Understanding Financial Behavioral Health and Race (Racism), and their Association with Investment Risk Willingness

Abstract

The conception of financial behavioral health (FBH) is new and lacks a common definition. This dissertation frames FBH as being comprised of financial precarity, financial self-efficacy (FSE), and financial well-being, and has the potential to influence multiple other behavioral health domains. The literature review shows how each component of FBH relates to other domains of behavioral health, including mental health, physical health, coping health, and social health. Stress and life course theory and insights on scarcity from the behavioral sciences are used to understand how FBH impacts the human condition, which, in a negative context, can manifest as money disorders. To explore FBH empirically, data from the 2018 National Financial Capability Study (N = 27,091; FINRA Investor Education Foundation, 2018) was used. First, a measure of financial precarity was constructed with both objective and subjective components, using exploratory and confirmatory factor analyses, and achieved adequate fit. Next, the relationship between FBH and its component parts was assessed, again with adequate fit. The study attempted to determine how a subset of Black and White survey respondents experienced FBH differently, according to collectivist or individualist financial values orientations. However, it was found through measurement invariance testing that although the FBH model had an excellent fit for White respondent data, it poorly fit the data from Black respondents. Due to the model variance, determining further impact of racial group affiliation on the outcome could not be conducted. The study concluded with a structural equation modeling analysis and determined that, controlling for key demographic variables, FBH accounted for 37% of the variance in investment risk willingness (R2 = .368; β = 0.256, p < .001). The project contributes a new measure of financial precarity and a basis for FBH. The variance between the sub-groups may indicate that the survey questions are inadequately capturing the collectivist experience by which many people treat their finances. The project shows how finances can have a psycho-behavioral impact on well-being and decisions, the influence FBH has on investment risk willingness, and suggests that low FBH may perpetuate wealth gaps.