Financial Services Review

The Impact of Saving on Financial Resilience

Chuck Grace, Adam Metzler, Yang Miao, Leon, Alireza Fazelli — Mon, 10 Jun 2024 00:00:00 -0400

In this paper, we examine the issue of saving in the context of financial resilience. We examine unique dataset(s) of investor transactions to determine the relationship between investor behaviours, household savings, and investment outcomes. We examine these real-world observed behaviours through advanced data analytics in the form of machine learning to explore previously unknown patterns and seek a determination of any causal relationships.

We examine trading over a 3-year period ending August 2022, providing us with the opportunity to observe behaviour during rising markets, declining markets and the turbulent phases during transitions. Our datasets included investors who work with financial advisors and those who prefer “do it yourself”.

Trading behaviours over this period, demonstrated an active savings strategy to be the most effective strategy for building wealth. On average, an active savings strategy was 5X more effective at building wealth and resilience than relying on investment returns or complex trading strategies.

We conclude that;

Saving is a ‘force of nature’. The math isn’t new, but it works and we observed it working in the ‘real world”.
Saving is simpler, more reliable, and more powerful than investment returns for building financial resilience.
Frequent and disciplined saving is more effective than periodic or just-in-time saving.
Saving is a universal strategy - the observed results were the same regardless of age groups, genders, risk tolerances and income levels.
Keeping it simple is a legitimate strategy for building wealth. Saving and saving often - is not only easy to prescribe but effective.

ESG Perceptions: Investigating Investor Motivations and Characteristics

Yu Zhang — Mon, 10 Jun 2024 00:00:00 -0400

Integrating ESG factors into investment strategies is a rapidly growing trend, but less is known about how investors value these ESG factors. The characteristics of investors prioritizing ESG in their decisions remain under-recognized. This study uses the Value-Belief-Norm conceptual framework to investigate the relationship between socially responsible motivation and the perceived importance of ESG when making investment decisions. How financial-related, sociodemographic, human capital, and economic variables correlate with the perceived value of ESG was explored. Analyzing data from the 2021 National Financial Capability Study (NFCS) State-by-State and Investor Survey through cumulative logistic regressions, the findings revealed that socially responsible motivation was significantly and positively linked to the likelihood of assigning greater importance to ESG factors. Variables such as objective and subjective financial knowledge and investment experience in years emerged as significant factors. The segment analysis, which was differentiated based on the presence of socially responsible motivation, further highlighted that financial knowledge and investment experience are significantly associated with the importance placed on ESG factors.

Retirement Planning: A Moderated Mediation Model of Cognitive Beliefs, Retirement Planning Attitude, and Money Availability

AFM Jalal Ahamed, Professor Dr. Yam B. Limbu — Mon, 10 Jun 2024 00:00:00 -0400

Retirement planning has been extensively studied in developed countries; however, it received scant scholarly attention in developing nations. Thus, this study examines the role of cognitive factors in retirement planning intentions in the context of a developing country, focusing on financial risk tolerance and self-efficacy within the cognitive appraisal theory framework, considering the mediating role of retirement planning attitudes and the moderating impact of financial resource availability. A survey was conducted in Dhaka, Bangladesh, with 301 valid responses analyzed using a Partial Least Squares Structural Equation Modeling (PLS-SEM) approach. Findings reveal that retirement planning attitudes mediate the relationship between cognitive factors and retirement planning intentions. Interestingly, risk tolerance negatively impacts retirement planning intentions through attitudes, while financial self-efficacy shows a positive influence. Furthermore, the availability of financial resources moderates these relationships, indicating that retirement planning attitudes significantly influence intentions when financial resource availability is low. This research contributes to the understanding of retirement planning in a developing country context, highlighting the importance of cognitive factors and financial resources. It suggests that tailored retirement planning strategies should consider individual financial conditions and cognitive beliefs. The insights are valuable for policymakers and financial advisors, particularly in developing nations.

Factors Mediating the Association between Financial Socialization and Well-Being: An African American Perspective

Dr. John Young, Dr. Crystal R. Hudson, Dr. C.W. Copeland — Mon, 10 Jun 2024 00:00:00 -0400

Abstract

This study examines the relationship between financial socialization and well-being (financial and subjective) mediated by three motivations: financial knowledge, goal setting, and self-control, either directly on financial behaviors or indirectly through financial skills on financial behaviors of African Americans compared with European Americans. Researchers used an integrated concept derived from Gudmunson and Dane’s (2011) Financial Socialization framework and Fisher and Fisher’s (1992) Information Motivation Behavior Model to examine National Financial Well-Being Survey data. Researchers found a significant difference between African Americans and European Americans when “self-control” mediates directly through financial behaviors and indirectly through financial skills. There is also a significant difference in the relationship when “goal setting” mediates the relationship indirectly through skills in financial behaviors. Finally, there is a significant difference when “financial knowledge” directly mediates financial behaviors. Specifically, the findings imply that self-control is one of the most impactful factors on African Americans’ well-being.

Financial Services Review Masthead

John Grable — Mon, 10 Jun 2024 00:00:00 -0400

From the Editor

John Grable — Mon, 10 Jun 2024 00:00:00 -0400