Self-esteem and Individual Wealth

Chatterjee, Swarn and Finke, Michael and Harness, Nathaniel (2008): Self-esteem and Individual Wealth.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Savings,Household Wealth, Self-esteem,Investment Behavior
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance

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