Academic journal article Financial Services Review

Financial Inhibition, Financial Activation, and Saving for Retirement

Academic journal article Financial Services Review

Financial Inhibition, Financial Activation, and Saving for Retirement

Article excerpt


In this paper, we describe the construction and psychometric evaluation of two personality-based measures of financial savings motives, and examine their relationship to individuals' retirement savings practices. The Financial Inhibition Scale (FIS) was designed to assess fear-based motives we believed would hinder the process of saving for retirement. The Financial Activation Scale (FAS) was designed to assess goal-based motives we thought would facilitate savings practices. Findings from two separate empirical studies provide support for both the reliability and validity of these new theoretically based measures of financial savings motivation. © 2003 Academy of Financial Services. All rights reserved.

JEL classification: Major E2, Minor E29

Keywords: Financial; Retirement; Savings; Motivation; Personality

1. Introduction

When thinking about retirement, individuals are likely to envision both positive and negative images of the future, and these images are likely to have a significant impact on one's retirement planning and savings tendencies. Bell and Mau (1971) suggested that images of the future influence current decisions and behaviors by determining the nature of one's goals, and the strategies and procedures one will adopt to achieve them. Consistent with Bell and Mau's theoretical perspective, one of our working assumptions is that in the retirement planning context, positive and negative images of the future will differentially shape individuals' behavioral motives, and thus, their savings practices. The purpose of the present investigation is to develop two theoretically derived measures, one focuses on the strength of individuals' goal-based financial motives, the other focuses on the strength of individuals' fear-based motives. Each scale was designed to assess an independent psychomotivational individual difference dimension, and in so doing, allow for prediction of whether individuals are likely to save for retirement.

For some, the notion of retirement will conjure up negative images of the future (say, financial dependence or ill health) that may be psychologically threatening, and thus, anxiety provoking. We believe that individuals who experience retirement anxiety (cf., Hayslip et al., 1997) would be less likely to plan and save for the future than those who do not, based on a general pattern of avoidance when it conies to thinking about and engaging in long-term savings activities. Others, in contrast, are likely to envision rich and positive images of life after their departure from the workforce. These visions serve to define spécifie retirement goals (Hershey et al., 2002), and these goals, we argue, should serve to stimulate appropriate financial savings activities, allowing individuals to meet their long-term objectives. This basic distinction between financial fears and financial goals serves as a conceptual backdrop for the present investigation.

In this paper, two different studies are described in which we evaluate the psychometric and conceptual adequacy of a pair of financially oriented psychomotivational measures: the Financial Inhibition Scale (FIS) and the Financial Activation Scale (FAS). The remainder of the paper is organized as follows. In section 2, a review of the relevant literature is provided. sections 3 through 6 describe a study designed to assess the psychometric characteristics of the FIS and FAS, which are domain-specific analogues of motivational measures developed by Carver and White (1994). Study 2, described in sections 7 through 10, was conducted to replicate the factor structure identified in Study 1, and to test the predictive validity of the new measures using a larger, nationally representative sample. section 11 contains a general discussion designed to conceptually integrate findings across both empirical studies. In general, the results of these two investigations support the psychometric adequacy and validity of the new financial scales. …

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