Personality Traits and Financial Decisions of the Households

Abstract

Abstract. Who makes the financial decisions in the household and how does the identity of the decision-maker affect the subsequent financial choices? In this paper I show that it is not necessarily the most able or resourceful, but the most determined and organized of the spouses takes the responsibility for financial decisions. I also observe an age-related shift in financial management of the household finances: for older households, higher score on conscientiousness is one of the most significant predictors of stock ownership, as well as of the higher share of wealth invested in stocks, while for younger ones explanatory power lays with cognitive abilities and education. Also, the influence of the spouse on the financial decisions with respect to stock market is documented. The study uses HRS data to directly identify the decision-maker in the household and considers the effects of personality traits above and beyond cognitive abilities, risk aversion, demographic and economic factors. On one hand, this paper contributes to the discussion regarding personality traits and their explanatory power with respect to financial choices of households. On the other hand, it adds to the well-established literature on the intra-household decision-making, considering the personality traits of both spouses as the determinants of the decision-making power distribution within the family.