The Effects of Stress Vulnerability on Financial Satisfaction

1. The Effects of Stress Vulnerability on Financial Satisfaction Phillip Zepp

2. Stress Vulnerability? • Vulnerability: Our basic susceptibility to -- and threshold for tolerating – challenges that we face in our lives • Stress: The negative result of challenges (stressors) we face in our life • Together: Stress vulnerability is the level of susceptibility to and threshold for tolerating life’s stressors

3. Stress Vulnerability • First proposed to study schizophrenia (Zubin & Spring, 1977) • The level of stress vulnerability determined whether crises were: • Contained homeostatically • Led to episode of schizophrenia • Researchers expanded the framework to study other health outcomes (e.g., addiction) • Several iterations of the Stress Vulnerability framework

4. Stress Vulnerability Framework (The Hazelden Foundation, 2008)

5. Stress & Financial Satisfaction • Outcome variable: Financial satisfaction • What is financial satisfaction? • Subjective assessment of whether you are satisfied with your finances • Very relative (high income folks can still be dissatisfied and vice versa)

6. Financial Satisfaction - Why Care? • Research shows strong association with: • Personal wellbeing (Positive) • Willingness to engage with financial professionals (Positive) • Types of advice client is willing to seek (e.g., investing and saving, mortgage, insurance, tax planning) • Trust of financial professionals (Positive) • Financial literacy (Positive) • Financial risk tolerance (Positive) • Financial stress (Negative) • Research shows it’s not all about returns • Weak findings regarding income • Debt is strongly associated (Negative)

7. STATS Lesson in 30 seconds • We use statistical models to see whether variables have relationships • Most research limited to stating “this variable is related to the outcome variable” • I am using a Fixed Effects Model • A change in this variable effects a change in the outcome variable

8. Research Question • How do changes in stress vulnerability effect changes in financial satisfaction?

9. Methods • Data: Health and Retirement Study (HRS) • U.S. nationally representative longitudinal panel • Sample comprises 26,000 Americans over the age of 50 • HRS has a complex sampling design • Full questionnaire administered to full sample every two years • Leave Behind Psychosocial survey administered to half the sample every two years • 2006, 2008, 2010, and 2012 waves combined to two time periods for analysis

10. Construct Measurements • Dependent Variable: Financial Satisfaction • How satisfied are you with your present financial situation? • Five point Likert-type scale • Responses ranged from 1 (Not at all satisfied) to 5 (Completely satisfied)

11. Construct Measurements • Stress vulnerability is a negative construct • Variables coded so high scores indicate high vulnerability • Stress Constructs • Coping • Social Support • Participation in Meaningful Activities

12. Construct Measurements • Coping • High scores indicate lack of coping ability • I feel helpless in dealing with the problems of life

13. Construct Measurements • Social Support • High scores indicate lack of social support (except number of close friends) • How satisfied are you with the balance of support you receive from your partner? • How much do family members understand your feelings? • How much can you rely on family members to help you with serious problems? • How much do your friends let you down when you count on them for help • Total number of close friends

14. Construct Measurements • Participation in Meaningful Activities • High scores indicate lack of meaningful activities • My daily activities often seem trivial and unimportant

15. Construct Measurements • Biological Vulnerability Constructs • Alcohol & Drug Use • Medication • Alcohol & Drug Use • No. of alcohol drinks consumed per day • Family member addicted to drugs • Medication • Routinely takes medication • Takes medication specifically for nerves

16. Construct Measurements • Time Variant Demographic Variables • Age, Marital Status, Working Status, Number of People in the House, and Health Status • Financial Control Variables • Income, Total Worth, Homeownership, Financial Strain

19. Key Model Takeaways • Statistically significant results mostly consistent with the theoretical framework • Three main findings that were associated with a decline in financial satisfaction: • Negative changes in the inability to cope • Negative changes in feelings about support from friends associated • Negative changes in the engagement with daily activities

20. Key Model Takeaways • Transitioning into taking medication on a regular basis associated with an improvement in financial satisfaction • Transitioning into taking medication to address psychiatric problems associated with a decline in financial satisfaction • Not expected, although bias may exist (new diagnosis)

21. Secondary Model Takeaways • A decline in health status associated with decline in financial satisfaction • An increase in financial strain associated with a decline in financial satisfaction

22. Implications for Financial Planners • Clients that feel more vulnerable to stress will feel less satisfied financially • Non-financial perceptions (e.g., mental health) may serve as barrier to engagement with financial professionals

23. OK, What does it really mean? • It’s not just about the quantitative analysis with elderly clients • If you want elderly clients to be financially satisfied with your services, pay attention to mental and social health flags • Changes in medication needs • Social changes (deaths in the family, friendships) • Signs of coping issues

24. The Final Takeaway • The gold nugget: Changes to stress vulnerability perceptions can change financial satisfaction perceptions! • This means....advisors have the ability to change financial satisfaction perceptions without even addressing a single financial number

25. Limitations • Fixed Effects model is powerful, but requires baseline variation • Variables that were not statistically significant may be in a Random Effects model • No such thing as a Fixed Effects Ordinal Logit Model • OLS assumptions may be an issue • Bias in the parameters • Difficult to overcome due to unique constructs

26. Questions? • Happy to answer any questions!