What do subjective assessments of financial well-being reflect?

Abstract

Subjective financial assessments are used by social scientists as a measure of financial well-being and by households as the basis for action. Financial well-being, however, increasingly requires workers to build-up savings to meet hard-to-see future needs, specifically retirement, their children's education, and paying off student loans. This paper analyzes data from the FINRA Investor Education Foundation's 2012 Financial Capability Survey to test whether subjective financial assessments 1) primarily reflect day-to-day, rather than distant, financial concerns; 2) increasingly reflect distant concerns if the household's day-to-day finances are in reasonably good shape; and 3) increasingly reflect distant concerns if the worker is financially literate.