Skip to main content

Financial Stress and the Relative Income Hypothesis Among Black College Students

Abstract

The majority of college students experience financial stress, but not all experience it with the same frequency or intensity. Research suggests Black students experience a greater intensity of financial stress than their White peers do. This study revealed a link between perception of relative consumption and financial stress among 965 Black students at 52 predominantly White colleges and universities in the United States. The relative income hypothesis (RIH) literature offers potential mediators of financial stress. The findings have implications for families, college students, therapists, financial educators, and school administrators.

This is a preview of subscription content, access via your institution.

References

  1. Addo, F. R., Houle, J. N., & Simon, D. (2016). Young, black, and (still) in the red: Parental wealth, race, and student loan debt. Race and Social Problems,8(1), 64–76. https://doi.org/10.1007/s12552-016-9162-0.

    Article  PubMed  PubMed Central  Google Scholar 

  2. Alpizar, F., Carlsson, F., & Johansson-Stenman, O. (2005). How much do we care about absolute versus relative income and consumption? Journal of Economic Behavior & Organization,56(3), 405–421. https://doi.org/10.1016/j.jebo.2002.10.007.

    Article  Google Scholar 

  3. Alvarez-Cuadrado, F., & Van Long, N. (2011). The relative income hypothesis. Journal of Economic Dynamics and Control,35(9), 1489–1501. https://doi.org/10.1016/j.jedc.2011.03.012.

    Article  Google Scholar 

  4. Boyce, C. J., Brown, G. D., & Moore, S. C. (2010). Money and happiness: Rank of income, not income, affects life satisfaction. Psychological Science,21(4), 471–475. https://doi.org/10.1177/0956797610362671.

    Article  PubMed  Google Scholar 

  5. Britt, S. L., Canale, A., Fernatt, F., Stutz, K., & Tibbetts, R. (2015). Financial stress and financial counseling: Helping college students. Journal of Financial Counseling and Planning,26(2), 172–186.

    Article  Google Scholar 

  6. Britt, S. L., Mendiola, M. R., Schink, G. H., Tibbetts, R. H., & Jones, S. H. (2016). Financial stress, coping strategy, and academic achievement of college students. Journal of Financial Counseling and Planning,27(2), 172–183. https://doi.org/10.1891/1052-3073.27.2.172.

    Article  Google Scholar 

  7. Cheung, F., & Lucas, R. E. (2016). Income inequality is associated with stronger social comparison effects: The effect of relative income on life satisfaction. Journal of Personality and Social Psychology,110(2), 332–341. https://doi.org/10.1037/pspp0000059.

    Article  PubMed  Google Scholar 

  8. Coleman, J. S. (1988). Social capital in the creation of human capital. American Journal of Sociology,94, S95–S120.

    Article  Google Scholar 

  9. Dean, A., Voss, D., & Draguljić, D. (1999). Design and analysis of experiments (Vol. 1). New York: Springer.

    Book  Google Scholar 

  10. Duesenberry, J. S. (1949). Income, saving, and the theory of consumer behavior. Cambridge, MA: Harvard University Press.

    Google Scholar 

  11. Fosnacht, K., & Calderone, S. M. (2017). Undergraduate financial stress, financial self-efficacy, and major choice: A multi-institutional study. Journal of Financial Therapy,8(1), 107–123. https://doi.org/10.4148/1944-9771.1129.

    Article  Google Scholar 

  12. Frank, R. H. (1985). The demand for unobservable and other nonpositional goods. The American Economic Review,75(1), 101–116.

    Google Scholar 

  13. Friedman, M. (1957). Introduction to "A theory of the consumption function". In M. Friedman (Ed.), A theory of the consumption function (pp. 1–6). Princeton, NJ: Princeton University Press.

    Chapter  Google Scholar 

  14. George, D., & Mallery, M. (2010). SPSS for Windows Step by Step: A Simple Guide and Reference, 17.0 update (10tha ed.). Boston: Pearson.

    Google Scholar 

  15. Gerdtham, U. G., & Johannesson, M. (2004). Absolute income, relative income, income inequality, and mortality. Journal of Human Resources,39(1), 228–247. https://doi.org/10.2307/3559011.

    Article  Google Scholar 

  16. Grable, J. E., & Joo, S. H. (2006). Student racial differences in credit card debt and financial behaviors and stress. College Student Journal,40(2), 400–408.

    Google Scholar 

  17. Graves, E., & Savage, S. (2015). Financial pasts, presents, and futures of community college students of a personal finance course. Journal of Business & Finance Librarianship,20(1–2), 116–132. https://doi.org/10.1080/08963568.2015.977132.

    Article  Google Scholar 

  18. Heckman, S., Lim, H., & Montalto, C. (2014). Factors related to financial stress among college students. Journal of Financial Therapy,5(1), 19–39. https://doi.org/10.4148/1944-9771.1063.

    Article  Google Scholar 

  19. Horowitz, J., Brown, A., & Cox, K. (2019). Race in America 2019. Washington, DC: Pew Research Center.

    Google Scholar 

  20. Jackson, B. A., & Reynolds, J. R. (2013). The price of opportunity: Race, student loan debt, and college achievement. Sociological Inquiry,83(3), 335–368. https://doi.org/10.1111/soin.12012.

    Article  Google Scholar 

  21. Jones, K., Duncan, C., & Twigg, L. (2004). Evaluating the absolute and relative income hypothesis in an exploratory analysis of deaths in the Health and Lifestyle Survey. In P. Boyle, S. Curtis, E. Graham, & E. Moor (Eds.), The geography of health inequalities in the developed world: Views from Britain and North America (pp. 219–244). London: Ashgate Press.

    Google Scholar 

  22. Kahneman, D., Krueger, A. B., Schkade, D., Schwarz, N., & Stone, A. A. (2006). Would you be happier if you were richer? A focusing illusion. Science,312(5782), 1908–1910. https://doi.org/10.1126/science.1129688.

    Article  PubMed  Google Scholar 

  23. Kasl, S. V. (1984). Stress and health. Annual Review of Public Health,5(1), 319–341. https://doi.org/10.1146/annurev.pu.05.050184.001535.

    Article  PubMed  Google Scholar 

  24. Klontz, B. T., Van Zutphen, N., & Fries, K. (2016). Financial planner as healer: Maximizing the role of financial health physician. Journal of Financial Planning,29(12), 52–59. https://doi.org/10.4148/1944-9771.1076.

    Article  Google Scholar 

  25. Kockesen, L. (2008). Relative income hypothesis. In W. A. Darity (Ed.), International encyclopedia of the social sciences (2nd ed., Vol. 9, pp. 153–154). Detroit: Macmillan Reference USA.

    Google Scholar 

  26. Koolhaas, J. M., Bartolomucci, A., Buwalda, B. D., De Boer, S. F., Flügge, G., Korte, S. M., et al. (2011). Stress revisited: a critical evaluation of the stress concept. Neuroscience & Biobehavioral Reviews,35(5), 1291–1301. https://doi.org/10.1016/j.neubiorev.2011.02.003.

    Article  Google Scholar 

  27. Krycak, R. C., Murdock, N. L., & Marszalek, J. M. (2012). Differentiation of self, stress, and emotional support as predictors of psychological distress. Contemporary Family Therapy,34(4), 495–515. https://doi.org/10.1007/s10591-012-9207-5.

    Article  Google Scholar 

  28. Letkiewicz, J., Lim, H., Heckman, S., Bartholomae, S., Fox, J. J., & Montalto, C. P. (2014). The path to graduation: Factors predicting on-time graduation rates. Journal of College Student Retention: Research, Theory & Practice,16(3), 351–371. https://doi.org/10.2190/CS.16.3.c.

    Article  Google Scholar 

  29. Lim, H., Heckman, S. J., Letkiewicz, J. C., & Montalto, C. P. (2014). Financial stress, self-efficacy, and financial help-seeking behavior of college students. Journal of Financial Counseling and Planning,25(2), 148–160.

    Google Scholar 

  30. McBride, M. (2001). Relative-income effects on subjective well-being in the cross-section. Journal of Economic Behavior & Organization,45(3), 251–278. https://doi.org/10.1016/S0167-2681(01)00145-7.

    Article  Google Scholar 

  31. McEwen, B. S. (2000). The neurobiology of stress: From serendipity to clinical relevance1. Brain Research,886(1–2), 172–189. https://doi.org/10.1016/S0006-8993(00)02950-4.

    Article  PubMed  Google Scholar 

  32. Montalto, C. P., Heckman, S., & Letkiewicz, J. (2016). Collegiate financial wellness: Understanding stress and worry. Consumer Interests Annual, 62.

  33. Prawitz, A. D., Garman, E. T., Sorhaindo, B., O’Neill, B., Kim, J., & Drentea, P. (2006). InCharge financial distress/financial well-being scale: Development, administration, and score interpretation. Financial Counseling and Planning,17(1), 34–50. https://doi.org/10.1037/t60365-000.

    Article  Google Scholar 

  34. Putnam, R. D. (2000). Bowling alone: America’s declining social capital. In L. Crothers & C. Lockhart (Eds.), Culture and politics (pp. 223–234). New York: Palgrave Macmillan.

    Google Scholar 

  35. Range, B., Gutierrez, D., Gamboni, C., Hough, N. A., & Wojciak, A. (2018). Mass trauma in the African American community: Using multiculturalism to build resilient systems. Contemporary Family Therapy,40(3), 284–298. https://doi.org/10.1007/s10591-017-9449-3.

    Article  Google Scholar 

  36. Scott-Clayton, J., & Li, J. (2016). Black-white disparity in student loan debt more than triples after graduation. Economic Studies (Vol. 2, No. 3). https://vtechworks.lib.vt.edu/handle/10919/83265

  37. Shaulskiy, S., Duckett, K., Kennedy-Phillips, L., & McDaniel, A. (2015). Exploring differences in college student financial wellness by institution type. Journal of Student Affairs Research and Practice,52(3), 250–261. https://doi.org/10.1080/19496591.2015.1035382.

    Article  Google Scholar 

  38. Singh, M. D., & Bhayana, R. M. (2015). Straddling three worlds: Stress, culture and adaptation in South Asian couples. Contemporary Family Therapy,37(1), 45–57. https://doi.org/10.1007/s10591-014-9319-1.

    Article  Google Scholar 

  39. Sturgeon, J. A., Zautra, A. J., & Okun, M. A. (2014). Associations between financial stress and interpersonal events: A daily diary study of middle-aged adults and their life circumstances. Psychology and Aging,29(4), 803–813. https://doi.org/10.1037/a0037961.

    Article  PubMed  Google Scholar 

  40. Thoits, P. A. (2010). Stress and health: Major findings and policy implications. Journal of Health and Social Behavior,51, S41–53. https://doi.org/10.1177/0022146510383499.

    Article  PubMed  Google Scholar 

  41. Vauclair, C. M., Marques, S., Lima, M. L., Abrams, D., Swift, H., & Bratt, C. (2014). Perceived age discrimination as a mediator of the association between income inequality and older people’s self-rated health in the European region. Journals of Gerontology Series B: Psychological Sciences and Social Sciences,70(6), 901–912. https://doi.org/10.1093/geronb/gbu066.

    Article  Google Scholar 

  42. White, K. J., Jr., & Heckman, S. (2016). Financial planner use among Black and Hispanic households. Journal of Financial Planning,29(9), 40–49.

    Google Scholar 

  43. Wilkins, E. J., Whiting, J. B., Watson, M. F., Russon, J. M., & Moncrief, A. M. (2013). Residual effects of slavery: What clinicians need to know. Contemporary Family Therapy,35(1), 14–28. https://doi.org/10.1007/s10591-012-9219-1.

    Article  Google Scholar 

  44. Williams, D. R., Yu, Y., Jackson, J. S., & Anderson, N. B. (1997). Racial differences in physical and mental health: Socio-economic status, stress and discrimination. Journal of Health Psychology,2(3), 335–351. https://doi.org/10.1177/135910539700200305.

    Article  PubMed  Google Scholar 

Download references

Funding

The Robert Woods Johnson Foundation (Grant No. 74737) provided funding for this study. The author is independent of the funders.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Kenneth J. White Jr..

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

White, K.J. Financial Stress and the Relative Income Hypothesis Among Black College Students. Contemp Fam Ther 42, 25–32 (2020). https://doi.org/10.1007/s10591-019-09531-8

Download citation

Keywords

  • Financial stress
  • Relative income hypothesis
  • College students
  • African American