Consumer Financial Decision-making Research Articles

A Bibliometric Review ofJournal of Financial Counseling and PlanningBetween 1990 and 2022

In 1990, the Journal of Financial Counseling and Planning (JFCP) was established. The journal publishes academic research on consumer financial decision-making, financial education, counseling, and planning. This article reviews the journal’s contents published during the period 1990–2022. It analyzes JFCP’s publication trends, citation statistics, significant themes, authors’ collaborations, keywords, and contributions to the literature of consumer finance. Most studies employed Life Cycle Hypothesis and Expected Utility Theory. JFCP publishes mostly US-based quantitative empirical studies. JFCP’s eight knowledge themes are credit card behavior; financial literacy and financial behavior; financial risk tolerance; financial education, and financial behavior; financial distress and financial self-efficacy; financial well-being; workplace financial education and financial help-seeking behavior, and JFCP’s retrospection. Among JFCP’s articles, the most used keywords selected by authors are “survey of consumer finances” and “financial literacy.” This study also describes the author, country, and concept networks.

How mindfulness reduces BNPL usage and how that relates to overall well-being

PurposeThe purpose of this study is to examine how mindfulness reduces consumers’ buy-now-pay-later (BNPL) payment scheme usage and how that relates to their overall well-being.Design/methodology/approachThis study uses partial least squares structural equation modeling to test the hypotheses of a conceptual framework which is rooted in the extant literature, using an approximately representative sample of Australian consumers (N = 275).FindingsThis study finds empirical evidence for the ability of mindfulness to reduce BNPL usage through increasing consumers’ financial self-control and decreasing their impulse buying tendency. This study also obtains empirical evidence that greater BNPL usage is associated with lower subjective evaluations of consumers’ overall well-being by increasing their current money management stress and decreasing their expected future financial security.Research limitations/implicationsFuture research could build on the effect of mindfulness that the authors find in this study and how it could be leveraged as a protective mechanism for consumers’ financial decision-making. Such research could involve mindfulness-based interventions, such as instant messaging within smartphone applications. Doing so would also help assess causality, thus addressing the limitation of the cross-sectional nature of this study.Practical implicationsThe findings have implications for public policymakers and business practitioners. Financial counselors are encouraged to include the measurement of personality traits such as impulse buying tendency and financial self-control in intake meetings with clients and consider the benefits of offering short mindfulness training. Given the negative effect of BNPL usage on consumers’ financial and overall well-being, and the reputational risks this implies, BNPL providers are recommended to take more responsibility to ensure consumers do not fall into a debt trap, while retailers are advised to take steps to make payment processes more “mindful.”Originality/valueAlthough mindfulness has established effects on consumer behavior, its beneficial influence on consumer financial decision-making has rarely been explored. This study also contributes to a better understanding of the antecedents and consequences of consumers’ BNPL payment scheme usage. Although its prominence is increasing in daily life, and despite the concerns of consumer advocates, policymakers and regulators regarding its risks, the topic of consumers’ BNPL usage has received little attention in academic research so far. Finally, this study extends the emerging financial well-being literature by demonstrating how BNPL usage can reduce consumers’ overall well-being through the mediating effect of increasing current money management stress and decreasing expected future financial security.

Confidence Without Competence: Online Financial Search and Consumer Financial Decision-Making

Confidence Without Competence: Online Financial Search and Consumer Financial Decision-Making

Sorting Investors Using a Financial Driving License

Financial driving licenses have the potential to improve consumer financial decision-making. The license approach presupposes the existence of a reliable mechanism to ex ante detect financially unskilled householders. This study tests that assumption by examining the empirical relationship between investment outcomes of investors and their qualification under a regulator-imposed assessment. On average, householders who qualify make fewer basic mistakes but still exhibit more subtle biases. The license weakly distinguishes composite aptitude, that is, vulnerability to serious losses. The high misclassification of households suggests regulators must be alert to the potential shortcomings of a financial driving license approach.

Focal versus background goals in consumer financial decision-making

Purpose – This study aims to examine the interplay between focal and background goals in consumer financial decision-making and identify conditions that lead individuals to trade-off financial returns for background goals. Design/methodology/approach – The current research reviews the relevant literature on consumer financial decision-making and goal systems theory to develop a set of hypotheses that is tested using three experiments. Findings – The experiments show that individuals who have been subtly primed with self-expressive background goals, or experienced progress toward the focal goal of financial returns, accept lower financial returns for the opportunity to invest in stocks that allow for increased self-expression. Further, while subtly primed background goals exert a non-normative influence on investment decisions, explicit cues about an investment’s background goal-instrumentality create a backlash effect, and decrease individuals’ willingness to trade-off financial returns. Research limitations/implications – Future research could confirm the robustness of the findings of the present research by using different priming tasks and alternative ways of making the background goal explicit to individuals. Practical implications – To achieve greater attraction among individual investors, it helps to frame a financial product or stock in communications materials in a way that sends subtle signals with which investors can identify. Such signals could include stressing the product/company’s home country (addressing individuals’ patriotism) or a particular product domain (addressing individual investors’ desire for interesting/exciting current/future products). Originality/value – While previous research suggests that investment choices may be influenced by self-expressive motivations, to date, it remains unclear whether and when individual investors are actually willing to trade-off the focal goal of maximizing financial returns for the opportunity to satisfy alternative background goals.

Focal Versus Background Goals in the Choice of Investment Products: Trading Off Financial Returns for Self-Expression?

According to standard (rational) models of (financial) decision-making, consumers should generally have a single strong, normative focal goal when making financial decisions like selecting which stocks to invest in: to maximize risk-adjusted financial returns. Nevertheless, consumers’ financial decisions may also be influenced by other goals that operate in the background, such as the desire to express themselves. The present research examines the interplay between focal and background goals in consumer financial decision-making and identifies several conditions that lead individuals to trade off financial returns for the satisfaction of background goals. Three experiments show that individuals who have (1) been subtly primed with self-expressive background goals, or (2) experienced progress towards the focal goal of financial returns, are willing to accept lower financial returns for the opportunity to invest in stocks that allow for increased self-expression. Further, while subtly primed background goals exert a non-normative influence on investment decisions, (3) explicit cues about an investment’s background goal-instrumentality create a backlash effect, and decrease individuals’ willingness to trade off financial returns.

Self-attribution bias in consumer financial decision-making: How investment returns affect individuals’ belief in skill

Self-attribution bias is a long-standing concept in psychology research and refers to individuals’ tendency to attribute successes to personal skills and failures to factors beyond their control. Recently, this bias is also being studied in household finance research and is considered to underlie and reinforce investor overconfidence. To date, however, the existence of self-attribution bias amongst individual investors is not directly empirically tested. That is, it remains unclear whether good (vs. bad) returns indeed make investors believe more (vs. less) strongly that skills drive their performance. Using a unique combination of survey data and matching trading records of a sample of clients from a large discount brokerage firm, we find that (1) the higher the returns in a previous period are, the more investors agree with a statement claiming that their recent performance accurately reflects their investment skills (and vice versa); and (2) while individual returns relate to more agreement, market returns have no such effect.

Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals' Belief in Skill

Self-attribution bias is a long-standing concept in psychology research and refers to individuals’ tendency to attribute successes to personal skills and failures to factors beyond their control. Recently, this bias is also being studied in household finance research and is considered to underlie and reinforce investor overconfidence. To date, however, the existence of self-attribution bias amongst individual investors is not directly empirically tested. That is, it remains unclear whether good (vs. bad) returns indeed make investors believe more (vs. less) strongly that skills drive their performance. Using a unique combination of survey data and matching trading records of a sample of clients from a large discount brokerage firm, we find that: (1) the higher the returns in a previous period are, the more investors agree with a statement claiming that their recent performance accurately reflects their investment skills (and vice versa); and (2) while individual returns relate to more agreement, market returns have no such effect.

Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals' Belief in Skill

Self-Attribution Bias in Consumer Financial Decision-Making: How Investment Returns Affect Individuals' Belief in Skill

Selling Losers and Keeping Winners: How Goal Dynamics Predict a Reversal of the Disposition Effect

A well-documented behavioral pattern in consumer financial decision-making is the disposition effect, which refers to the tendency to sell winning investments too early, while holding on to losing investments too long. This bias has negative wealth consequences, because typically, individuals’ losing investments continue to underperform while their winning investments continue to outperform. Using a goal-systemic framework, the present research indicates that individuals’ susceptibility to the disposition effect can be reversed by activating a superordinate (savings) goal. Experimental results indicate that three effective ways to activate a superordinate (savings) goal, and thereby reverse the disposition effect, are: (1) subtly prime it with goal-related words, (2) prime it by making an overall portfolio loss salient, and (3) prime it by explicitly mentioning a goal with a clear end-state.

Designing Disclosures to Inform Consumer Financial Decisionmaking: Lessons Learned from Consumer Testing

The Federal Reserve Board has studied ways to improve the disclosures that consumers draw on when they purchase and use financial products and services. This article examines lessons learned from the Board's consumer testing projects, suggests potential best practices for disclosure content and presentation, and identifies challenges involved in crafting effective disclosures for financial products.