Self-esteem and Individual Wealth

Swarnankur Chatterjee, Michael Finke and Nathaniel Harness

MPRA Paper from University Library of Munich, Germany

Abstract: Self-esteem measures confidence in one’s abilities. Prior literature has shown that higher self-esteem can also affect individual financial decision making through an increased willingness to invest in risky assets and motivation to enhance self image through wealth accumulation. However, self-esteem can also lead to wealth-destroying investment behaviors due to overconfidence and an unwillingness to accept inevitable losses. Using the Rosenberg Self-esteem Scale included in the National Longitudinal Survey of Youth, we model wealth and portfolio allocation as a function of self-esteem, socioeconomic and demographic variables. Self-esteem is positively associated with an increase in net worth between 1994 and 2004, and with the proportion of a household portfolio held in investment assets. This study adds to the literature on psychological determinants of optimal household portfolio allocation by providing evidence that the positive effects of self-esteem outweigh the negative financial behaviors identified in prior literature.

Keywords: Savings; Household Wealth; Self-esteem; Investment Behavior (search for similar items in EconPapers)
JEL-codes: D03 D14 D91 (search for similar items in EconPapers)
Date: 2008-03-21, Revised 2008-08-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20120

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