The double-edged sword: how cryptocurrency investments could undermine the anxiety-reducing benefits of rainy-day savings in times of economic turbulence

Zefeng Bai

Review of Behavioral Finance, 2024, vol. 17, issue 1, 198-216

Abstract: Purpose - Rainy-day savings have been an effective measure for maintaining financial stability in times of emergency. Motivated by the rapid expansion of cryptocurrencies, the present study examines how crypto investments could moderate the beneficial outcomes of rainy-day savings for alleviating financial anxiety during the most recent economic turbulence caused by the COVID-19 pandemic. Design/methodology/approach - The present study carries out multivariate logistic regression with interaction effects on the most recent 2021 cohort data from the National Financial Capability Study (NFCS). Findings - While rainy-day savings relate to less financial anxiety, the effect varies depending on whether an individual has invested in cryptocurrencies. Specifically, this paper finds that crypto investors experience less relief in financial anxiety from rainy-day savings than non-crypto investors. Additionally, crypto investors are more susceptible to financial stressors like job loss and financial fragility, likely due to the financial loss from investing in cryptocurrencies. Practical implications - The findings highlight the necessity of implementing policies and regulations, such as the newly approved Markets in Crypto-Assets (MiCA) regulation, that could raise people’s awareness of the high-risk nature of cryptocurrencies as well as offering targeted financial education for crypto investors, especially during times of market downturn. Originality/value - This is the first attempt to study how crypto investments may weaken the benefits of rainy-day savings in reducing financial anxiety. The findings offer new insights into the beneficial outcomes of rainy-day savings for emergencies in light of individual crypto investment backgrounds. Additionally, findings from the present study also contain important implications given the rapid expansion of the cryptocurrency market as well as future economic turbulence.

Keywords: Crypto investments; Financial planning; Economic downturns; Financial stability; Rainy-day savings (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-06-2024-0179

DOI: 10.1108/RBF-06-2024-0179

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