Examining a Model of Economic Well-Being Based on Financial Ratios

By Park, Mi jung; DeVaney, Sharon A. | Consumer Interests Annual, Annual 2007 | Go to article overview

Examining a Model of Economic Well-Being Based on Financial Ratios


Park, Mi jung, DeVaney, Sharon A., Consumer Interests Annual


The purpose of this study was to examine a model of economic well-being based on the debt-to-income and debt-to-assets ratios. It was proposed that socioeconomic, attitudinal, and behavioral factors would affect whether households had satisfactory values for the debt-to-income and debt-to-assets ratios. The results of logistic regression with 4,519 households in the 2004 Survey of Consumer Finances showed that single female households were more likely than couples to have satisfactory debt/income (D/I) ratio values but less likely than couples to have satisfactory debt/asset (D/A) ratio values. There was no difference between single male households and couple households for either ratio.

Introduction

The term well-being has been used interchangeably with happiness or having a worthwhile life (Diener, 1984). A key component of overall well-being is economic well-being or access to economic resources (Osberg & Sharpe, 2002). There are many indicators of economic well-being. For example, Osberg and Sharpe used consumption flows, accumulation of stocks, economic security, and income distribution to measure economic wellbeing. Zedlewski (2000) criticized the measurement of family's economic well-being and suggested that employment, poverty, food affordability, and housing affordability should be included when discussing well-being. Nevertheless, the most frequently used financial indicators of economic well-being are households' income, assets, and debt.

Income is usually the primary indicator of economic well-being; it also has a relationship with psychological well-being (Campbell, 1976). However, income by itself is not an adequate measure of well-being because it might not fully represent all of the components of economic resources (Mullis, 1992). Assets are more comprehensive than income which means that they, too, should be a good indicator of well-being. It is also important to consider the level of debt that a household has because this can indicate whether it is at risk of overspending. To integrate these indicators (income, assets, and debt), financial ratios are commonly used.

A financial ratio is an index that can be used to measure current financial strength as well as progress over time (Winger & Frasca, 2000). For example, the debt-to-assets ratio can be used to assess household solvency and also the ability to pay debts. For instance, Zhang and DeVaney (1999) found that households having a higher debt-to-assets ratio were more likely to have debt payment difficulties.

Another perspective on economic well-being is to include the composition of the household. Does the household consist of a couple or a single individual? Additional insight could be obtained by considering whether the single individual is a man or a woman. Previous research supports this conceptual model of considering the composition of the household.

Sunden and Surette (1998) concluded that gender and marital status significantly affected an individual's preference in allocating assets. Smyth and Weston (2000) found that women and children were more likely than men to experience financial hardship after divorce. Sobieszczyk, Knodel and Chayovan (2003) showed that marital status often mediates gender differences in well-being among older people.

Therefore, the purpose of this study is to examine a model of economic well-being. The study will differ from previous research on economic well-being because it will use two financial ratios to evaluate economic wellbeing. In addition, the study will consider if economic well-being is different for couples and single male or single female households. The results should contribute to an increased understanding of economic well-being by educators, researchers, and policy makers.

Review of Literature

The Use of Financial Ratios

Financial ratios have been used as guidelines in personal financial planning and to predict household insolvency (Baek & DeVaney, 2004; DeVaney, 2000; Garman & Forgue, 1994). …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Examining a Model of Economic Well-Being Based on Financial Ratios
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.