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By Barbara O’Neill, Ph.D., CFP®

Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling sessions with clients. Below are findings and implications for practice from three recent studies:

Building Trust– McCoy et al. (2022) replicated and expanded previous research to explore antecedents to the formation of commitment and trust from a financial planning client’s perspective. Five antecedents for trust and commitment were identified: 1. communication abilities, 2. an absence of opportunistic (economic self-interest) behavior, 3. perceived relationship benefits, 4. the costs of terminating the relationship, and 5. shared values.

  • Implications: The results suggest that technical skills alone (e.g., generating high investment returns) may not be sufficient to build client trust and commitment and maintain client engagement over time. Rather, financial practitioners need to focus on developing client relationships and learning about client values and goals. Developing and maintaining proficiency in establishing trust and commitment within practitioner-client relationships was recommended.

Financial CapabilitySun et al. (2022) explored underlying components of financial capability using data from the 2015 National Financial Capability Study. Financial capability was measured using multiple constructs: subjective and objective financial literacy, financial access, and financial behavior. Results indicated that financial socialization and education were significantly associated with both financial access and financial literacy, which are associated with positive financial behavior and negatively associated with financial hardship.

  • Implications: Financial capability lies in both the opportunity to act and the ability to act- with opportunity relatively more important than ability. Policies and programs should provide accessible and affordable financial products as well as enhance effective financial education and guidance to promote financial inclusion. Financial capability was also strongly associated with household experiences of economic hardship.

Financial Capability and Health Sun & Chen (2022) empirically tested relationships between financial capability and health. They found that financial capability has a positive and longitudinal effect on health regardless of demographic and socio-economic variables (e.g., gender, income, race/ethnicity, education, and employment). In other words, this study demonstrates that financial capability is an independent social determinant of health.

  • Implications: Study results can inform comprehensive interventions to improve the well-being (health and financial) of clients. Current policies and program efforts to expand financial access and improve financial knowledge and skills may have beneficial effects on health and well-being. Practitioners may also want to integrate financial and health assessments.

McCoy, M., Machiz, I., Harris, J., Lynn, C., Lawson, D., & Rollins-Koons, A. (2022). The science of building trust and commitment in financial planning: Using structural equation modeling to examine antecedents to trust and commitment. Journal of Financial Planning, 35(12), 68-89.

Sun, S. & Chen, Y. (2022) Is financial capability a determinant of health? Theory and evidence. Journal of Family and Economic Issues, 43, 744-755.

Sun, S., Chen, Y., Ansong, D., Huang, J., & Sherraden, M.S. (2022). Household financial capability and economic hardship: An empirical examination of the financial capability framework (2022). Journal of Family and Economic Issues, 43, 716-729.

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