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The impact of self-efficacy on wealth accumulation and portfolio choice


  • S. Chatterjee
  • M. Finke
  • N. Harness


Self-efficacy is a psychological construct based on the evaluations of one's ability to accomplish certain behaviours or achieve certain outcomes (Bandura, 1977). Although self-efficacy has been linked to health, task accomplishment, greater socio-economic status and income (Seeman and Seeman, 1983; Stretcher et al., 1986; Gecas and Seff, 1990; Judge et al., 2002; Zagorsky, 2007), there has been no study that investigates whether self-efficacy is also a predictor of greater wealth creation over a specific period of time. Applying a theoretical framework based on self-efficacy, this article investigates household financial behaviours using the National Longitudinal Survey of Youth (NLSY79) data-set. For the purpose of this study, change in wealth across time and financial market participation is modelled as a function of socio-economic and demographic variables drawn from prior literature. Findings from this research reveal that self-efficacy is indeed a predictor of investment for financial assets and is also a predictor of wealth creation across time.

Suggested Citation

  • S. Chatterjee & M. Finke & N. Harness, 2011. "The impact of self-efficacy on wealth accumulation and portfolio choice," Applied Economics Letters, Taylor & Francis Journals, vol. 18(7), pages 627-631.
  • Handle: RePEc:taf:apeclt:v:18:y:2011:i:7:p:627-631 DOI: 10.1080/13504851003761830

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    References listed on IDEAS

    1. Henry S. Farber & Robert Gibbons, 1996. "Learning and Wage Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1007-1047.
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    3. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
    4. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    6. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
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    Cited by:

    1. Hyrum Smith & Michael Finke & Sandra Huston, 2012. "Financial Sophistication and Housing Leverage Among Older Households," Journal of Family and Economic Issues, Springer, vol. 33(3), pages 315-327, September.
    2. repec:zbw:rwirep:0455 is not listed on IDEAS
    3. Deborah A. Cobb-Clark & Sonja C. Kassenboehmer & Mathias G. Sinning, 2013. "Locus of Control and Savings," Ruhr Economic Papers 0455, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. Cobb-Clark, Deborah A. & Kassenboehmer, Sonja C. & Sinning, Mathias G., 2016. "Locus of control and savings," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 113-130.

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