Why does stuff like this always happen to me? The psychological and cognitive predictors of financial distress

Paul Lawrence Camp, Purdue University

Abstract

This research explores the relationship between cognitive processing styles and the development of financial difficulties. Previous research suggests that people think and process information in different ways. Various causal attribution models suggest that people attribute causes to events along a number of different dimensions (e.g., internality, stability, controllability of causes) and that their behavior can be expected to vary as a function of the characteristic nature of these attributions. Based on these models, this research posited that people who perceive a lack of control over their lives should see less value in engaging in active management of their personal finances. Consequently, the extent to which such people will engage in such behavior should be inhibited and greater degrees of financial difficulty should be in evidence. Participating respondents were drawn from three different sub-samples, each presumed to be experiencing different levels of financial distress. Data were gathered from each respondent regarding the frequency with which they had experienced a number of specified financial difficulties during the preceding 12 months. Respondents were also asked to attribute causes to three good and three bad events in their own lives and to rate these causes along dimensions of perceived internality, stability, controllability and globality. Regression analyses were used to explore the nature of the relationship between the respondent's characteristic pattern of causal attributions and the severity of self-reported financial distress. Results indicated that respondents tended to view good and bad events in fundamentally different ways. Respondents who tended to see good events as due to external, unstable, uncontrollable and specific causes tended to engage in less financial management behavior and were experiencing significantly higher levels of financial distress. Implications for financial planners, counselors and public policy are discussed.

Degree

Ph.D.

Advisors

Owen, Purdue University.

Subject Area

Personality

COinS