Perception versus the reality of financial situation: The role of personality traits in the United States

• Published date: 01 July 2023
• Author: Olamide Olajide,Sarah Asebedo,Donald Lacombe,Todd Little
• Date: 01 July 2023
• DOI: http://doi.org/10.1111/joca.12556

RESEARCH ARTICLE

Perception versus the reality of financial

situation: The role of personality traits in the

United States

Olamide Olajide

1

| Sarah Asebedo

1

| Donald Lacombe

1

|

Todd Little

2

1

School of Financial Planning, College of

Human Sciences, Texas Tech University,

Lubbock, Texas, USA

2

Department of Educational Psychology,

Leadership, & Counseling, College of

Education, Texas Tech University,

Lubbock, Texas, USA

Correspondence

Olamide Olajide, School of Financial

Planning, College of Human Sciences,

Texas Tech University, Lubbock, TX

79409, USA.

Email: lamide.olajide@ttu.edu

Abstract

An individual might have a net worth of $10,000 and

believe they are in great shape financially, while another

individual might have $100,000 and feel otherwise. Could

personality explain this disparity between perception and

reality of their financial situation? This study answers this

research question using data from the 2018 Health and

Retirement Study (HRS). Findings from this study show

that conscientious and extraverted consumers believe they

are doing better than they are. Conversely, consumers

who exhibit traits relating to neuroticism, openness to

experience, and agreeableness think their financial situa-

tion is worse than it is. These findings have implications

for consumers, professional advisors, and policymakers.

KEYWORDS

financial health, financial satisfaction, personality traits, well-

being

1|INTRODUCTION

Increasing financial well-being, a domain of overall well-being, has been the focus of con-

sumers, professional advisors, and policymakers within the U.S. adult population (Joo, 2008;

Netemeyer et al., 2018). Perceived financial well-being is rooted in the subjective perception of

a consumer's current financial situation and security about their future financial goal achieve-

ment (Netemeyer et al., 2018). Because of the subjective nature of financial well-being, a

Received: 3 November 2022 Revised: 28 June 2023 Accepted: 6 August 2023

DOI: 10.1111/joca.12556

© 2023 American Council on Consumer Interests.

J Consum Aff. 2023;57:1523–1541. wileyonlinelibrary.com/journal/joca 1523

consumer's perception can be biased relative to their objective current and future financial situ-

ation. The objective of this study is to identify this gap between a consumer's objective and sub-

jective financial situation and the characteristics contributing to its existence.

This study employs financial ratios to measure the consumer's objective financial situation

(Garrett and James, 2013). Greninger et al. (1996) explained that financial ratios derived from financial

statements demonstrate how consumers are faring financially and which areas need improvement.

Specifically, DeVaney (1993) argued that three significant areas, measured by financial ratios, provide

an objective view of the financial well-being of consumers: liquidity, solvency, and investment. DeV-

aney, also pointed out that having an objective measuremightnotbeenough.Atthesametime,

Soss et al. (2015) argued that one's subjective assessment of their financial situation is an essential

measure of financial well-being. Netemeyer et al. (2018) developed a conceptual definition of per-

ceived financial well-being and found evidence that it contributes to overall well-being after control-

ling for well-being in other life domains and objective financial characteristics, such a s income.

According to Roll et al. (2019), although 39% of American adults report not having enough

liquidity and 60% report experiencing financial shock, most US households report being opti-

mistic about their financial situation. Pointing to the possible disparity between the perception

and reality of Americans' financial situation and well-being, which needs to be examined.

This study uses the Big Five personality traits to test for foundational characteristics that

potentially explain the gap between objective and perceived financial well-being measures. Per-

sonality traits are the distinct ways consumers think, process information, and behave in differ-

ent situations (Smith, 1999). As shown in the literature, the Big Five Personality traits

consistently predict overall subjective well-being (Lucas et al., 2009; Soto, 2015) and perceived

financial well-being (Davis and Runyan, 2016; Tharp et al., 2020), indicating the role of person-

ality in explaining financial well-being and possibly the gap therein.

While previous literature has focused on various factors affecting financial well-being

(Hsieh, 2004; Brown et al., 2005; Netemeyer et al., 2018), there is minimal research on factors

that influence the divergence between objective and subjective measures of financial well-being,

creating a gap that this present study aims to address. Specifically, the purpose of this study is

to examine how the Big Five Personality traits (openness, conscientiousness, extraversion,

agreeableness, and neuroticism) might explain the divergence in the perception and reality of

individuals' financial situations. This study performs this analysis using the 2018 wave of the

Health and Retirement Study (HRS). Personality traits have been found to influence how indi-

viduals process information and make decisions (Bensi, 2010).

Since financial well-being is a function of individuals' actions, findings from this study could

help consumers identify where discrepancies might lie in how they are objectively performing

relative to how they think they are performing or handling their financial affairs. Furthermore,

it will create personal awareness and help them recognize where there is a disparity in how

they are doing financially and how they think they are doing financially. For financial profes-

sionals working with clients, findings from this study will help them identify biases derived

from their clients' personality traits, tailor communication to address these biases, and offer tai-

lored financial education for these consumers.

2|THEORETICAL MOTIVATION

Consumer theory and the five-factor model form the theoretical basis for this study. According

to consumer theory, individuals engage in activities and consume goods that maximize utility

1524 OLAJIDE ET AL.