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Self-esteem and Individual Wealth

Author

Listed:
  • Chatterjee, Swarn
  • Finke, Michael
  • Harness, Nathaniel

Abstract

Self-esteem measures confidence in one’s abilities. Prior literature has shown that higher self-esteem can also affect individual financial decision making through an increased willingness to invest in risky assets and motivation to enhance self image through wealth accumulation. However, self-esteem can also lead to wealth-destroying investment behaviors due to overconfidence and an unwillingness to accept inevitable losses. Using the Rosenberg Self-esteem Scale included in the National Longitudinal Survey of Youth, we model wealth and portfolio allocation as a function of self-esteem, socioeconomic and demographic variables. Self-esteem is positively associated with an increase in net worth between 1994 and 2004, and with the proportion of a household portfolio held in investment assets. This study adds to the literature on psychological determinants of optimal household portfolio allocation by providing evidence that the positive effects of self-esteem outweigh the negative financial behaviors identified in prior literature.

Suggested Citation

  • Chatterjee, Swarn & Finke, Michael & Harness, Nathaniel, 2008. "Self-esteem and Individual Wealth," MPRA Paper 20120, University Library of Munich, Germany, revised 16 Aug 2008.
  • Handle: RePEc:pra:mprapa:20120
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    File URL: https://mpra.ub.uni-muenchen.de/20120/1/MPRA_paper_20120.pdf
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    References listed on IDEAS

    as
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    4. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 261-292.
    5. Alexis Yamokoski & Lisa Keister, 2006. "The Wealth Of Single Women: Marital Status And Parenthood In The Asset Accumulation Of Young Baby Boomers In The United States," Feminist Economics, Taylor & Francis Journals, vol. 12(1-2), pages 167-194.
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    8. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-690, September.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Savings; Household Wealth; Self-esteem; Investment Behavior;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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