Exploring associations between objective and subjective measures of financial well-being among older Americans.

Financial planners and counselors use various methods to measure individuals’ financial situations. One method is to calculate financial ratios and compare them to benchmarks recommended by financial professionals.This study examines three financial ratios including the liquidity ratio, the debt-to-asset ratio, and the investment ratio. These financial ratios are considered objective measures of individuals’ financial condition.  These objective measures are compared to individuals’ perceptions of financial well-being.

The goal of this study is to explore the relationship between the financial ratios and perceptions of financial well-being, specifically for older Americans.

The results of this study suggest financial planners should use financial ratios but not overly rely on the on them as the financial ratios only tell part of the story. Educators of financial planning and financial literacy can use this study to help emphasize to students the importance of understanding financial ratios and that some ratios likely are related to perceptions of financial well-being. For example, for older Americans, this study suggests that increases in the investment ratio are related to higher increases in perceptions of financial satisfaction compared to increases in the liquidity ratio.

Guest Contributor:  Jacob A. Tenney, University of Charleston &
Charlene M. Kalenkoski, Texas Tech University

This study has been accepted for publication in the Journal of Financial Counseling & Planning. Read the full research HERE.

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