Soft landings: Extending the cushion hypothesis to financial well‐being in collectivistic cultures

• Published date: 01 December 2021
• Author: Dee Warmath,Pan‐Ju Chen,John Grable,Eun Jin Kwak
• Date: 01 December 2021
• DOI: http://doi.org/10.1111/joca.12408

SPECIAL ISSUE

Soft landings: Extending the cushion hypothesis

to financial well-being in collectivistic cultures

Dee Warmath | Pan-Ju Chen | John Grable | Eun Jin Kwak

Department of Financial Planning,

Housing, and Consumer Economics,

University of Georgia, Athens,

Georgia, USA

Correspondence

Dee Warmath, Department of Financial

Planning, Housing, and Consumer

Economics, University of Georgia, 205

Dawson Hall, 305 Sanford Drive, Athens,

GA 30602, USA.

Email: warmath@uga.edu

Abstract

This study extends the cushion hypothesis to examine

cultural differences in the role of willingness to take

financial risk in an individual's objective financial out-

comes (e.g., the experience of material hardship) and in

an individual's assessment of their financial well-being.

Using data collected in South Korea, Taiwan, and the

United States, we find support for a cushion (i.e., weaker

relationship) in the association between material hard-

ship and present and future financial well-being. A cush-

ion was also observed in a weaker association between

willingness to take financial risk and expectations for

future financial security but not in the experience of

material hardship or current money management stress.

Our results suggest that cultural context influences an

individual's objective situation as well as their subjective

assessment of that situation. This paper adds to existing

literature by documenting a cushion effect beyond risk

taking to include a person's objective financial situation

and financial well-being.

KEYWORDS

Asia, cultural differences, cushion hypothesis, financial

socialization, financial well-being, risk taking

Received: 31 October 2019 Revised: 21 August 2021 Accepted: 27 August 2021

DOI: 10.1111/joca.12408

© 2021 American Council on Consumer Interests.

J Consum Aff. 2021;55:1563–1590. wileyonlinelibrary.com/journal/joca 1563

1|INTRODUCTION

One household and personal finance topic that has received considerable cross-cultural

attention is risk tolerance. The consensus opinion among researchers is that someone's will-

ingness to take risk varies by cultural context. The cushion hypothesis, a widely used

framework in studies of cross-cultural risk taking, posits that cultural differences are related

to an individual's willingness to take financial risk, and that those residing in countries that

have a strong collectivistic culture (e.g., South Korea or Taiwan) should be more willing to

take financial risk compared to people residing in countries that are dominated by individ-

ualistic norms (e.g., the United States (Hsee & Weber, 1999)). The premise underlying the

hypothesis is that risk takers in collectivist cultures believe their social networks, and eco-

nomic and social safety nets will provide a ‘cushion’that will soften the blow associated

with negative outcomes (Fan & Xiao, 2006; Hsee & Weber, 1999). Studies demonstrate that

financial decision makers from collectivistic cultures are more likely to be risk seeking

(Fan & Xiao, 2006; Hsee & Weber, 1999; Schneider et al., 2017) and that this greater will-

ingness to engage in risk-taking behavior can be explained by the perception of a cushion

(Hsee & Weber, 1999; Schneider et al., 2017). Numerous studies confirm higher risk toler-

ance in Asian settings, with some studies examining the ability of the cushion hypothesis

to explain objective markers of a household's financial situation (e.g., savings (see Yang

et al., 2020)). However, few studies have been undertaken to investigate the relevance of

the cushion hypothesis in explaining the effects of a willingness to take financial risk on

financial well-being.

A person's financial well-being

1

plays an important role in determining their overall well-

being, explaining more of the variance in overall well-being than relationships, job/career, and

health combined (Netemeyer et al., 2018). In recent years, financial well-being (CFPB, 2015;

Brüggen et al., 2017; Netemeyer et al., 2018) has emerged as an important subjective measure of

an individual's assessment of their objective financial situation. While financial well-being is

related to objective markers of one's financial situation (e.g., savings, debt, net worth, material

hardship), financial well-being is unique in its focus on the individual's subjective assessment of

that objective situation (CFPB, 2018). In this regard, Brüggen et al. (2017) defined financial

well-being as “the perception of being able to sustain current and anticipated desired living stan-

dards and financial freedom”(2017, p. 229 [emphasis added]). Yet, few studies have examined

the process by which this subjective assessment happens or how cultural factors might influ-

ence what matters in this process.

While overall well-being has been studied across cultures, financial well-being studies

have been concentrated largely in the United States and Europe. There is a general assump-

tion that the frameworks and models developed, tested, and applied in Western countries

will apply equally to individuals residing in Asia. This is, of course, simply an assumption.

Yet studies of overall well-being suggest that there are important cultural differences to be

considered. Such differences may stem from shared cultural values. For example, individuals

residing in individualistic societies often strive for increased material well-being as a source

of happiness (Ahuvia, 2001; Veenhoven, 1999). Those residing in more collectivistic cultures

tend to find happiness in honoring elders and parents (Triandis et al., 1990) compared to

focusing on career advancement, notoriety, or wealth (Adrianson, 2019). Rather than mea-

suring one's independent sense of well-being, those residing in collectivistic cultures tend to

pursue more interdependent forms of happiness or well-being. Before Western models of

well-being can or should be adopted broadly worldwide, it behooves researchers and policy

1564 WARMATH ET AL.