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Likert Scale Variables in Personal Finance Research: The Neutral Category Problem

Author

Listed:
  • Blain Pearson

    (Department of Finance and Economics, Coastal Carolina University, Conway, SC 29526, USA)

  • Donald Lacombe

    (School of Financial Planning, Texas Tech University, Lubbock, TX 79409, USA)

  • Nasima Khatun

    (School of Financial Planning, Texas Tech University, Lubbock, TX 79409, USA)

Abstract

Personal finance research often utilizes Likert-type items and Likert scales as dependent variables, frequently employing standard probit and ordered probit models. If inappropriately modeled, the “neutral” category of discrete dependent variables can bias estimates of the remaining categories. Through the utilization of hierarchical models, this paper demonstrates a methodology that accounts for the econometric issues of the neutral category. We then analyze the technique through an empirical exercise relevant to personal finance research using data from the National Financial Capability Study. We demonstrate that ignoring the “neutral” category bias can lead to incorrect inferences, hindering the progression of personal finance research. Our findings underscore the importance of refining statistical modeling techniques when dealing with Likert-type data. By accounting for the neutral category, we can enhance the reliability of personal finance research outcomes, fostering improved decision-relevant insights.

Suggested Citation

  • Blain Pearson & Donald Lacombe & Nasima Khatun, 2024. "Likert Scale Variables in Personal Finance Research: The Neutral Category Problem," Econometrics, MDPI, vol. 12(4), pages 1-11, November.
    • Handle: RePEc:gam:jecnmx:v:12:y:2024:i:4:p:33-:d:1515085
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    References listed on IDEAS

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    1. Lu Fan & Robin Henager, 2022. "A Structural Determinants Framework for Financial Well-Being," Journal of Family and Economic Issues, Springer, vol. 43(2), pages 415-428, June.
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