A Brief Money Management Scale and Its Associations with Personality, Financial Health, and Hypothetical Debt Repayment

By Ksendzova, Masha; Donnelly, Grant E. et al. | Journal of Financial Counseling and Planning, January 1, 2017 | Go to article overview

A Brief Money Management Scale and Its Associations with Personality, Financial Health, and Hypothetical Debt Repayment


Ksendzova, Masha, Donnelly, Grant E., Howell, Ryan T., Journal of Financial Counseling and Planning


The United States in an indebted nation. Recent statistics suggest that Americans' median total household debt is $75,600 (Bricker, Bucks, Kennickell, Mach, & Moore, 2011). Credit card debt has risen 6.5% in 2016, contributing to a national debt balance spanning beyond $3 trillion (Federal Reserve, 2017). With evergrowing debt, the personal savings rate for Americans has plummeted (U.S. Department of Commerce, Bureau of Economic Analysis, 2016). Such trends negatively impact society and individuals. For instance, the massive foreclosures of the housing bubble, worsened by many customers taking out risky adjustable rate mortgages with little or no money down (see Finke, Huston, Siman, & Corlija, 2006), resulted in creditors and banks reporting losses in the hundreds of billions (Morgenson, 2008). Not surprisingly, the extent of financial stress among Americans has been high (Prawitz et al., 2006) and has negatively impacted their lives. For instance, financial stress has been linked to low work commitment (Kim & Garman, 2003), decreased productivity (Garman, Leech, & Grable, 1996), low martial satisfaction (e.g., Kerkmann, Lee, Lown, & Allgood, 2000), and poor health (e.g., O'Neill, Prawitz, Sorhaindo, Kim, & Garman, 2006).

An important safeguard against people's excessive consumption and personal debt is good money management (i.e., budgeting, saving, investing, and otherwise regulating spending; see Godwin & Koonce, 1992). It holds the promise of valuable financial and emotional benefits. People who manage their money are less likely to shop compulsively (e.g., Donnelly, Ksendzova, & Howell, 2013), experience less financial stress (e.g., Xiao, Sorhaindo, & Garman, 2006), report more financial satisfaction (e.g., Dowling, Corney, & Hoiles, 2009), tend to save more money (Antonides, de Groot, & van Raaij, 2011), and have better health (e.g., O'Neill, Xiao, Sorhaindo, & Garman, 2005). In addition, good money managers have lower credit card debt in various economic strata (Lea, Webley, & Walker, 1995), and money management predicts lower accumulation of debt beyond the influence of other factors relevant to financial responsibility, such as financial knowledge (see Donnelly, Iyer, & Howell, 2012).

However, more research is needed to better assess money management. Previous research has mostly relied on proxies of responsible consumer behavior (e.g., actual levels of consumer debt; see Bernstein, 2004) or self-reports of money management behaviors (e.g., Perry & Morris, 2005) that have often not undergone proper psychometric investigation (i.e., examining the reliability, factor structure, and convergent validity; see Dew & Xiao, 2011). For instance, some scales have failed to report the reliability of their measures (e.g., Godwin & Koonce, 1992), correlational patterns with likely predictor variables (e.g., personality and materialistic values; Davis & Weber, 1990), and likely financial benefits (e.g., Kim, 2004). It was because of this limitation in the literature that Dew and Xiao (2011) constructed a money management scale that addressed many of these concerns, laying the invaluable foundations for this research. Dew and Xiao warned that their measure required further refinement because the cash and credit management subscales were not reliable. Indeed, these subscales have been psychometrically problematic and required adjustments to produce more reliable measures (Donnelly et al., 2013). Consequently, Donnelly et al. (2013) emphasized the importance of developing a psychometrically sound, multidimensional assessment of money management behavior. Likewise, Gutter et al. (2012) advised the need for future research to develop a more robust assessment of money management.

There have been inconsistent relationships reported between money management and demographic variables (e.g., Godwin & Koonce, 1992; Robb & Woodyard, 2011) as well as important financial outcomes (e. …

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