Citation

Discussion Paper Details

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

Author(s): Gianpaolo Parise and Kim Peijnenburg

Publication Date: March 2017

Keyword(s): behavioral finance, financial choices, financial distress, Noncognitive abilities, psychology and economics, Saving and unsecured debt

Programme Area(s): Financial Economics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11900

Bibliographic Reference

Parise, G and Peijnenburg, K. 2017. 'Understanding the Determinants of Financial Outcomes and Choices: The Role of Noncognitive Abilities'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11900