The Influence of Time and Risk Preferences on Financial Behaviour and Financial Well-being : Results from a National Survey

Sammanfattning: Previous research has shown time and risk preferences to be important factors when explaining a variety of behavioural patterns, such as smoking, obesity and savings behaviour, while we focus on the effect on financial behaviour and financial well-being. Financial behaviour is measured using a twelve-item scale with individuals’ self-stated reports of for example savings behaviour and credit card usage. To measure financial well-being, we construct a measure consisting of individual’s self-perceived current and future financial condition. Time preferences are revealed by matching questions and we use different ways of measuring risk, both self-stated risk attitudes and risky choices revealed by gambles. Our results show that increased short term patience, leads to better financial behaviour. Also, individuals with higher financial risk attitudes, exhibit better financial behaviour. Contradictory, regarding actual decisions, the impact is different and being loss averse, has a positive impact on financial behaviour. Financial well-being is on the other hand influenced positively by both more short and long term patience. It also increases with general and financial risk attitudes. Risky choices do not have an impact on financial well-being. We show that risk preferences are affected by time preferences. Having a high short term discount rate leads to higher financial risk attitudes and increases the likelihood of being loss averse, while it decreases the likelihood of being risk averse. Our results are important for understanding heterogeneity in financial decision making and the financial well-being it fathers. This quantitative study is based on a large, representative sample of the Swedish population (N=2063).