Assessing the Short-Term Stability of Financial Well-Being in Low- and Moderate-Income Households

Much of the literature on household finance tends to focus on relatively objective measures of financial security (e.g., savings, income, financial knowledge), and there has been less research on measures of subjective financial well-being. This gap is due in part to the absence of a common understanding on defining and measuring subjective financial well-being. The Consumer Financial Protection Bureau has recently developed a new Financial Well-Being Scale that provides a comprehensive way to measure this construct. The research on this scale is still scarce and little is known about how subjective financial well-being evolves over time.

This paper uses a two-wave survey of low- and moderate-income tax filers to present among the first longitudinal analyses of this scale. Through descriptive analysis and lagged dependent variable regressions, we assess (1) the stability of financial well-being over a six-month period; (2) the extent to which relatively stable household characteristics predict volatility in subjective financial well-being; and (3) the relationship between adverse financial events, including financial shocks and material hardships, and subjective financial well-being. We find that financial well-being scores are extremely stable over the short term, and that relatively stable household characteristics are not strong predictors of subjective financial well-being changes. We also find that, while adverse financial events like job loss are significantly associated with lower subjective financial well-being scores, the magnitude of these relationships is not large. These results have implications for the use of the financial well-being scale in evaluations of financial security interventions.