|Title||Do perceptions reflect reality? Three essays exploring how perceptions are related to objective measures of financial well-being and knowledge.|
|Year of Publication||2018|
|Academic Department||Personal Financial Planning|
|Degree||Doctor of Philosophy|
|Number of Pages||87|
|University||Texas Tech University|
|Keywords||Finance, Financial well-being, Perception|
Financial well-being is likely a factor in many individual’s utility function. Financial wellness can be measured using objective measures as well as subjective perceptions. In the first two essays, objective measures are compared to subjective perceptions to see if there is a relationship between the two. Three financial ratios, including the liquidity ratio, the debt-to-asset ratio, and the investment ratio, are used as objective measures of financial wellness. Subjective perceptions are measured by a question that asks respondents how satisfied they are with their financial condition. The first essay analyzes at older Americans using the Health and Retirement Study. The second essay analyzes early-to-mid-career Americans using the Panel Study of Income Dynamics. The findings in this analysis suggest that there is a statistically and economically significant relationship between the investment ratio and individuals perceptions of financial satisfaction, particularly for older individuals. Financial ratios only play a small but important role in the overall financial situation. The goal of the third study is to analyze the relationship between objective measures of financial knowledge and individuals’ perceptions of their own financial knowledge. In addition, this paper looks at how perceptions of financial knowledge change over time. The focus of this paper is emerging adults who attend college and then transition into careers after college. The data for this study are from the Arizona Pathways to Life Success for University Students (APLUS) survey. The findings of this research suggest a positive correlation between objective measures and perceptions of financial wellness. College seniors in this study have a higher probability of perceiving themselves as financially knowledgeable compared to when they were in their first year of college. However, these same college seniors perceive themselves as more financially literate then they do 2 and 5 years after college. This study highlights the importance of financial education during college. It also shows that individuals are likely to perceive themselves as more financially literate than they are.