Psychological traits and saving habits: What psychological traits have the highest impact on saving habits, and how do they influence the relationship between financial knowledge and saving habits?
Abstract
The aim of this study is to provide information about how certain psychological traits influence saving habits among households. To analyze the influence, we utilized a dataset based on a representative survey from Consumer Financial Protection Bureau (CFPB), conducted in 2017.
Potentially, there are many factors that explain why some people save more than others. Primarily, we focus on the influences of financial knowledge and psychological trait predictors. Financial knowledge is known to be a fundamental factor, while the impact of psychological trait variables is understudied. Through a regression analysis, controlling for demographic variables, we found that psychological trait factors like self-control, financial self-efficacy and the propensity to plan are key predictors for saving habits.
Increasing financial knowledge is a common method to try to improve people's saving habits, however, the literature indicates that financial knowledge in itself is rarely enough. The literature and our findings suggest that the influence of financial knowledge diminishes when introducing additional covariates in the regression specification. Additionally, the findings from the literature and our regression analysis indicated that psychological trait variables influence the partial effect of financial knowledge. Therefore, we conducted a moderation analysis with estimated marginal means and simple slopes to investigate how psychological trait variables shape the relationship between financial knowledge and saving habits. In other words, we investigated how psychological traits influence the effectiveness of financial knowledge on improving saving habits. Our findings indicate that in order to improve the saving habits of the population, institutions need to consider psychological traits in their programs. Most importantly, the education programs would benefit from including self-control training, build financial self-efficacy and reduce materialism.