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Measuring Financial Wellbeing with Self-Reported and Bank-Record Data

Author

Listed:
  • Comerton-Forde, Carole

    (University of New South Wales)

  • de New, John

    (Melbourne Institute of Applied Economic and Social Research)

  • Salamanca, Nicolás

    (Melbourne Institute of Applied Economic and Social Research)

  • Ribar, David C.

    (Georgia State University)

  • Nicastro, Andrea

    (Commonwealth Bank of Australia)

  • Ross, James

    (Commonwealth Bank of Australia)

Abstract

This study develops multi-item scales of the financial wellbeing of customers of a major Australian bank using self-reported survey data that are matched with the customers' financial records. Using Item Response Theory (IRT) models, the study develops: First a Reported Financial Wellbeing Scale that is formed from responses to 10 questions about people's experiences and perceptions of financial outcomes, and second an Observed Financial Wellbeing Scale that is formed from five financial-record measures of customers' account balances, net spending, and payment problems. The IRT models show that each scale reliably differentiates between a wide range of outcomes and that the components within each scale have similar power to discriminate. We validate the scales by estimating Least Absolute Shrinkage and Selection Operator machine-learning models of how they correlate with other measurable characteristics. Savings habits, spending habits, credit card behavior, household income, education, difficulties with housing payments, and the use of and access to social or government support are each associated with both types of financial wellbeing.

Suggested Citation

  • Comerton-Forde, Carole & de New, John & Salamanca, Nicolás & Ribar, David C. & Nicastro, Andrea & Ross, James, 2020. "Measuring Financial Wellbeing with Self-Reported and Bank-Record Data," IZA Discussion Papers 13884, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13884
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    12. Emily N Garbinsky & Joe J Gladstone & Hristina Nikolova & Jenny G Olson & Margaret C Campbell & Susan M Broniarczyk, 2020. "Love, Lies, and Money: Financial Infidelity in Romantic Relationships [“Cognitive Interdependence: Commitment and the Mental Representation of Close Relationships,”]," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 47(1), pages 1-24.
    13. Paul Gerrans & Craig Speelman & Guillermo Campitelli, 2014. "The Relationship Between Personal Financial Wellness and Financial Wellbeing: A Structural Equation Modelling Approach," Journal of Family and Economic Issues, Springer, vol. 35(2), pages 145-160, June.
    14. Michael Gutter & Zeynep Copur, 2011. "Financial Behaviors and Financial Well-Being of College Students: Evidence from a National Survey," Journal of Family and Economic Issues, Springer, vol. 32(4), pages 699-714, December.
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    Cited by:

    1. Ferdi Botha & John P. de New & Sonja C. de New & David C. Ribar & Nicolás Salamanca, 2020. "COVID-19 labour market shocks and their inequality implications for financial wellbeing," Melbourne Institute Working Paper Series wp2020n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. Ferdi Botha & John P. New & Sonja C. New & David C. Ribar & Nicolás Salamanca, 2021. "Implications of COVID-19 labour market shocks for inequality in financial wellbeing," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(2), pages 655-689, April.
    3. Robert Powell & Anh Do & Denise Gengatharen & Jaime Yong & Rasiah Gengatharen, 2023. "The relationship between responsible financial behaviours and financial wellbeing: The case of buy‐now‐pay‐later," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4431-4451, December.
    4. Lan Sun & Garrick Small & Yueh-Hsia Huang & Tyng-Bin Ger, 2022. "Financial Shocks, Financial Stress and Financial Resilience of Australian Households during COVID-19," Sustainability, MDPI, vol. 14(7), pages 1-13, March.
    5. Stephen Roll & Olga Kondratjeva & Sam Bufe & Michal Grinstein-Weiss & Stephanie Skees, 2022. "Assessing the Short-Term Stability of Financial Well-Being in Low- and Moderate-Income Households," Journal of Family and Economic Issues, Springer, vol. 43(1), pages 100-127, March.
    6. Amany A. El Anshasy & Mrittika Shamsuddin & Marina-Selini Katsaiti, 2023. "Financial Wellbeing and International Migration Intentions: Evidence from Global Surveys," Journal of Happiness Studies, Springer, vol. 24(7), pages 2261-2289, October.

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    More about this item

    Keywords

    item response theory models; financial behavior; bank-record data; financial wellbeing; machine learning; LASSO;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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