Elsevier

Journal of Economic Psychology

Volume 45, December 2014, Pages 197-212
Journal of Economic Psychology

Household finances and the ‘Big Five’ personality traits

https://doi.org/10.1016/j.joep.2014.10.006Get rights and content

Highlights

  • We explore the relationship between household finances and personality traits.

  • Extraversion is correlated with the amount of unsecured debt held.

  • Personality traits have different correlations with the various types of debt and assets.

Abstract

Using data drawn from the British Household Panel Survey, we analyse the relationship between personality traits and financial decision-making focusing on unsecured debt and financial assets. Personality traits are classified according to the ‘Big Five’ taxonomy: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. We explore personality traits at the individual level and also within couples, specifically the personality traits of the head of household and personality traits averaged across the couple. We find that certain personality traits such as extraversion are generally significantly associated with household finances in terms of the levels of debt and assets held and the correlation is often relatively large. The results also suggest that the magnitude and statistical significance of the association between personality traits and household finances differs across the various types of debt and assets held in the household portfolio.

Section snippets

Introduction and background

Over the last three decades, there has been increasing interest in household finances in the economics literature (see Guiso, Haliassos, & Jappelli, 2002, for a comprehensive review). In general, economists have focused on specific aspects of the household financial portfolio such as debt (see, for example, Brown & Taylor, 2008), the demand for risky financial assets (see, for example, Hochguertel, Alessie, & Van Soest, 1997) and savings (see, for example, Browning & Lusardi, 1996). One area,

Data

Our empirical analysis is based on the BHPS, a survey conducted by the Institute for Social and Economic Research comprising approximately 10,000 annual individual interviews. For wave one, interviews were carried out during the autumn of 1991. The same households are re-interviewed in successive waves – the last wave being 2008.4 Information is gathered relating to adults in the household. Information on the personality traits of

Results

An important caveat to acknowledge prior to discussing the findings of our empirical analysis is that the empirical findings which follow relate to correlations rather than causal relationships, that is we cannot rule out the possibility of reverse causality. The sample statistics relating to the stability of the Big Five personality traits presented in Appendix A do provide tentative supportive evidence that personality traits are fixed in our sample and that the Big Five personality traits

Conclusion

The recent financial crisis has highlighted the importance of furthering our understanding of what influences the financial decisions made by individuals and households. The influence of psychological factors on economic outcomes is attracting increasing interest amongst both academics and policymakers. The role of individual risk attitudes has been a particular focus in recent years amongst both academics and policy makers. For example, existing research has found that openness to experience,

Acknowledgements

We are very grateful to the Associate Editor and two referees for detailed and constructive comments. We are also grateful to Andy Dickerson and Pamela Lenton for valuable comments and advice. We are also grateful to the Data Archive at the University of Essex for supplying the British Household Panel Survey wave 15. Sarah Brown is grateful for financial support from the Leverhulme Trust for the Major Research Fellowship 2011-007. The normal disclaimer applies.

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