Likert Scale Variables in Personal Finance Research: The Neutral Category Problem

Blain Pearson (), Donald Lacombe and Nasima Khatun
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Blain Pearson: Department of Finance and Economics, Coastal Carolina University, Conway, SC 29526, USA
Donald Lacombe: School of Financial Planning, Texas Tech University, Lubbock, TX 79409, USA
Nasima Khatun: School of Financial Planning, Texas Tech University, Lubbock, TX 79409, USA

Econometrics, 2024, vol. 12, issue 4, 1-11

Abstract: Personal finance research often utilizes Likert-type items and Likert scales as dependent variables, frequently employing standard probit and ordered probit models. If inappropriately modeled, the “neutral” category of discrete dependent variables can bias estimates of the remaining categories. Through the utilization of hierarchical models, this paper demonstrates a methodology that accounts for the econometric issues of the neutral category. We then analyze the technique through an empirical exercise relevant to personal finance research using data from the National Financial Capability Study. We demonstrate that ignoring the “neutral” category bias can lead to incorrect inferences, hindering the progression of personal finance research. Our findings underscore the importance of refining statistical modeling techniques when dealing with Likert-type data. By accounting for the neutral category, we can enhance the reliability of personal finance research outcomes, fostering improved decision-relevant insights.

Keywords: financial planning; Likert scales; National Financial Capability Study; personal finance; statistical modeling (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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