts. Journal of Consumer Affairs, 34(2), 159–181. https://doi.org/10.1111/j.1745-6606.2000.tb00089.x DOI: https://doi.org/10.1111/j.1745-6606.2000.tb00089.x
Sherraden, M. (2008). IDAs and Asset-Building Policy: Lessons and Directions. Center for Social Development, George Warren Brown School of Social Work, Washington University.
Sherraden, M., Schreiner, M. & Beverly, S. (2003). Income, institutions, and saving performance in individual development accounts. Economic Development Quarterly, 17(1), 95–112. https://doi.org/10.1177/0891242402239200 DOI: https://doi.org/10.1177/0891242402239200
Shim, S., Serido, J. & Tang, C. (2012). The ant and the grasshopper revisited: The present psychological benefits of saving and future-oriented financial behaviors. Journal of Economic Psychology, 33(1), 155-165. DOI: https://doi.org/10.1016/j.joep.2011.08.005
Smeeding, T. M. (2005). The EITC and USAs/IDAs: Maybe a Marriage Made in Heaven? Working Paper 00-18. Center for Social Development, George Warren Brown School of Social Work, Washington University. DOI: https://doi.org/10.1093/oso/9780195168198.003.0016
Smith, C. E., Echelbarger, M., Gelman, S. A. & Rick, S. I. (2018). Spendthrifts and tightwads in childhood: Feelings about spending predict children's financial decision making. Journal of Behavioral Decision Making, 31(3), 446-460. DOI: https://doi.org/10.1002/bdm.2071
Spielberger, C. D., Gorsuch, R. L., Lushene, R., Vagg, P. R. & Jacobs, G. A. (1983). State-Trait Anxiety Inventory for Adults. Consulting Psychologists Press Inc. PsycNET [WWW Document]. URL https://psycnet.apa.org/record/9999-06496-000?doi=1
Sproten, A. N., Diener, C., Fiebach, C. J. & Schwieren, C. (2018). Decision making and age: Factors influencing decision making under uncertainty. Journal of Behavioral and Experimental Economics, 76, 43–54. https://doi.org/10.1016/j.socec.2018.07.002 DOI: https://doi.org/10.1016/j.socec.2018.07.002
Taylor, M. P., Jenkins, S. P. & Sacker, A. (2011). Financial capability and psychological health. Journal of Economic Psychology, 32(5), 710–723. https://doi.org/10.1016/j.joep.2011.05.006 DOI: https://doi.org/10.1016/j.joep.2011.05.006
Thaler, R. H. (1994). Psychology and savings policies. The American Economic Review, 84(2), 186–192.
Voigt, D. C., Dillard, J. P., Braddock, K. H., Anderson, J. W., Sopory, P. & Stephenson, M. T. (2009). BIS/BAS scales and their relationship to risky health behaviors. Personality and Individual Differences, 47(2), 89-93. https://doi.org/https://doi.org/10.1016/j.paid.2009.02.003 DOI: https://doi.org/10.1016/j.paid.2009.02.003
Weiss, M. G. & Sherraden, M. (2005). Racial differences in performance in a matched savings program. Journal of Income Distribution, 13(3-4), 6. DOI: https://doi.org/10.25071/1874-6322.1310
Westfall, J. E., Jasper, J. D. & Christman, S. (2012). Inaction inertia, the sunk cost effect, and handedness: Avoiding the losses of past decisions. Brain and cognition, 80(2), 192-200. DOI: https://doi.org/10.1016/j.bandc.2012.06.003
Wold, H. (1980). Model construction and evaluation when theoretical knowledge is scarce: Theory and application of partial least squares. In J. Kmenta & J. B. Ramsey (Eds.), Evaluation of Econometric Models (pp. 47–74). Academic Press. DOI: https://doi.org/10.1016/B978-0-12-416550-2.50007-8
Wold, S., Ruhe, A., Wold, H. & Dunn III, W. (1984). The collinearity problem in linear regression. The partial least squares (PLS) approach to generalized inverses. SIAM Journal on Scientific and Statistical Computing, 5(3), 735–743. https://doi.org/10.1137/0905052 DOI: https://doi.org/10.1137/0905052

Downloads

Full-text downloads recorded for this article, by month.

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Parra, C. M., Poudel, R., & Sutherland, M. T. (2021). Towards an Understanding of Low-Income Individuals’ Financial Resiliency: Exploration of Risk Preferences, Personality Traits, and Savings Behavior. Journal of Economics and Behavioral Studies, 13(5(J), 32-54. https://doi.org/10.22610/jebs.v13i5(J).3219

Share this article

License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Towards an Understanding of Low-Income Individuals’ Financial Resiliency: Exploration of Risk Preferences, Personality Traits, and Savings Behavior

Download the full text

Author

Abstract

Keywords

References

Downloads

How to Cite

Share this article

License

Keywords

Section

Published in

Published

Submissions