The Effects of Stress Vulnerability on Financial Satisfaction

Phillip Zepp

Stress Vulnerability?

• Vulnerability: Our basic susceptibility to -- and threshold for tolerating – challenges that we face in our lives

• Stress: The negative result of challenges (stressors) we face in our life

• Together: Stress vulnerability is the level of susceptibility to and threshold for tolerating life’s stressors

Stress Vulnerability

• First proposed to study schizophrenia (Zubin & Spring, 1977)– The level of stress vulnerability determined whether

crises were:• Contained homeostatically• Led to episode of schizophrenia

• Researchers expanded the framework to study other health outcomes (e.g., addiction)– Several iterations of the Stress Vulnerability

framework

Stress Vulnerability Framework

(The Hazelden Foundation, 2008)

Stress & Financial Satisfaction

• Outcome variable: Financial satisfaction

• What is financial satisfaction?

– Subjective assessment of whether you are satisfied with your finances

– Very relative (high income folks can still be dissatisfied and vice versa)

Financial Satisfaction - Why Care?

• Research shows strong association with:– Personal wellbeing (Positive)– Willingness to engage with financial professionals (Positive)– Types of advice client is willing to seek (e.g., investing and

saving, mortgage, insurance, tax planning)– Trust of financial professionals (Positive)– Financial literacy (Positive)– Financial risk tolerance (Positive)– Financial stress (Negative)

• Research shows it’s not all about returns– Weak findings regarding income– Debt is strongly associated (Negative)

STATS Lesson in 30 seconds

• We use statistical models to see whether variables have relationships

• Most research limited to stating “this variable is related to the outcome variable”

• I am using a Fixed Effects Model– A change in this variable effects a change in the

outcome variable

Research Question

• How do changes in stress vulnerability effect changes in financial satisfaction?

Methods

• Data: Health and Retirement Study (HRS)– U.S. nationally representative longitudinal panel– Sample comprises 26,000 Americans over the age of 50

• HRS has a complex sampling design– Full questionnaire administered to full sample every two

years– Leave Behind Psychosocial survey administered to half the

sample every two years

• 2006, 2008, 2010, and 2012 waves combined to two time periods for analysis

Construct Measurements

• Dependent Variable: Financial Satisfaction

• How satisfied are you with your present financial situation?

– Five point Likert-type scale

– Responses ranged from 1 (Not at all satisfied) to 5 (Completely satisfied)

Construct Measurements

• Stress vulnerability is a negative construct

– Variables coded so high scores indicate high vulnerability

• Stress Constructs

– Coping

– Social Support

– Participation in Meaningful Activities

Construct Measurements

• Coping

– High scores indicate lack of coping ability

➢I feel helpless in dealing with the problems of life

Construct Measurements

• Social Support– High scores indicate lack of social support (except number

of close friends)

➢How satisfied are you with the balance of support you receive from your partner?

➢How much do family members understand your feelings?➢How much can you rely on family members to help you

with serious problems?➢How much do your friends let you down when you count

on them for help➢Total number of close friends

Construct Measurements

• Participation in Meaningful Activities

– High scores indicate lack of meaningful activities

➢My daily activities often seem trivial and unimportant

Construct Measurements

• Biological Vulnerability Constructs– Alcohol & Drug Use– Medication

• Alcohol & Drug Use– No. of alcohol drinks consumed per day– Family member addicted to drugs

• Medication– Routinely takes medication– Takes medication specifically for nerves

Construct Measurements

• Time Variant Demographic Variables

– Age, Marital Status, Working Status, Number of People in the House, and Health Status

• Financial Control Variables

– Income, Total Worth, Homeownership, Financial Strain

Descriptive Statistics: 2008, Wave 8

M SD

Dependent Variable

Financial Satisfaction (1 = Not at all Satisfied; 5 = Completely Satisfied) 3.30 0.02

Time Variant Control Variables

Respondent Age 64.58 0.17

Respondent Marital Status

Never Married 2.48% 0.22

Married 69.00% 0.70

Partnered 3.03% 0.24

Widowed 15.28% 0.31

Divorced 10.21% 0.47

Respondent Working Status

Working 29.35% 0.86

Unemployed 8.22% 0.38

Retired 61.15% 0.89

Disabled 1.28% 0.22

No. of People In House 2.25 0.02

Health Status (1 = Excellent Health; 5 = Poor Health) 2.61 0.02

Financial Control Variables

Respondent Income 80,259 2,671.68

Household Total Net Worth 597,497 24,744.00

Homeownership 86.66% 0.56

Financial Strain (1 = No Strain; 5 = A lot of Strain) 1.97 0.02

Stress Variables

Inability to Cope (1 = Strong Cope; 6 = Inability to Cope) 2.22 0.03

Lack of Balance with Partner (1 = Strong Balance; 5 = No Balance) 2.48 0.02

Family Members Don't Understand (1 = Understand; 4 = Don’t Understand) 2.20 0.01

Can't Rely on Family Members (1 = Can Rely; 5 = Can Not Rely) 2.00 0.02

No. of Close Friends 4.30 0.07

Friends Let You Down (1 = Don’t Let Down; 4 = Let Down) 1.45 0.01

Lack of Meaningful Activities (1 = Meaningful; 5 = Trivial) 2.45 0.02

Biological Vulnerability Variables

No. of Alcoholic Drinks 0.82 0.02

Regularly Takes Medication 79.74% 0.64

Family Member Addicted to Drugs 18.80% 0.62

Taking Medication for Nerves

No Nerves 84.82% 0.57

Nerves & Taking 10.46% 0.46

Nerves & Not Taking 4.72% 0.33

Notes: 2008 panel N = 8,061 respondents (Over 30 million weighted). Characteristics weighted for respondents that had complete information from Wave 8Respondents with partial information may still be included in the model if they had complete information in Wave 10.

Summary of Fixed Effects OLS Regression Analysis for Variables Predicting Changes in Financial Satisfaction (N = 12,884)a for Waves 8-11

B Robust SE B

Stress Variables

Inability to Cope (1 = Strong Cope; 6 = Inability to Cope) -0.0363 0.0086***

Lack of Balance with Partner (1 = Strong Balance; 5 = No Balance) -0.0075 0.0058

Family Members Don't Understand (1 = Understand; 4 = Don’t Understand) -0.0244 0.0143

Can't Rely on Family Members (1 = Can Rely; 5 = Can Not Rely) -0.0073 0.0128

No. of Close Friends 0.0027 0.0015

Friends Let You Down (1 = Don’t Let Down; 4 = Let Down) -0.0355 0.016*

Lack of Meaningful Activities (1 = Meaningful; 5 = Trivial) -0.0165 0.0073*

Biological Vulnerability Variables

No. of Alcoholic Drinks 0.0009 0.0118

Regularly Takes Medication 0.9378 0.0338**

Family Member Addicted to Drugs 0.1586 0.0354

Taking Medication for Nerves (No Nerves) -- --

Nerves & Not Taking 0.0092 0.0760

Nerves & Taking -0.1642 0.0687*

Financial Control Variables

Respondent Income (Log) 0.0048 0.0085

Household Total Net Worth (Inverse Sine) 0.0060 0.0026*

Homeownership -0.0449 0.0486

Financial Strain (1 = No Strain; 5 = A lot of Strain) -0.4452 0.0157***

Time Variant Control Variables

Respondent Age 0.0314 0.0223

Respondent Marital Status (Never Married) -- --

Married -0.0640 0.2482

Partnered -0.0774 0.2521

Widowed -0.1061 0.2454

Divorced -0.1086 0.2565

Respondent Working Status (Working) -- --

Unemployed -0.0642 0.0477

Retired 0.0347 0.0320

Disabled 0.0159 0.1285

No. of People In House -0.0023 0.0142

Health Status (1 = Excellent Health; 5 = Poor Health) -0.0448 0.0138**

Constant 2.2661 1.4763

Within R2 20.41%

Between R2 47.06%

Overall R2 44.29%

Rho 62.40%

Notes: Model Weighted with Wave 8 Probability Weights and implemented Robust standard errors technique. a There were an average of 1.5 observations per group for a total of 19,146 observations. *p < .05. **p < .01. ***p < .0001.

Key Model Takeaways

• Statistically significant results mostly consistent with the theoretical framework

• Three main findings that were associated with a decline in financial satisfaction:– Negative changes in the inability to cope

– Negative changes in feelings about support from friends associated

– Negative changes in the engagement with daily activities

Key Model Takeaways

• Transitioning into taking medication on a regular basis associated with an improvement in financial satisfaction

• Transitioning into taking medication to address psychiatric problems associated with a decline in financial satisfaction– Not expected, although bias may exist (new

diagnosis)

Secondary Model Takeaways

• A decline in health status associated with decline in financial satisfaction

• An increase in financial strain associated with a decline in financial satisfaction

Implications for Financial Planners

• Clients that feel more vulnerable to stress will feel less satisfied financially

• Non-financial perceptions (e.g., mental health) may serve as barrier to engagement with financial professionals

OK, What does it really mean?

• It’s not just about the quantitative analysis with elderly clients

• If you want elderly clients to be financially satisfied with your services, pay attention to mental and social health flags– Changes in medication needs

– Social changes (deaths in the family, friendships)

– Signs of coping issues

The Final Takeaway

• The gold nugget: Changes to stress vulnerability perceptions can change financial satisfaction perceptions!

• This means....advisors have the ability to change financial satisfaction perceptions without even addressing a single financial number

Limitations

• Fixed Effects model is powerful, but requires baseline variation– Variables that were not statistically significant may be

in a Random Effects model

• No such thing as a Fixed Effects Ordinal Logit Model– OLS assumptions may be an issue

• Bias in the parameters– Difficult to overcome due to unique constructs

Questions?

• Happy to answer any questions!