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U.S. Households’ Homeowners Insurance and Financial Well-being
This study investigates the association between U.S. homeowners insurance decisions and financial well-being, specifically examining the moderating role of financial literacy. Utilizing weighted cross-sectional data (2019–2022) from the Understanding America Study (UAS), we employ Ordinary Least Squares (OLS) regression to analyze how voluntary insurance uptake among outright (mortgage-free) homeowners relates to subjective financial security. Our findings reveal that insured outright owners report significantly higher levels of financial well-being compared to both renters and uninsured owners. Furthermore, interaction models demonstrate that financial literacy acts as a critical cognitive moderator; the positive association between insurance and well-being is strongest for households with medium-to-high financial literacy, suggesting that literacy enables homeowners to better realize the utility of risk-transfer mechanisms. To ensure the integrity of our results, we addressed heteroskedasticity using bootstrapping and Robust Variance-Covariance Estimates and mitigated selection bias through Nearest-Neighbor Matching, which confirmed a robust Treatment Effect. These results suggest that while housing equity provides a baseline for security, formal insurance is essential to maximizing financial well-being. Implications for policymakers include the need to incentivize insurance among mortgage-free households and integrate financial literacy modules into housing programs. For financial planners, the study highlights the importance of addressing socio-economic and cognitive differences when advising clients on risk management and asset protection.
decision-making under risk and uncertainty
Copyright (c) 2026 VIKESH KUMAR, Stuart J. Heckman https://creativecommons.org/licenses/by-nc/4.0
Individual Financial Management in Practice: Advice, Investments, Insurance, and Measurement
Copyright (c) 2026 Elisabeth Sinnewe https://creativecommons.org/licenses/by-nc/4.0
Financial Management Behavior Scale: A Re-Conceptualization for Emerging Markets
Understanding financial management behavior (FMB) is critical for improving individual well-being. Guided by the psychological and cultural dimensions of economic behavior, this study adapts and validates a simple yet comprehensive FMB scale in the context of a developing economy. Specifically, the study adapts and validates the Financial Management Behavior Scale developed by Dew and Xiao (2011) for the Indian context. Using a sequential exploratory design, the qualitative phase culturally contextualizes and refines the scale items, while the quantitative phase reassesses the factor structure and establishes reliability, structural validity, and criterion validity. Data were collected using purposive maximum-variation sampling to ensure socio-demographic heterogeneity appropriate for scale validation. The scale comprises two distinct factors based on temporal and cultural orientations of human behavior: short-term and long-term FMB. The scale captures an exhaustive range of behavioral domains, including cash management, credit/debt management, comparison shopping/thrift, savings, retirement planning, emergency funds, and insurance/risk management, within a simplified two-factor structure. This simplified two-factor structure provides a context-sensitive yet empirically robust tool for advancing FMB research and informing FMB interventions in India and similar emerging economies.
short-term financial management behavior
Copyright (c) 2026 Vineetha Mathew, Sanjeev M.A., Kirti Goyal, Biju Ajithakumari Vijayappan Nair, Jing Jian Xiao https://creativecommons.org/licenses/by-nc/4.0
The loss of the ability to work poses substantial financial risks that are often not adequately covered by state benefits. Although private disability insurance (DI) may complement public insurance systems, demand remains comparatively moderate in many countries. Using Germany as an empirical setting, this study examines behavioral factors associated with private DI purchase intentions and purchase behavior. An exploratory sequential mixed methods design is employed. First, semi-structured interviews with financial advisors are conducted to assess the practical relevance of the Theory of Planned Behavior (TPB) and to identify additional salient factors for DI demand emerging from advisory practice. Building on these insights, the study develops a two-layered research model in which TPB serves as a behavioral foundation and qualitative findings inform model extensions. Second, the resulting model is tested using survey data from 323 consumers through partial least squares structural equation modeling (PLS-SEM) and importance-performance map analysis (IPMA). The results confirm the suitability of TPB for explaining private DI demand. Beyond this behavioral baseline, perceived product benefits and risks shape attitudes toward private DI. Furthermore, DI knowledge emerges as an important product-specific dimension of insurance literacy that influences perceived product benefits, perceived product risks, and perceived behavioral control. The study contributes to the literature on insurance demand behavior by integrating DI-specific evaluative and knowledge-related mechanisms into a TPB framework. Furthermore, the findings provide practical implications for improving insurance literacy and supporting informed and needs-appropriate decisions regarding protection against disability-related income loss.
partial least squares structural equation modeling (PLS-SEM)
Copyright (c) 2026 Sascha Kwasniok https://creativecommons.org/licenses/by-nc/4.0
Selecting a Social Security age to balance consumption and risk
This article uses Monte Carlo simulation to determine the maximum consumption given retire- ment at age 62, initial wealth, risk tolerance, and Social Security take decision. Coile et al. (2002) argue for a delay, because the payment increases seven percent for each year. Focusing on maximiz- ing the expected present value of benefits may be misguided. This article shows that, conditional on retirement at age 62, initial consumption is always maximized by taking Social Security no later than age 63; it also results in the highest simulated ending wealth at death, and the lowest amount of simulated time (if any) living on just Social Security.
Copyright (c) 2020 Academy of Financial Services https://creativecommons.org/licenses/by-nc/4.0
Career and education choice as central elements of long- term financial planning
Career and education choice play a central role in individual’s long-term financial planning. In defining individual’s overall wealth, we not only consider the financial wealth (net worth), but also incorporate individual’s human capital (expressed as the present value of future earnings) as a com- ponent of the wealth function. We demonstrate that human capital accounts for the majority of an individual’s wealth portfolio in most cases for most of individual’s life. By including human capital in the traditional theoretical portfolio choice framework, we show that the choice of career and edu- cation level has a significant effect on the Sharpe ratio of an individual’s overall wealth portfolio. We conclude by providing several examples of the computations of the present values of future aver- age earnings streams for individuals of various education levels from several different occupations. The calculations are meant to illustrate how an individual can perform a simple NPV-like analysis when in the process of career planning.
A theoretical examination of cash-back credit cards and their effect on consumer spending
The role of cash-back credit cards in personal financial strategies is highly debated. For example, Dave Ramsey (Ramsey, 2019) urges consumers to avoid even the most lucrative cash-back cards, while others argue that these cards offer significant savings. Herein, we construct models to analyze the use of cash-back cards by rational consumers, demonstrating that cash-back cards increase spending (and, thus, reduce savings) for some consumers. While prior research focuses on behavioral issues related to credit cards, our research is the first to show that some consumers will rationally increase spending when using a cash-back credit card in lieu of cash.
Develop a retirement plan and stick to it
This study explores the relationship between financial literacy, behavior and attitude, and retire- ment savings decisions. Members of a South African tertiary institution’s retirement fund were sur- veyed and multistage multivariate regression and mediation analyses showed that developing and conforming to a retirement plan positively influenced financial attitude and behavior. This indicates that interventions should focus on the specific behaviors which drive retirement planning, rather than financial literacy in isolation. Use of formal tools such as consulting with a financial planner also increases the relative risk of successful retirement planning. This presents a tangible and linear approach towards improved financial behavior.
Conceptualizing financial advice in Australia
Many individuals entrust financial advisors to navigate through important financial decisions, yet extant research and persistent scandals bring the effectiveness of advice into question. In examining the Australian financial advice sector, we determine when financial advice can be provided in a cli- ent’s best interest and formulate a model differentiating types of financial advice and their relation- ship to best interest practice. We extend this model to form an integrated framework considering external stakeholders that encourage, and business models which prevent, best interest practice. Our examination reveals some business models prioritize financial institution interests whilst thwarting external stakeholders encouraging best interest practice.
Fear and trust in financial institutions
Financial institutions are pillars of the economy and play an important role in consumers’ daily lives. As such, trust between financial institutions and the consumers they serve is of paramount impor- tance. Using an online survey administered during the COVID-19 pandemic, this paper uses a qualitative content analysis methodology to explore consumer fear and trust in financial institutions. Stemming from fear of loss, three themes emerged: (1) history and experience, (2) perceived unfair practices/lack of knowledge of banking, and (3) general trust issues. Implications for financial institu- tions are presented based on these results.
Copyright (c) 2023 Academy of Financial Services https://creativecommons.org/licenses/by-nc/4.0
The perfect withdrawal amount over the historical record
What has been the perfect withdrawal amount (PWA) from retirement savings accounts in long- term historical data? The PWA is that which, if taken out in the first year of retirement and used again every year adjusted by inflation, leaves exactly the desired final balance on the account. We present the formula for obtaining this measure and evaluate the values it has taken in the past under varying combi- nations of the relevant parameters. We find that safety-minded investors should enter retirement with a higher stock allocation than what is currently used in most investment funds designed to provide income during retirement.
Active vs. passive, the case of sector equity funds
This paper examines performance of 95 actively managed U.S. sector equity mutual funds from 29 fund families relative to their peer exchange-traded funds, SPDR sector ETFs, in the period of 2008 to 2017. Our results do not show considerable evidence that actively managed sector mutual funds outperform their passive counterparties. None of the mutual fund portfolios produces a signifi- cant positive alpha through factor models or delivers a significant positive alpha against their peer ETFs. When focusing on the nine oldest actively managed Fidelity sector mutual funds, outperform- ance in the period of 1999–2010, which is reported in literature, appears to fade away during the pe- riod of 2011-2017. Alpha analyses of a larger sample of 60 sector mutual funds show similar performance deterioration in the same 19-year period. The results indicate that U.S. sector equity market has become more efficient in the past decade.
Are “fun” sources of windfalls destined to be spent hedonistically?
Recently, Richard Thaler was awarded a Nobel Prize for his work in developing Behavioral Economics. While much of economics assumes that people act rationally, Areily (2008), expanding on Thaler’s body of work, proves that we are not only often irrational, but we are predictably irrational. When an interviewer asked Thaler how he would spend the roughly $1.1 million in prize money, he responded, “This is quite a funny question.” Thaler added, “I will try to spend it as irrationally as possible.” We know that affective tags for money exist but what specifically are those affective tags? More specifically still, is one of those tags for sources of income “fun,” and if so, does that affect whether the money will be spent on fun? Classical economics would assume that satisfaction comes from the consumption of goods and services, that money is a medium of exchange, and that the source of that medium of exchange does not enter into the choice of the goods or services consumed. Thaler’s (1999) works show that people create mental accounts, indicating that the source of the money may not be as completely irrelevant as classical economics predicted. This is important because where irrational behavior is suboptimal behavior, if we can anticipate it, we can construct environments to support better choices. We find that fun sources of income are significantly more likely to be spent on fun expenditures. However, as the amount of the windfall increases, the amount spent on fun levels off, indicating that this affect may be bounded. We were unable to find statistically significant support that more “adult” sources of income are more likely to be spent on more adult uses, but money from adult sources was significantly more likely to be invested. This is important because understanding more about affective tags and how they affect decisions to use money, we become better predictors of irrational behavior.
Copyright (c) 2019 Academy of Financial Services https://creativecommons.org/licenses/by-nc/4.0
A portfolio of leveraged exchange traded funds
This study demonstrates how a portfolio of leveraged exchange traded funds (LETFs) targeting a unit exposure to their underlying indexes outperforms a portfolio using traditional ETFs while simultaneously reducing downside risk. By extension, a 3x LETF portfolio designed to mimic 2x LETFs outperforms the underlying 2x LETF portfolio. The results are primarily a function of LETFs borrowing short while the investor lends the additional wealth generated from this leverage in one- to seven-year Treasury bonds or similar type of assets. For every one percent earned above the implied borrowing rate, a portfolio of 2x and 3x LETFs outperforms a traditional portfolio by 0.41% and 0.63%, respectively, corresponding roughly to the additional return on the 50% and 67% of the wealth invested in bonds. More than 90% of LETFs outperformance is explained by the borrowing lending differential.
The decrease in life insurance ownership
Based on our analyses of Survey of Consumer Finances datasets, the proportion of households owning a life insurance policy decreased from 72% in 1992 to 60% in 2016. We estimated logistic regressions on the likelihood of ownership of any, term, and cash value life insurance. We conclude that changes in household characteristics accounted for the decrease in term life insurance ownership, but not for the decreases in any and in cash value life insurance ownership. We also found a positive association between use of a financial planner and life insurance ownership. We discuss implications for financial planning.
Great Financial Advisers Are Well-Being Advisers
Great financial advisers are well-being advisers, offering holistic advice that builds clients’ life well-being on the foundation of financial well-being. Interviews with investors in the US, UK, Mexico, and China show how they enhance their life well-being in the domains of finances, family and friends, work, and health.
Copyright (c) 2026 Meir Statman https://creativecommons.org/licenses/by-nc/4.0
Household Financial Decision-Making: Miscalibration, Mortality, Emotion, and Culture
Financial Services Review Masthead (2026) Volume 34 Issue 1
This paper investigates the changing nature of equity investment risk across time horizon, an important issue in asset allocation decisions. We extend the literature by concentrating on different investment styles and by incorporating investors' risk tolerance into the analysis. Our results show that for more risk-averse investors, the large-cap growth style is the safest style over shorter investment horizons, while a small-cap value style over longer investment horizons. However, for more aggressive investors, the small-cap value style is always the safest regardless of the investment horizons. In addition, the small-growth style is the most risky across all investment horizons for both types of investors. Those results will help individual investors determine the best suited investment styles given their investment horizon and risk preferences.
Copyright (c) 2010 Academy of Financial Services https://creativecommons.org/licenses/by-nc/4.0
Pricing represents a key variable in the financial advisory industry. For this reason we investigate the possibility of identifying the type of advisory provided by making use of a pricing policy that advisors adopt in the United States and Italy. The prevalence of 'opaque' forms of compensation leads us to identify which variables are able to predict the pricing policies (transparent or opaque) of a financial advisor. Results suggest that they are related to: the advisor's regulatory status (independent advisor or tied agent), the presence of certification issued by independent authorities, the involvement in a financial products distribution process and the high or low frequency of the payments that are due for the advisory service.
We examine whether Berkshire Hathaway, one of America's premier actively managed portfolios, can outperform the S&P 500. We find that the returns for Berkshire Hathaway appear higher than the S&P 500 from 1990 to 2009. However, when adjusted for risk, we find the return per unit of risk of Berkshire Hathaway is equivalent to the S&P 500. The relatively low correlation between the two portfolios suggests that an investor may benefit from holding both portfolios rather than either portfolio in isolation. Similar results are found when using the Vanguard 500 Index Fund to proxy the S&P 500.
The downside risk of postponing Social Security benefits
The point that only life participants may initiate or receive Social Security benefits is typically overlooked. Thus, a postponement of benefits at any eligible retirement age may be likened to participation in a game of chance in which the participant is subject to a variant form of the gambler's ruin at death. The typical assumption, therefore, that a participant should automatically opt for a postponement if the present value of the resulting benefits, discounted to breakeven age, higher than the present value of the oppotunity costs, carries with it the implication of risk neutrality in relation to the consequence of dying before reaching the breakeven death age. While this implication of risk neutrality is sometimes correct, it is more likely not. In marked contrast to conclusions reached in previous studies, this paper shows that a single Social Security participant, who is risk averse as regards the chances - and contingent consequences - of dying before reaching breakeven age, would be well advised to initiate benefits at the earliest age at which he or she would not be subject to earned income penalties.
The classic preretirement problem for the financial planner is to advise a client how much to save, how much must be saved each year to reach a specified goal, and how the investments should be allocated between fixed income and equity. The traditional solution is to assume a fixed rate of return for each asset class and test scenarios until the mixture of variables yields a solution that meets the stated savings goal and seems feasible for the client. This binary result (accept or reject the plan) ignores the inherent uncertainty. In this paper, we derive a stochastic model in which the rate of return and the rate of increase of annual savings are both variable and calculate the probability that a particular goal will be achieved, given any initial savings endowment, periodic additional savings amount, mixture of assets (represented by the return distribution), and time to the goal. The calculations can be done on an Excel spreadsheet. We illustrate the use and numerical results of the model with a realistic retirement planning scenario and variations on it. While this solution is particularly important for preretirement planning, it applies generally to meeting any financial goal, such as saving a down payment for a house.
Age, income, health, and willingness to pay for health insurance in late-life
Uninsured older adults utilize fewer health services and are at higher risk of disability and death than insured individuals. This study sought to determine the personal and demographic characteristics associated with being uninsured. Participants (aged 55-71) were asked to indicate how much they were willing to pay for Medicare B, Medigap, Long-Term Care, and private insurance. Results indicated that individuals who were poor, unhealthy, or older were willing to pay less for health insurance than more affluent, healthy, and younger participants. These findings have implications for understanding how older adults and their financial planners may consider health insurance options.
Utilization of financial advisors by affluent retirees
Approximately 78 Million baby bootners will reach traditional retirement age duting the next 20 years. As the wave of baby boomers retire a shift in focus from asset accumulation to a.sset decumulation will occur relating to new tetiretnent challenges. Financial advisors will continue to be an integral part of the asset decumulation phase as they are in the accumulation phase of retiretnent planning. The authors investigate the factors relevant to affluent retirees' utilization of financial advisors and the differences in planning activities undertaken by those utilizing an advisor using a proprietary dataset. The authors tind the variables of gender, education, marital status, wealth, and debt all to be associated with the use of financial advisors. Utilization of advisors was also associated with an increased level of planning activities, awareness, and confidence.
Banks offer various economic incentives to customers to pay with their credit card rather than cash. Still, many individuals either elect to pay with cash or are unable to acquire credit cards. What benefits do these people lose by paying in cash rather than credit card? This paper demonstrates two opportunity costs associated with cash payments-frequent flier miles and payment float. Under most scenarios, the opportunity cost of cash payments versus benefit accruing credit cards is large. For example, individuals or businesses charging $5,000 each month can realize a present value opportu­ nity cost of more than $19,000 over a five-year horizon. The results help banks optimize their offerings and individuals optimize their payment patterns.
Marital status and state of residence as determinants of the optimal withdrawal strategy
The issue of the optimal withdrawal sequence of retirement funds from a set of multiple accounts with different tax treatment is studied. Marital status and state of residence are identified as the factors that can significantly affect the optimal withdrawal strategy. Given the provision of the step-up in cost basis for a full value of the joint taxable account upon the first spouse's death available for a married couple living in a community property state, the optimal withdrawal strategy may imply holding off from withdrawing funds from the joint taxable account until the event of the step-up. Another reason to withdraw funds from the tax-deferred accounts before the taxable account is to hedge against the projected increase in income tax rates after the first spouse dies. The benefits of the postponement of the withdrawals from the joint taxable account until the event of the step-up remain robust in the presence of the required minimum distribution rules and the fact that real consumption during later years of retirement is expected to be lower than during the early years, however the presence of short-term capital gains distributions that are taxed at higher ordinary income rates reduces and in some circumstances eliminates the advantage of the postponement of the withdrawals from the joint taxable account. Statistical odds of the mortality occurrence also favor the awaiting of the step-up.
Sustainable retirement income for the socialite, the gardener, and the uninsured
This paper advances the literature on the sustainability of retirement income by making consump­tion a stochastic variable instead of a constant real value, as previous papers have done. The paper continues to make the rate of return and date of death stochastic variables, as Milevsky and Robinson (2000, 2005) do. The sustainability of retirement income depends on the nature of the lifestyle that the retiree chooses. The difference in shortfall probabilities or risk of ruin between the variable cases and the fixed consumption case is significant, and so the adviser needs to take this into account. The difference in shortfall probabilities between making consumption a nonconstant but deterministic amount, and making it also stochastic, is not as important, because it does not reduce risk enough to make more aggressive consumption rates secure. Finally, making consumption correlated with the rate of return, which implies the family adjusts consumption as its wealth changes, reduces shortfall probabilities to a moderate extent. In general, an initial consumption of more than 4% of initial wealth is not sustainable for any likely set of conditions. In the very best case, an initial consumption rate of 6% is sustainable, but we think that case will fit very few people.