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By Barbara O’Neill, Ph.D., CFP®, [email protected]

Personal finance research informs high-quality financial education briefings, publications, and counseling sessions. Below are findings and implications for practice from four recent studies:

  • Personality Traits and Financial Success- In the first paper to examine relationships between “Big Five” O.C.E.A.N. personality traits (Openness, Conscientiousness, Extraversion, Agreeableness, Neuroticism) and four financial outcomes (financial literacy (FL), risk tolerance (RT), income, net worth (NW), this study by Exley et al. in the Journal of Financial Planning found that 16 of 20 possible correlations were significant. Conscientiousness was positively associated with RT, income, and NW, and neuroticism was negatively associated with FL, income, and NW. The personality test is easily available by searching “O.C.E.A.N. personality test” online.
    • Implications: Personality traits are associated with several key measures of financial well-being and may have potential predictive applications. Financial counselors should consider their clients’ unique personality profiles.
  • Financial Self-Efficacy (FSE)- FSE is a belief in one’s ability to accomplish a financial goal or task (e.g., saving for retirement). This study by Sturr et al. in the Journal of Financial Planning found a negative and significant relationship between confidence in achieving a financial goal (FSE) and retirement preparation (i.e., active savings). Overconfident respondents were less likely to be actively contributing to a retirement savings account. Results also indicated that income had a positive and significant association with savings behavior.
    • Implications: Learn the difference between confidence and overconfidence and caution clients against the latter. If clients are not actively saving for retirement, overconfidence may be a contributing factor. Foster FSE by reminding clients of their past financial accomplishments and celebrating goal achievement.
  •  Financial Anxiety and Stress- This study by the Global Financial Literacy Excellence Center at George Washington University found that the greatest levels of financial anxiety and stress were among women, young adults, those with lower incomes and dependent children, and those who are unmarried and unemployed. Lack of assets, high debt, and money management challenges were major contributing stress factors as well as peer comparisons, family structures, and income uncertainty. Respondents who could answer three basic financial literacy questions were less likely to feel financially stressed even after controlling for demographic factors.
    • Implications: Financial literacy seems to matter. Financial practitioners should work to increase the financial knowledge of vulnerable groups in relevant ways that meet them where they are. Practitioners also need to help financially-stressed people address stress-causing obstacles (e.g., debt and volatile incomes).
  •  Lack of Savings- University of Michigan researchers explored why many American workers don’t save enough for retirement given that lack of savings is a common regret expressed in surveys of older workers and retirees. The biggest reason was “unpleasant surprises” that included unemployment, earning less than expected, unanticipated health problems, large medical bills, disabilities, and bad investments. Many of these events were outside their control. The tendency to procrastinate was a secondary factor.
    • Implications: Help people identify and overcome their savings obstacles and encourage “small steps” such as a modest elective TSP contribution or completion of a savings challenge.

Borsch-Supan, A., Hurd, M., & Rohwedder, S. (2020). Saving regret: Self-Assessed life-cycle saving behavior in the U.S. and Singapore. Michigan Retirement and Disability Research Center.

Exley, J., Doyle, P., Snell, M. & Campbell, W.K. (2021). O.C.E.A.N.: How does personality predict financial success? Journal of Financial Planning, 34(10), 68-86.

Hasler, A., Lusardi, A., & Valdes, O. (2021). Financial anxiety and stress among U.S. households: New evidence from the National Financial Capability Study and focus groups. Washington, DC: The George Washington University.

Sturr, T., Lynn, C., & Lawson, D.R. (2021). Financial self-efficacy and retirement preparation. Journal of Financial Planning, 34(6), 86-98.