Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities

57 Pages Posted: 7 Jun 2017

See all articles by Gianpaolo Parise

Gianpaolo Parise

EDHEC Business School and CEPR

Kim Peijnenburg

Netspar; Centre for Economic Policy Research (CEPR); EDHEC Business School - Department of Economics & Finance

Multiple version iconThere are 3 versions of this paper

Date Written: May 28, 2017

Abstract

We explore how financial distress and choices are affected by noncognitive abilities. Our measures stem from research in psychology and economics. In a representative panel of households, we find that people in the bottom decile of noncognitive abilities are five times more likely to experience financial distress compared to those in the top decile. Relatedly, individuals with lower noncognitive abilities make financial choices that increase their likelihood of distress: They are less likely to plan for retirement and save, and more likely to buy impulsively and to have unsecured debt. Causality is shown using childhood trauma as an instrument.

Keywords: Noncognitive abilities, financial distress, financial choices, saving, unsecured debt, behavioral finance, psychology and economics

JEL Classification: D10; D14; G02

Suggested Citation

Parise, Gianpaolo and Peijnenburg, Kim, Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities (May 28, 2017). BIS Working Paper No. 640, Available at SSRN: https://ssrn.com/abstract=2976114

Gianpaolo Parise (Contact Author)

EDHEC Business School and CEPR ( email )

393 Promenade des Anglais
Nice, 06200
France

Kim Peijnenburg

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

EDHEC Business School - Department of Economics & Finance ( email )

France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
168
Abstract Views
1,074
Rank
109,544
PlumX Metrics