Written By: Jacob A. Tenney and Charlene M. Kalenkoski
This study explores the relationship between objective measures and perceptions of financial well-being for older Americans. Financial well-being is measured objectively using three financial ratios including the liquidity ratio, the debt-to-asset ratio, and the investment ratio. Individuals’ perceptions of their financial well-being are
measured by a question in the Health and Retirement Study that asks respondents how satisfied they are with their present financial condition. An ordered probit model is used to examine the relationship between the perceptions of financial well-being and the three financial ratios. The findings in this analysis suggest that there is a positive relationship between the investment ratio and perceptions of financial well-being. There is also a small but statistically significant improvement in the perception of financial well-being with increases in the liquidity ratio. For large categorical differences, the positive relationship also holds for the debt-to-asset ratio.