Abstract
Data from an economically and racially diverse sample (N = 258) was used to determine (a) if an association between objectively measured income and perceived income adequacy exists, (b) how well individuals assess the adequacy of their income, and (c) if a bias exists, can these estimates be used to describe a person’s overall level of financial satisfaction? Duesenberry’s (Income, saving, and the theory of consumer behavior. Harvard University Press, Cambridge, 1949) relative income hypothesis and Kyrk’s (The family in the American economy. University of Chicago Press, Chicago, 1953) resource deficit hypothesis were adopted for use as the conceptual framework for this study. A positive but modest association between objective and perceived income adequacy was noted. It was also found that individuals do not do a particularly good job of accurately assessing their income adequacy. Finally, perceived income adequacy estimation bias was found to be associated with financial satisfaction. Those who perceived their income to be deficient were less satisfied financially. Policy and practitioner implications from the study are discussed as a means for improving financial satisfaction at the individual and household level.
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Notes
Monthly household income was excluded from the analysis. The choice to omit income from the regression was based on two factors. First, the way in which PIA bias was calculated played a role in the decision. That is, income was used to arrive at PIA bias estimates. Including income in the regression may have inadvertently influenced the final coefficient estimates. Second, the purpose of the analysis was to test the research question that asked if PIA optimism or pessimism is associated with a person’s overall level of financial satisfaction. The answer to this question infers the use of PIA bias alone, rather than in conjunction with household income.
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Grable, J.E., Cupples, S., Fernatt, F. et al. Evaluating the Link Between Perceived Income Adequacy and Financial Satisfaction: A Resource Deficit Hypothesis Approach. Soc Indic Res 114, 1109–1124 (2013). https://doi.org/10.1007/s11205-012-0192-8
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DOI: https://doi.org/10.1007/s11205-012-0192-8