How Perception of Wealth and Other Socio-Economic Factors Impact Upon an Individual's Financial Decision-Making Ability

Love, Wendy Anne (2018). How Perception of Wealth and Other Socio-Economic Factors Impact Upon an Individual's Financial Decision-Making Ability. MRes thesis The Open University.



Personal financial decision making is a complex, dynamic and emotional process, with individuals sometimes appearing quite irrational (Goldberg and Lewis 1978). These decisions are made using an individual’s basic financial capability but influenced by their emotional attitude to money (Atkinson et al 2007). Over 70% of the UK adult population are unable to demonstrate sufficient skills in financial capability and are making inopportune financial decisions that can result in impaired quality of life for them and their families or in more serious cases financial distress (MAS 2015). This lack of ability is amplified by current peer pressure to demonstrate wealth and “keep up with the Joneses”. Add a cultural reservation in discussing financial problems and we have a serious gap in the financial education of our population. Recent international research suggests this is not just a UK problem.

This study examines the relationship between the individual’s perception of wealth and other socio-economic factors with their resultant money attitude, and financial capability, which ultimately determines their financial decision-making ability. This is a quantitative study of an extracted purposive sample of 33,715 respondents who self-selected as experiencing an adverse financial event in the last five years in an on-line survey of over 109,000 respondents in the UK. This study examines and reports upon the interactions between the individuals’ perception of wealth, specific socio-economic factors, five components of financial capability and four money attitudes.

The results confirm the complexity of financial decision-making and that most measurable aspects of financial capability vary positively with perception of wealth. The money attitude “security” was significantly associated with wealth and financial capability but the other three money attitudes, power, love and freedom were not. This supports the hypothesis that there is a significant relationship between perception of wealth and financial capability influenced by the Money Attitude Security.

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