How Covid impacted financial well being after retirement
The financial wellbeing of retirees has become a global concern. Both developed and developing countries are facing this issue and taking proactive measures to reduce financial worry among older adults. As per the Gallup poll conducted in 2021, more than 60% of respondents mentioned that they did not have enough savings for retirement, and financial reasons caused them the maximum worry. The Covid-19 pandemic has not only put health-related risks but also has caused a severe economic crisis. During the year 2020, an increase in unemployment and salary cuts were being observed amidst nationwide lockdowns making the overall conditions even worse.
People were breaking their pension savings and retirement funds to meet the rapidly increasing economic crisis. The Covid-19 pandemic did not hit the population equally. Some sub-groups were severely hit as compared to the others and the elderly people faced higher risks given that the infection and mortality rates were higher among the elderly. This segment relies mainly on their savings and pension funds for their treatments and other expenses, and any such external shock may reduce their financial wellbeing drastically. Hence, it is essential to understand the factors that can enhance financial wellbeing among the elderly, especially during the pandemic.
Financial wellbeing is one of the major components of overall subjective wellbeing. As per the existing literature, the financial aspect can explain up to 52% of the overall subjective wellbeing. The remaining components including health, relationships, job, leisure, and other aspects explain the remaining portion of subjective wellbeing. Hence, financial wellbeing demands the fullest consideration while studying various aspects of wellbeing. To examine this phenomenon, we conducted a study among 934 older adults and examined multiple factors that can increase financial wellbeing during the Covid-19 pandemic.
It is established in the existing literature that several financial, social, personal, and psychological factors play an important role in increasing financial wellbeing. Remarkably, the objective financial resources such as cash, savings, gold, property, and wealth are weakly related to financial wellbeing. In contrast, one’s perception of the adequacy of these financial resources plays a huge role in financial wellbeing. Thus, it is possible that two individuals having equal financial resources may have different perceptions about the adequacy of these resources, and they may report different levels of financial well-being. Therefore, individual differences and psychological characteristics play an essential role in financial wellbeing. In the present study (available in the given link below), we focused on primarily two individual-level factors, namely personal control, and personality traits, and investigated their impact on the financial wellbeing.
Financial worries arise due to a lack of control over one’s financial situation and poorer financial decisions. Personal control is a belief in one’s ability to influence important life outcomes. When an individual has a higher sense of personal control, she considers herself an ‘effective person.’ Such people usually put more effort into achieving their desired outcomes and exhibit more persistence and motivation to work hard. Also, individuals with high personal control are at the top of their careers, have good health, and have better relationships. We examined the linkage between personal control and financial well-being. We established that individuals who have higher personal control are more likely to achieve their desired state of financial situation. They are likely to engage in proactive behaviour to save for the future and avoid unfavorable actions such as high levels of borrowings. Having high personal control plays a crucial role as individuals feel that they have control over their financial actions and decisions, and this belief leads them to manage their finances well. Based on this premise, our study has reported that retirees with high personal control levels had better financial wellbeing during the pandemic.
Individuals respond differently to external stimuli based on their personality traits. One’s personality determines how one thinks and acts under given circumstances. Having a sense of personal control and its impact on financial wellbeing would also differ across individuals having different personality traits. Therefore, we also examined the interaction between personal control and personality traits in the given study and investigated whether the relationship between personal control and financial well-being varies based on one’s personality traits. We measured the personality of the elderly based on the big five model of personality traits that characterize personality into five different categories based on openness to experience, extroversion, conscientiousness, agreeableness, and neuroticism.
Based on the data collected from retirees during June-July 2020, we found that three of the five personality traits moderate the given linkage between personal control and financial wellbeing. Openness to experience and conscientiousness have a positive impact, whereas neuroticism has a negative effect on the existing relationship. The regression analysis reported that individuals with high personal control and high openness to experience have higher financial wellbeing. We explain that having high openness to experience may allow one to explore different possible avenues for investment and savings and yields positive outcomes. Another personality trait that had a positive interacting impact was conscientiousness. Conscientious individuals are meticulous, organised and are committed to their goals. We found that this personality trait also plays a crucial role in managing one’s finances. Eventually, we found that conscientiousness strengthens the positive relationship between personal control and financial wellbeing. Finally, our study reports that having high neuroticism (low emotional stability) weakens the positive association between personal control and financial wellbeing. That means individuals who have high sense of personal control but have high neuroticism would report lower financial wellbeing. Thus, our study provides a piece of evidence that individual differences such as personal control and personality traits are noteworthy predictors of financial wellbeing.
The findings of the present study set the stage for government and policymakers to take note of the individual level differences and psychological characteristics while devising policies for financial planning and wellbeing. Programmes and workshops that can increase retirees’ sense of control may be considered a part of the action plan. Similarly, financial institutions may give due importance to the personality traits of individuals in important financial management programmes.
(The study has been authored by Dr Malvika Chhatwani, Assistant Professor, Jindal School of Banking & Finance, OP Jindal Global University)