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2011

The Financial Management Behavior Scale: Development and

Validation
Jing Jian Xiao
University of Rhode Island, [email protected]

Jeffrey Dew

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The Financial Management Behavior Scale:
Development and Validation
Jeffery Dew and Jing Jian Xiao

Although research on financial management behavior is common, few financial management behavior scales ex-
ist that are simultaneously multi-dimensional, psychometrically validated, and validated using nationally repre-
sentative data. Using data from a nationally representative sample of adults, this study developed and examined
the psychometric properties of a new scale of financial management behaviors. The Financial Management Be-
havior Scale (FMBS) displayed adequate reliability (alpha = .81). The FMBS was highly associated with other
measures of financial management behaviors and was predictive of participants’ actual levels of savings and
consumer debt. These findings suggest that the full FMBS is a reliable and valid measure of financial manage-
ment behaviors, though the subscales need refinement.

Key Words: financial behavior, measurement, psychometrics

Introduction A comprehensive and psychometrically strong measure of

Individuals in the U.S. engage in financial behaviors near- financial management behaviors could assist researchers
ly every day and these behaviors influence their financial and practitioners in many fields. For example, in addition
well-being. For example, the more consumer credit house- to the obvious financial benefits, sound financial man-
holds assume, the more likely they are to default on their agement behaviors have both personal and interpersonal
loans and the less likely they are to have established an consequences. Consumer debt levels are positively related
individual retirement account (IRA) (Bernstein, 2004; Sul- to anxiety (Drentea, 2000). Further, assets and consumer
livan, 1987). Thus, of necessity, personal finance research- debts are associated with relationship quality among
ers and financial planners and counselors measure financial married couples (Dew, 2007). Finally, positive finan-
management behaviors. cial management behaviors are associated with physical
health, mental health, academic success, and life satisfac-
Unfortunately, few validated financial management behav- tion among college students (Xiao, Tang, & Shim, 2009).
ior scales exist. Researchers typically use proxies of finan- To address these gaps, we designed the Financial Man-
cial management behavior such as actual levels of con- agement Behavior Scale (FMBS). The FMBS was then
sumer debt (e.g., Bernstein, 2004; Sullivan, 1987) rather psychometrically validated using the Familial Response
than assessing the behaviors themselves. Although some to Financial Instability Study, a nationally representative
scales do exist, most lack one (or more) of the following sample of adults.
three characteristics: assessment of multiple domains of
financial management behavior (Xiao, 2008), psychomet- Measuring Financial Management Behaviors:
ric validation, and validation using a nationally representa- Existing Scales
tive sample of adults. In other words, many scales meas- One of the problems with existing measures of financial
ure only one or two dimensions of financial management management behavior is that many are not comprehensive.
behavior; few have been subjected to tests of validity that To construct the FMBS, we initially examined the finan-
examine whether they measure what they purport to meas- cial measures in seven studies (Fitzsimmons, Hira, Bauer,
ure, and those that have been validated have used non-rep- & Hafstrom, 1993; Hilgert, Hogarth, & Beverly, 2003;
resentative samples. Jorgensen, 2007; Kim, Garman, & Sorhaindo, 2003; Perry

Jeffrey Dew, Ph.D., Family, Consumer, and Human Development, Utah State University, 670 E. 500 N., Logan, UT 84321, [email protected],
(435) 797-9184, (435) 797-7220
Jing Jian Xiao, Ph.D., Human Development and Family Studies, The University of Rhode Island, Transition Center 2 Lower College Rd., Kingston,
RI 02881, [email protected], (401) 874-2547, (401) 874-4020

© 2011 Association for Financial Counseling and Planning Education®. All rights of reproduction in any form reserved. 43
& Morris, 2005; Servon & Kaestner, 2008; Xiao, Shim, Using nationally representative samples to validate fi-
Barber, & Lyons, 2008). A deeper review of the literature nancial management behavior instruments enhances the
resulted in eight more studies that used financial manage- external validity of the instrument. That is, it shows that
ment behavior scales (Davis, 1992; Davis & Weber, 1990; the psychometric properties of the scale generalize to
Godwin & Koonce, 1992; Grable, Park, & Joo, 2009; Mu- a wide population. The studies that were validated had
genda, Hira, & Fanslow, 1990; Prochaska-Cue, 1993; Rosen participants that were drawn largely from the Midwest in
& Granbois, 1983; Scannell, 1990). Of these 15 studies, rural (Fitzsimmons et al., 1993) or metropolitan (Prochas-
10 used instruments that measured only one or two finan- ka-Cue, 1993) areas. Indeed, the majority of all financial
cial domains. Thus, only one third of the instruments found behavior instruments reviewed were developed and used in
measured three or more domains of financial management Midwestern contexts. This leaves questions as to the gen-
behavior. Among those that measured more than two dimen- eralizability of the results.
sions, two used single indicators to measure the dimensions.
Framework of the FMBS
Measuring many different domains of financial manage- The FMBS incorporates the idea that individuals will
ment behaviors is important because each domain can serially adopt good financial management behaviors. For
have a serious impact on family life. For example, only example, a national study of consumers revealed a hierar-
one measure asked questions about insurance (Jorgensen, chical pattern of financial management behaviors (Hilgert
2007). However, families with inadequate health insur- et al., 2003). About two thirds (66%) of the participants
ance face an increased risk of unmet health needs (Aya- practiced cash flow management and 45% managed credit.
nian, Weissman, Schneider, Ginsburg, & Zaslavsky, 2000), However, only 33% used savings management and only
shoulder the financial burden of expensive medical bills 19% of the participants invested. This suggests a gradual
(Short & Graefe, 2003), and may be more likely to declare uptake in financial management behavior with cash man-
bankruptcy (Domowitz & Sartain, 1999). However, a lack agement developed first, then credit, savings, and finally
of health insurance is not the only predictor of financial investment management.
insolvency; consumer debt levels are also associated with
bankruptcy (Sullivan, 1987). Thus, though each of these This behavioral hierarchy may arise because of the finan-
domains is important in and of itself, when families use cial resource differences across individuals. For exam-
sound financial management behaviors in all of these do- ple, when families’ incomes are insufficient to meet their
mains, their financial position becomes strong (Joo, 2008). financial obligations, they may not have the capacity to
save (Garasky, Nielsen, & Fletcher, 2008). Further, certain
Another problem with current financial management be- financial management behaviors, such as paying off con-
havior instruments is that few have been psychometrically sumer credit, may take precedence over other types such as
validated. Psychometric validation is the process of testing contributing to a retirement fund (Bernstein, 2004). Some
the properties of the scale, usually reliability and validity. individuals may not have insurance policies because they
If a scale is psychometrically valid, it measures what it do not own property or may not have access to employer-
purports to measure and gets the same results over multi- provided health insurance plans (DeNavas-Walt, Proctor,
ple uses (Cohen & Swerklik, 1999; Silva, 1993). Instru- & Lee, 2006).
ments that have not been psychometrically validated may
produce questionable inferences (Silva, 1993). In addition to measuring cash management, savings and
investments, credit use, and insurance, the FMBS meas-
Despite many studies of financial management behaviors, ured financial management behavior that might precede
researchers have validated only two scales; the Frequency cash management – consumption management. Because
of Financial Management Scale (Fitzsimmons et al., 1993) virtually all individuals are consumers, if nothing else,
and the Personal Financial Management Style (Prochaska- they could engage in behaviors that would maximize their
Cue, 1993). Unfortunately, these scales were either not consumption benefits. Called “Shopping and Purchases” in
comprehensive, or they were validated using nongeneraliz- the actual scale, we hypothesize that even more individuals
able samples. will use strategies to manage their purchases than will use
cash-flow management behaviors.

44 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

Method also suggested adding attitudinal measures. We declined to
Scale Construction do this. We wanted to restrict the FMBS to measuring be-
The first step in constructing the FMBS was to examine haviors because behaviors are most proximal (i.e., directly
seven articles and reports that used or developed financial related) to financial outcomes than are financial attitudes
management behaviors scales. We identified the domains (Xiao, 2008) and because well-established financial attitude
of financial management behaviors that these scales meas- scales already exist (e.g., Furnham, 1984; Tang, 1995).
ured and also noted the domains that were not included in
the scales. For example, cash flow management behaviors Sample and Data
and savings behaviors were frequently measured, whereas The sample was drawn from the Familial Response to
credit management was less frequently measured. Financial Instability Study. Initiated by the National
Center for Marriage and Family Research, this project
Following the review of previous measures, five domains was designed to test how families were coping with the
were selected that were important areas of sound financial 2007 – 2009 Recession. Projects designed to create new
management behaviors: consumption, cash flow, credit, measures of family finance and examine new areas in fam-
savings and investment, and insurance. Measures related to ily finance research were solicited. The current study was
each of these domains were then written. Every domain in one of the projects that the National Center for Marriage
the FMBS had at least three behavioral measures. and Family Research accepted. The survey was conducted
in August 2009 using a stratified random sample design
The next step was to send a draft to nine financial plan- (Dennis & McCready, 2009). Participants were initially
ning and counseling professionals and financial manage- contacted through both random-digit dialing and address-
ment scholars. These individuals reviewed the FMBS to based sampling. Using these methods, the study recruited
ensure that it covered the important domains of financial households with landlines as well as cell-phone only and
management behavior (i.e., content validity) and that the households that had no phone service.
FMBS appeared “on its face” to measure financial man-
agement behavior (i.e., face validity).The panelists felt that Individuals who agreed to be part of the study participated
the FMBS covered the main domains of good financial via the Internet. If participants did not have access to the
management behavior. Further, the panelists felt that the Internet, they received the technology necessary to con-
measures were important aspects of each domain. nect to it (e.g., a laptop computer and Internet access at
their residence). Out of the 1,517 individuals contacted,
The last step was to utilize panelist suggestions to 1,014 participated – a 67% response rate. When combined
strengthen and clarify the FMBS. As a result of the input, with the post-stratification weight, the sample is nation-
some items were added and others were dropped. For ally representative of adults (Dennis & McCready, 2009).
example, an item that more directly measured investment The post-stratification weights were used to generate the
behaviors was added. Some of the items and the scale descriptive statistics, the factor analysis, and the regres-
instructions were also reworded to make them clearer. The sion analysis. To ensure that the findings were robust, the
final FMBS appears in Appendix A. weighted factor analysis and regressions were compared to
unweighted analyses (not shown). The weighted and un-
A few of the suggestions were not included. For example, weighted analyses produced similar findings with only two
some panelists noted that estate planning and taxes were exceptions. First, in the unweighted regressions the mag-
missing. In spite of this suggestion, estate planning was nitudes of the coefficients were occasionally larger. This
not included because we were concerned that many young suggests that the weighted estimates were slightly more
adults do not use estate planning even if they otherwise conservative. Second, the unweighted factor analysis was
use sound financial management behavior. This would the same except that paying bills on time loaded more on
drag down the scores of some participants in spite of the the credit management factor than the positive cash man-
fact that they were otherwise managing their finances well. agement factor. This study presents the findings that used
Tax behavior was also not put into the measure because the post-stratification weights. The sample was composed
we faced a limit on the number of questions we could ask of 1,011 participants. Three participants who failed to
and we were not sure that enough individuals utilized tax answer any of the study questions except the demographic
minimization strategies to be a useful domain. One panelist items were dropped.

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 45

Measures Demographic Characteristics. The survey contained
FMBS Scale Items. The FMBS included 17 items (see demographic characteristics to use as control covariates.
Appendix A). The instruction for the first 14 items was, Total household income was among these variables, and it
“Please indicate how often you have engaged in the fol- was measured on a scale from 1 – 19, or from “Less than
lowing activities in the past six months.” The response set $5,000” to “$175,000 or more” (see Appendix B). Although
for these questions ranged from 1 (Never) to 5 (Always). the mean was 10.76 (suggesting an average of $35,000 to
Participants could also report that the item was not ap- $39,999), the median was 11 suggesting a median income
plicable. These 14 items measured participants’ financial range of ($40,000 to $49,999). The median household
management behaviors in four domains: consumption, income in 2009 in the U.S. was $50,112 (DeNavas-Walt,
cash management, savings and investment, and credit Proctor, & Smith, 2010). Thus, the scaled income measure
management. Examples of items from each of these do- may closely align with the actual U.S. median household
mains include, “comparison shopped when purchasing a income, or it may be nearly $10,000 off. This unfortunate
product or service,” “kept a written or electronic record of lack of precision was a result of an IRB request and not
your monthly expenses,” “bought bonds, stocks, or mutual a decision made by the researchers. For the purposes of
funds,” and “maxed out the limit on one or more credit examining how the scale performed among low-income
cards.” Items that represented poor financial management individuals, we also created a sample of individuals of the
behaviors were reverse coded prior to the analysis. The in- lowest income quintile (n = 210). These individuals had
struction for the three insurance items stated, “Please rate to have an income score of 7 or less (i.e., $24,999 or less).
your behavior regarding insurance within the past year on The income quintile cut off for the lowest U.S. quintile in
a scale of 1 – 5.” These items asked about the past year be- 2009 was $20,453 (U.S. Census, 2010). A score of 7 on the
cause sometimes insurance behaviors occur on an annual scale contains this amount, but also contains some indi-
basis. The response set was the same as the other items. viduals who were above this amount. In the present sample,
The insurance items queried participants about health in- 21% of individuals had an income score of 7 or less.
surance, property insurance, and life insurance.
Additional control covariates included two dichotomous
Validation Measures. The survey also collected measures
variables that assessed marital and cohabiting status (sin-
that would facilitate validating the FMBS. First, five items
gle, not cohabiting was the omitted category), age, and
of financial management behavior were included to make
gender (male is the omitted category). Two dichotomous
sure that the FMBS demonstrated convergent validity.
variables measured race and ethnicity (White, Non His-
These items came from a study that measured “responsi-
panic is the omitted category), and three dichotomous vari-
ble financial behaviors” (Perry & Morris, 2005, p. 304).
ables measured obtained education (less than high school
The instruction for these items stated, “How do you grade
degree is the omitted category). Finally, two dichotomous
yourself in the following areas?” The items included
variables measured employment status (not employed is
controlling spending, paying bills on time, planning for
the omitted category), and a continuous variable assessed
the financial future, providing for oneself and family, and
the number of children in the home. Descriptive statistics
saving money. Participants could respond from 1 (Poor) to
for the demographic measures are found in Table 1.
5 (Excellent). We chose this particular scale because Perry
and Morris (2005) had a nationally representative sample.
Handling “Not Applicable” Responses
One problem was that participants were allowed to re-
The survey also measured participants’ actual levels of
savings and consumer debt. Although the survey had ini- spond “not applicable” on the financial management
tially measured the exact level of these variables, the study behavior items. This was a reasonable response for some
IRB panel requested the use of scales. For the savings item financial management behaviors. For example, it would
and the consumer debt item there were nine categories be difficult for participants to “max out” a credit card if
(see Appendix B). Participants could respond that they had they did not have one. Unfortunately, some participants
between 1 (None) and 9 ($100,000 or more) in savings and responded at seemingly inappropriate times. For example,
consumer debt. The scales had smaller increments at lower 35 respondents (3.4%) reported that the item “paying bills
amounts so that we could distinguish among groups with on time” was not applicable and 45 respondents (4.4%) re-
fewer assets and consumer debt more easily. This decision ported that “staying within their budget or spending plan”
seemed justified given that nearly 75% of the sample had was not applicable. It may be that younger individuals, or
under $10,000 of consumer debt. individuals in a married couple with high specialization

46 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

Table 1. Descriptive Statistics (N = 1,011)

M SD % Range
Responsible financial behaviors scale 3.38 .95 1–5
Actual amount of savings a
4.23 2.67 1–9
Actual amount of consumer debt a
3.41 2.35 1–9
Married b
45
Cohabiting b
10
Female c
52
Black d
11
Other race/ethnic minority d
20
High school degree e
31
Some college e
28
College degree or higher e
28
Employed full time f
43
Employed part time f
12
Age 46.51 16.68 18 – 90
Income a
10.76 4.14 1 – 19
Number of children in the home .54 1.05 0–8

Note. a See Appendix 3 for a more detailed table on these financial variables. b Omitted category is single not cohabiting; 45%
of the sample was in the omitted category. c Omitted category is male; 48% of the sample was in the omitted category. d Omit-
ted category is White, Non-Hispanic; 69% of the sample was in the omitted category. e Omitted category is less than high
school; 13% of the sample was in the omitted category. f Omitted category is not employed; 45% of the sample was in the
omitted category.

might lead to these responses (e.g., if the respondent were ses that are run are actually run five times (once for each
not in charge of these tasks). Given that over 75% of those imputed response) and then the results are synthesized
who answered not applicable for these two variables were (Rubin, 1987).
over the age of 23 and over two thirds were single, this
seems unlikely. The average level of answering not appli- The results were the same no matter how we dealt with the
cable was 11%, with a range of 3% – 18%. missing responses. That is, listwise deleting participants,
setting their missing responses to the lowest level, or
Participants who answered not applicable could not be using multiple imputation yielded the same factor solu-
included in the factor analyses or the regressions. We tried tion. Although the factor loadings were slightly differ-
three possible solutions. First, participants with missing ent, they were not different enough to influence the factor
data were listwise deleted. A second solution was to set the extraction. This study presents the results generated using
“not applicable” responses to the lowest response based on multiple imputation because we also used multiple impu-
the assumption if participants were choosing not applica- tation for the participants who declined to answer ques-
ble then they were not engaging in that behavior. Third, tions about their demographic characteristics such as their
multiple imputation was used to generate a plausible income or age. The average level of missing data for the
value for the missing response. Multiple imputation uses demographic variables was 2%, with a range of 1% – 5%.
maximum likelihood methods to generate five plausible All of the results presented in this study were created using
responses for the missing response. Any statistical analy- multiple imputation.

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 47

Results also problematic. It loaded on multiple factors equally
Factor Analysis but never at the .6 level. Further, when it was in the factor
The first analysis was an exploratory factor analysis to analysis, other items loaded on multiple factors equally.
extract the factors among the financial management be- When information search was eliminated, all of the other
haviors. This exploratory method accounts for as much of items clearly loaded on one factor. Because impulsive
the total variance among the variables as possible by using buying and searching for information proved problematic,
latent factors. These latent factors identify commonali- these items were dropped from the scale.
ties among the variables. Exploratory factor analysis is a
common data reduction analysis that is appropriate at the We evaluated whether dropping these two items altered
beginning of scale construction (Comrey & Lee, 1992). the number of factors to extract. The residual correlation
Following the initial factor extraction we utilized a promax analysis did not change. A four-factor solution performed
rotation to simplify the factor solution. Promax is a type as well as a five-factor solution. The scree plot was modi-
of oblique rotation which allowed the latent factors to fied somewhat and clearly showed that a four-factor solu-
correlate with each other. Because of the hypothesis that tion was most appropriate. The fifth eigenvalue was part of
individuals would adopt financial management behaviors the main line of lower factors. This was expected because
serially, we thought it would be most appropriate to use an the impulse buying item was the only item that loaded well
oblique rotation. on a fifth factor. Thus, after dropping these two variables
we retained a four-factor solution.
Although five factors were hypothesized, we used the
residual correlations and the scree test (Cattell, 1966) to The factor structure after dropping the two variables is
decide on the proper number of factors. Because the idea found in Table 2a. Five savings and investment items
behind factor analysis is to account for as much of the loaded on Factor 1 with loadings of .69 to .78. Hence, we
variance between the items as possible using latent factors call Factor 1, “Savings and Investment Behaviors.” Factor
(Comrey & Lee, 1992), the best models will produce the 1 explained 30% of the variance. The three insurance items
fewest residual correlations. loaded on Factor 2 (loadings between .74 and .85) or the
“Insurance Behavior” factor. This second factor explained
A four-factor solution produced the same number of resid- 12% of the variance. Items that indicated cash manage-
ual correlations under .10 as a five-factor solution (residual ment, such as keeping a financial record and paying bills
correlations available on request). Thus, the residual cor- on time, loaded on Factor 3 with loadings between .64 and
relation test suggested retaining four or five factors. The .73. We called this factor the “Cash Management” factor,
scree plots (available on request) also suggested the same and it explained 9% of the variance. Finally, three items
course. Using a scree plot test, we wanted to retain the indicating positive credit management loaded on Factor 4.
number of factors corresponding to the factor that departs The loadings ranged from .66 to .77. We called this factor
from the main line of the lower factors (Comrey & Lee, “Credit Management.” It explained 8% of the variance.
1992). This suggested a 4- or 5-factor solution because the Overall, the four factors explained 59% of the variance.
eigenvalue for the fourth factor was clearly above the line,
whereas the eigenvalue for the fifth factor was slightly Because of the hypothesis that these different factors
above the line. We decided to use a four-factor solution would all be related to the same construct – overall finan-
for the sake of parsimony. After this decision, the promax cial management behaviors –mean scales were created
rotation was conducted. In order for an item to “load” on a from each factor and they were then factor analyzed. The
factor it had to have a loading of .6 or better. subscales loaded on only one factor (results available upon
request). This supports the idea of a larger super-factor of
Two problematic items surfaced during the rotation. One financial management behavior. It also supports the use of
of the items, impulsive buying, did not load well on the the overall FMBS score as a measure of financial manage-
factors; it never had a factor loading above .49. Further, ment behaviors. A revised version of the FMBS is found in
impulsive buying was the only variable that loaded on Appendix A.
a fifth factor when five factors were extracted. These
findings suggested that impulsive buying was tapping a Financial Management Behavior Hierarchy
different construct than the other items. A second item, Following the finalization of the subscales, they were ex-
searching for information prior to a large purchase, was amined to check whether they displayed the same hierar-

48 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

chical behavior as previous studies have shown (see Table split-half reliabilities for a scale. The full FMBS had a
2b). Like other studies, savings and investment behaviors Cronbach’s alpha of .81. Cronbach alpha scores were also
were the least frequent financial management behaviors. calculated for the four subscales. The savings and invest-
Unlike other studies, however, cash management and ments subscale and the insurance subscale had satisfac-
credit management behaviors were at about the same level. tory Cronbach alpha scores (.78 and .73, respectively).
Insurance behaviors were the most common behavior type. Cronbach’s alpha for the cash management subscale and
the credit management subscale were lower (.63 and .57,
Reliability Analysis respectively) indicating that the items that made up these
Reliability was assessed using Cronbach’s alpha. Cron- scales did not hang together as well as the items that made
bach’s alpha is equivalent to the average of all possible up the savings subscale and the insurance subscale. These

Table 2a. Rotated Factor Structure (N = 1,011)

Factor 1 Factor 2 Factor 3 Factor 4

Comparison shop .73
Pay bills on time .64
Keep a financial record .69
Stay within budget .66
Pay off credit card .66 b
Max out credit card a .77
Make minimum payment on loans a .72
Maintain or create an emergency fund .73
Save from every paycheck .75
Save for a long term goal other than retirement .78
Save for retirement .69
Invest money .70
Obtain or maintain adequate health insurance .85
Obtain or maintain adequate property insurance .74
Obtain or maintain adequate life insurance .80
Eigenvalues 4.43 1.84 1.31 1.25
% of Variance Explained by Factor
30 12 9 8
(Total Variance Explained = 59%)

Note. a Reverse coded. b This item loaded on the savings and investment factor (Factor 1) best among the low-income subsam-
ple of this study.

Table 2b. FMBS Scale and Subscale Descriptive Statistics (N = 1,011)

M SD Range % Often or more frequently

FMBS 3.48 .71 1.58 – 5.00 26.5
Savings and investment subscale 2.66 1.09 1.00 – 5.00 11.0
Cash management subscale 3.73 .83 1.00 – 5.00 48.1
Credit management subscale 3.73 .95 1.00 – 5.00 47.2
Insurance subscale 3.81 1.24 1.00 – 5.00 53.7

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 49

reliability analyses suggested that the overall FMBS scale financial behaviors scale. The subscales were also posi-
was reliable, at least for the nationally representative sam- tively associated with the responsible financial behaviors
ple. It also suggested that the savings and investment sub- scale (see Table 3, Model 2). Thus, the FMBS displayed
scales had sufficient reliability. When using the cash flow remarkable convergent validity. Discriminant validity was
management and positive credit behavior subscales, some also tested using a time-use scale. The FMBS and sub-
caution is warranted. Though they had reasonable levels scale demonstrated discriminant validity (results available
of reliability at this stage of the scale development, future upon request).
work will need to improve them.
Criterion Validity. Measures that possess criterion validity
Validity Analysis predict variables that they would be expected to predict if
Face and Content Validity. We addressed face validity and they truly measured what they claimed to measure (Kaplan
content validity through the use of an expert panel. The & Saccuzzo, 2009; Silva, 1993). Because the data were
financial planners and financial counselors agreed that the cross-sectional, the concurrent form of criterion validity
FMBS items appeared to measure what it purported to was used rather than the predictive form. That is, the data
measure (face validity). Further, they also agreed that the could only show that the FMBS predicted criterion that
FMBS measured important financial management behav- were contemporary with its measure, rather than showing
iors (content validity). that the FMBS predicted the levels of a future criterion.

Construct Validity. Addressing construct validity neces- Criterion validity was measured by using weighted least
sitated demonstrating that the FMBS measured what it squares regression to assess the association between ac-
claimed to measure (Cohen & Swerklik, 1999; Silva, tual levels of savings and consumer debt on the FMBS
1993). An alternative way of thinking of construct valid- and subscales. If the FMBS truly measured sound finan-
ity is that the inferences drawn from the use of the scale cial management behaviors it should be associated with
are sound (Silva, 1993). Construct validity was assessed these financial measures. Table 4a shows the associa-
by examining convergent validity. A measure demon- tion between the FMBS, the subscales, and savings. For
strates convergent validity when it is associated with other every one unit increase in the FMBS, savings increased
items or scales that measure the same construct (Cohen & by 1.65 (b = 1.65, p < .001, Table 4a). The FMBS coef-
Swerklik, 1999; Silva, 1993). ficient represents .6 of a standard deviation for actual level
of savings and the model explained 50% of the variance
To assess convergent validity, we used weighted least in savings. When the subscales were used instead of the
squares regression to regress a scale that measured fi- full scale, they performed as expected. Savings behaviors
nancial management behaviors (Perry & Morris, 2005) and positive credit behavior were strongly associated with
onto the FMBS, the subscales, and the control covariates. actual savings (b = .70 and .63, respectively, p < .001 for
In all of the regression analyses, we obtained the FMBS both). Insurance behaviors were also positively associated
score by taking the mean of the 15 items. This was also with savings.
the case for the subscales. An analysis of the scale using
summed scores (not shown) indicated that the regression We also regressed participants’ reports of their consumer
findings were exactly the same except that the magnitude debt level onto the FMBS, the subscales, and the control
of the non-standardized FMBS and subscale coefficients covariates. The FMBS was negatively associated with con-
and standard errors were different (though the t-tests of sumer debt levels (b = -.90, p < .001; Table 4b, Model 1).
significance were exactly the same). This is to be expected This coefficient represents a .38 standard deviation effect
because taking a mean is a simple linear transformation size for consumer debt but had an R2 of only .16.
that does not change the distribution of the variables.
The analysis of the subscales (Table 4b, Model 2) had both
The FMBS was positively associated with the responsible expected and unexpected results. As expected, the sav-
financial behaviors scale (b = .94, p < .001; see Table 3, ings and investment subscale and the credit management
Model 1). Given that the standard deviation of the respon- subscale were negatively associated with participants’ con-
sible financial behaviors scale was .96, this coefficient sumer debt (b = -.31 and -1.04, respectively, p < .001 for
represented an effect size of nearly 1.0. Very few of the both). Further, the subscale model explained nearly twice
control covariates were significant and the overall model the variance as the FMBS model (R2 = .31).
explained more than half of the variance in the responsible

50 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

Table 3. WLS Regression Models of the Responsible Financial Behaviors Scale (N = 1,011)

Model 1 Model 2
b SE b SE
Intercept .21 .15 -.03 .16
FMBS .94*** .03
Savings and investment subscale .29*** .03
Cash management subscale .37*** .04
Credit management subscale .25*** .03
Insurance subscale .06* .02
Married a
-.02 .05 .03 .05
Cohabiting a
.03 .09 .08 .07
Age .01 .01 .01 .01
Income .01 .01 .01 .01
Female b
-.05 .04 -.03 .04
Black c
-.09 .07 -.06 .07
Other race/ethnic minority c
.02 .06 -.04 .05
High school degree d
-.18* .07 -.15* .07
Some college d
-.12 .08 -.10 .07
College degree or higher d
-.07 .08 -.09 .07
Employed full time e
.03 .05 .07 .05
Employed part time e
-.03 .08 .01 .07
Number of children in the home -.05* .02 -.03 .02
R2
.54 .59

Note. a Omitted category is single not cohabiting. b Omitted category is male. c Omitted category is White, Non-Hispanic.
d
Omitted category is less than high school. e Omitted category is not employed.
*p < .05. **p < .01. ***p < .001.

Unexpectedly, cash management was not significantly Finally, given the distribution of the actual savings and
associated with consumer debt and insurance behaviors actual consumer debt variable, some may question whether
positively predicted consumer debt (b = .33, p < .001). In a weighted least squares regression was the most appropri-
regression with just cash management and the control cov- ate analytic tool. To address this issue we dichotomized
ariates, the cash management subscale negatively predict- these variables at the top 20% – 25% mark (a score of 8 or
ed consumer debt (b = -.42, p < .001). This indicated that above for savings, and a score of 6 or above for consumer
the cash management subscale shared so much variance debt). If participants were in the top 20% – 25%, they were
with the other subscales that it did not explain independent scored as a 1 on the dummy variables and a 0 otherwise.
variance in consumer debt when the others were included. We then reran the criterion analyses using logistic regres-
In a regression with just the insurance subscale and the sion to examine whether the FMBS and the subscales were
control covariates, insurance behaviors were still positive- associated with being in the top 20% – 25% for savings
ly associated with consumer debt, however. This unexpect- and consumer debt. The results from the logistic regression
ed finding will be addressed in the discussion section. were comparable to the results from the weighted least

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 51

Table 4a. WLS Regression Models of Actual Amount of Savings (N = 1,011)

Model 1 Model 2
b SE b SE
Intercept -5.74*** .48 -5.17*** .50
FMBS 1.65*** .11
Savings and investment subscale .70*** .08
Cash management subscale -.05 .09
Credit management subscale .68*** .08
Insurance subscale .24*** .06
Married a
.06 .16 .21 .16
Cohabiting a
.14 .23 .22 .23
Age .04*** .01 .04*** .005
Income .17*** .02 .16*** .02
Female b
-.18 .13 -.12 .13
Black c
-.93*** .21 -.93*** .21
Other race/ethnic minority c
.09 .18 .01 .18
High school degree d
.32 .23 .35 .23
Some college d
.02 .25 .16 .23
College degree or higherd .66** .25 .76** .25
Employed full timee .38* .16 .36* .16
Employed part time e
.43 .22 .35 .22
Number of children in the home -.10 .07 -.07 .07
R 2
.50 .52

Note. a Omitted category is single not cohabiting. b Omitted category is male. c Omitted category is White, Non-Hispanic.
d
Omitted category is less than high school. e Omitted category is not employed.
*p < .05. **p < .01. ***p < .001.

squares regression (analysis not shown, results available External Validity. Although the nationally representative
upon request). That is, the higher a participant’s FMBS sample offered a solid context in which to test the FMBS,
score, the more likely they were to be in the top sav- it also raises questions as to whether the FMBS is general-
ings group and the less likely they were to be in the top izeable to different subpopulations. For example, some of
consumer debt group. The subscale analyses also yielded these behaviors may be difficult to implement, especially
similar results. The only difference was that the insurance for individuals with lower levels of income. As a final test
subscale was not associated with the likelihood of being of the FMBS, we reran all of the above tests (analysis not
in the high savings group in the logistic models. shown) for participants whose income was in the bottom
quintile of the sample (an income score of 7 or less, n =
Together these findings presented evidence for criterion 212). The findings for this subsample were mostly similar
validity. The FMBS purports to measure sound finan- to the findings from the nationally representative sample
cial management behaviors. Both the full scale and the with only a few caveats. A four-factor solution was found
subscales predicted financial outcomes that are associated to fit the data best for these participants. Further, the fac-
with sound financial management behaviors. tor structure remained the same except that the item for
paying off credit card debt loaded better on the savings

52 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

Table 4b. WLS Regression Models of Actual Consumer Debt (N = 1,011)

Model 1 Model 2
b SE b SE
Intercept 3.76*** .50 4.49*** .49
FMBS -.90*** .12
Savings and investment subscale -.31*** .07
Cash management subscale .01 .09
Credit management subscale -1.04*** .08
Insurance subscale .33*** .06
Married a
.80*** .17 .48** .16
Cohabiting a
.44 .25 .31 .23
Age .01 .01 .01* .005
Income .06** .02 .05* .02
Female b
.18 .14 .02 .13
Black c
-.31 .23 -.40 .21
Other race/ethnic minority c
-.34 .19 -.19 .17
High school degree d
.67** .24 .59** .22
Some college d
1.34*** .25 1.12*** .22
College degree or higher d
1.02*** .27 1.01*** .24
Employed full timee .70*** .17 .55*** .16
Employed part timee .58* .23 .59** .22
Number of children in the home .20** .08 .13 .07
R 2
.16 .31

Note. a Omitted category is single not cohabiting. b Omitted category is male. c Omitted category is White, Non-Hispanic.
d
Omitted category is less than high school. e Omitted category is not employed.
*p < .05. **p < .01. ***p < .001.

and investment factor than the credit management factor. concurrent criterion validity with respect to actual levels of
The tests of reliability and validity were also similar to the savings and consumer debt. Specifically, as scores on the
full sample. Overall these findings suggested that for low FMBS increased, participants’ reported levels of savings
income individuals the FMBS and the associated subscales increased and their reports of consumer debt decreased.
functioned similarly to a general population sample. Using an exploratory factor analysis indicated that a four-
factor structure within the FMBS was the best solution.
Discussion The subscales – cash management, credit management,
This study represents a first attempt to develop the Finan- savings and investments, and insurance – demonstrated
cial Management Behavior Scale (FMBS). It also explored less reliability and validity than the full scale, though for a
the scale’s psychometric properties using a nationally rep- first attempt they performed reasonably well. The sub-
resentative sample. The full scale had adequate reliability scales require further refining.
(Cronbach’s alpha = .81). Further, our analyses suggested
that the FMBS does measure what it purports to meas- Despite these overall findings, there were some unexpect-
ure. It was strongly associated with another measure of ed results. First, the FMBS was designed to measure five
financial management behaviors. Further, it demonstrated dimensions but the factor analysis suggested that a four

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 53

-factor solution was the best fitting and most parsimoni- Another unexpected finding from the subscale analysis
ous solution. Consumption management was to be the concerned the insurance behavior subscale. Although the
fifth dimension of the scale, but two of the consumption insurance behaviors positively predicted savings, it also
items were problematic and were ultimately dropped to positively predicted consumer debt. Even in the bivariate
increase the strength of the FMBS. The final consump- analyses, insurance behaviors were positively correlated
tion measure (comparison shopping) loaded on the cash with consumer debt. This may suggest that some partici-
management factor. pants had maintained their insurance policies through
the use of consumer credit. Many consumers purchase
Two competing possibilities explain the consumption find- and maintain insurance policies using credit cards. This
ings. The first is that we may simply have not written very is particularly the case with the growth of insurance
good consumption management questions. Impulse buy- websites. Consequently, even though insurance behaviors
ing was clearly not related to any of the other items in the are positively associated with actual savings, they may
FMBS and searching for information prior to a large pur- also encourage accumulating consumer debt. These ideas
chase was also problematic. Perhaps other questions might are speculative though, and need to be directly tested in
have more suitably measured consumption management. future research.

An alternative possibility is that consumption behaviors One of the main limitations of this study was that the data
might simply not load well with the other financial man- were not longitudinal. This limited our analysis to con-
agement behaviors that we measured. Individuals may current validity rather than predictive validity. That is, a
mentally treat consumption and money management as stronger test would have been to show that measures of
two different domains. Financial management behaviors the FMBS predicted future levels of savings and consumer
may be relevant only to money management related activi- debt, or even changes in levels of savings and consumer
ties that do not include spending behavior. Future research debt. Further, not having longitudinal data limits what can
would need to test these speculations. be said about the direction of the relationship between
financial management behaviors and actual levels of finan-
Another finding that failed to materialize was a distinct cial well-being.
hierarchy of financial management behaviors. Although
savings and investments had the lowest mean and were Another limitation was that the study relied on self-report-
practiced often by the lowest number of people, the other ed data. Some individuals may have given socially desir-
behaviors – insurance, cash management, and credit man- able responses. For example, some participants may have
agement – were practiced at about the same level. This overstated the frequency at which they save. To the extent
conflicts with findings from other studies (e.g., Hilgert et that socially desirable answers were not random, this may
al., 2003). Part of the reason for the discrepancy might be further influence how this scale functions for different sub-
that the data were collected during the 2007 – 2009 Reces- groups. For example, if individuals in a particular socio-
sion. The recession simply may have forced more individ- economic status were more likely to give socially desirable
uals to engage in cash and credit management behaviors. answers, this may skew the psychometric properties of the
scale for that subgroup. The convergent and concurrent
Finally, the cash management and insurance subscales validity tests did indicate that the scale worked as it should
demonstrated some unanticipated analytic properties. The – with higher FMBS scores being positively associated
cash management subscale seemed particularly sensitive with another financial management behaviors measure
to the presence of the other subscales. For example, in two and with actual amounts of savings and consumer debt.
of the analyses cash management was not significant. Yet Individuals may have given socially desirable answers
when it was run without the other subscales in the model throughout the survey, however. Thus, the possibility for
it was significant. This suggests that cash management the analysis to be influenced by socially desirable answers
sometimes shares so much variance with the other sub- remains. Although this study could not mitigate this issue,
scales that it does not independently predict participants’ it exists for every study that uses self-reported data.
finances. Given that the reliability for cash management
was lower than savings it is not surprising that it was not In addition to these study limitations, the FMBS needs ad-
as strong in the multivariate models. ditional refinement. First, the scale needs to reflect various
realities of the life course. Following retirement, for ex-

54 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

ample, many individuals and families will not be “saving that some groups face with regard to economic opportunity
money from every paycheck” or “saving for a long-term when studying race or class differences using the FMBS.
goal.” Although we tried to anticipate life course possibili- We do not intend to offer the FMBS as some sort of
ties by including a “not applicable” response, and by not checklist to which all individuals should aspire. Rather, the
including estate planning in the scale, this solution did not FMBS is intended as a brief scale that may help researchers
fully solve the problem. Rather, our solution introduced easily measure financial management behaviors and practi-
additional problems of individuals selecting “not applica- tioners to quickly assess their clients’ financial habits. This
ble” to applicable items. may also have implications for the psychometric properties
of the scale. Although the scale demonstrates reliability and
This problem has implications for the use of this scale. validity in a national sample, this might not be the case for
That is, practitioners and researchers using this scale need certain subgroups. In future work we plan to examine the
to use it judiciously. For example, items 5 – 7 (the credit FMBS more closely with respect to race/ethnicity.
management subscale) might not be applicable to lower
SES individuals, individuals with low credit scores, and These needed refinements speak to more fundamental is-
those who do not have any lines of credit/loans. These par- sues in the consumer finance and financial planning fields.
ticipants may face restricted access to credit or may simply These fields have a strong stance on what “sound” finan-
not choose to use it. Items 9 – 12, and perhaps 15, likely cial management entails. The reasoning behind promot-
do not apply to the majority of retirees. If some questions ing these behaviors is that they facilitate clients reaching
are not asked of some clients or research participants, the their goals. Research has also shown that these behaviors
FMBS score might need to be standardized first so that promote better physical, emotional, and relationship health
all participants are on the same scale. Further, reliabil- (Dew & Xiao, 2010, Drentea, 2000). Thus, the financial
ity analyses particular to new samples would need to be counseling and planning fields have good reason to label
undertaken. Future studies might be able to utilize compu- these behaviors as “sound.”
ter technology to only give participants questions that are
relevant to them based on their age or life circumstances. In spite of this, however, group differences related to fi-
An alternative possibility might be to develop different nancial behavior do exist. For example, even after account-
versions of the FMBS that reflect “sound financial man-
ing for various demographic characteristics and financial
agement behaviors” at different periods in the life course.
behaviors, African-Americans and Hispanic-Americans
have a harder time obtaining credit which may suggest
A second refinement would recognize the fact that the
continued race/ethnicity discrimination (Hanna & Linda-
FMBS measures behaviors that are considered “sound” by
mood, 2007). Other studies have demonstrated cultural
middle and upper-middle class individuals. For exam-
differences in financial attitudes and beliefs based on race/
ple, although the share of individuals with money in the
ethnic, class, and even religious lines (Marks, Dollahite, &
stock market has greatly increased over the past three
Dew, 2009; Grable et al., 2009). Thus, financial counseling
decades, lower SES individuals are still more reluctant to
and planning as well as consumer finance and economics
put their money into assets that carry market risk (Gar-
fields may benefit as they continue the nascent dialogue
asky et al., 2008). Further, some of the behaviors that the
on cultural competence. Understanding why individuals
FMBS measures may be difficult for working class and
and groups may not always adopt “sound” financial man-
lower SES individuals to implement, even if they desire
agement behaviors may help practitioners working with
to do so. For example, it may be much easier for mid-
diverse groups.
dle and upper-middle class individuals to maintain health
and life insurance policies because they have more access
to employer sponsored plans. Although the FMBS does Although this study has limitations and the FMBS needs
seem to work for low-income participants in this sample, more refinement, it makes a contribution to the financial
additional work with a new sample could replicate this planning and counseling literature – a multi-dimensional
finding. Further, this study was unable to test the psycho- scale of financial management behavior validated using
metric properties of race/ethnic minority individuals due nationally representative data. The FMBS covers many
to sample size limitations. dimensions of financial management behaviors and pos-
sesses desirable psychometric properties. The full scale
This issue also has implications for the use of the scale. offers researchers and practitioners a reliable and valid tool
Researchers should remember the structural difficulties to measure financial management behavior, though some

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 55

work needs to be done to ensure that it is reliable and valid and relationship satisfaction during the recession. Pa-
among different subgroups. The subscales – though some per presented at the annual conference of the Ameri-
needing more work – measure different dimensions of can Council of Consumer Interests, Atlanta, GA.
financial management behaviors in more detail. Depend- Domowitz, I., & Sartain, R. L. (1999). Determinants of
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Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 57

Appendix A. FMBS as used in the Family Response to Financial Instability Study

Initial FMBS Revised FMBS

Please indicate how often you have engaged in the follow- Please indicate how often you have engaged in the follow-
ing activities in the past six months: ing activities in the past six months:
1 = never, 2 = seldom, 3 = sometimes, 4 = often, 1 = never, 2 = seldom, 3 = sometimes, 4 = often, 5 = always
5 = always (Also could say “Not Applicable (N/A)”)
1. Comparison shopped when purchasing a product or
1. Comparison shopped when purchasing a product service
or service
2. Paid all your bills on time
2. Bought something on impulse
3. Kept a written or electronic record of your monthly
3. Searched for information about a big-ticket item before expenses
purchasing it
4. Stayed within your budget or spending plan
4. Paid all your bills on time
5. Paid off credit card balance in full each month
5. Kept a written or electronic record of your monthly
6. Maxed out the limit on one or more credit cards
expenses
7. Made only minimum payments on a loan
6. Stayed within your budget or spending plan
8. Began or maintained an emergency savings fund
7. Paid off credit card balance in full each month
9. Saved money from every paycheck
8. Maxed out the limit on one or more credit cards
10. Saved for a long term goal such as a car, education,
9. Made only minimum payments on a loan
home, etc.
10. Began or maintained an emergency savings fund
11. Contributed money to a retirement account
11. Saved money from every paycheck
12. Bought bonds, stocks, or mutual funds
12. Saved for a long term goal such as a car, education,
home, etc.
Please rate your behavior regarding insurance within the
13. Contributed money to a retirement account
past year on a scale of 1 – 5:
14. Bought bonds, stocks, or mutual funds
1 = Never, 2 = seldom, 3 = sometimes, 4 = often, 5 = always.

Please rate your behavior regarding insurance within the 13. Maintained or purchased an adequate health insurance
past year on a scale of 1 – 5. policy

1 = Never, 2 = seldom, 3 = sometimes 4 = often, 5 = always 14. Maintained or purchased adequate property insurance
like auto or homeowners insurance

15. Maintained or purchased an adequate health insurance 15. Maintained or purchased adequate life insurance
policy
16. Maintained or purchased adequate property insurance
like auto or homeowners insurance
17. Maintained or purchased adequate life insurance

58 Journal of Financial Counseling and Planning Volume 22, Issue 1 2011

Appendix B. Detailed Income, Asset, and Debt Tables

Scale values %
Income 1 – Less than $5,000 1.5
2 – $5,000 to $7,499 2.1
3 – $7,500 to $9,999 1.8
4 – $10,000 to $12,499 3.7
5 – $12,500 to $14,999 2.0
6 – $15,000 to $19,999 4.3
7 – $20,000 to $24,999 5.6
8 – $25,000 to $29,999 5.7
9 – $30,000 to $34,999 6.1
10 – $35,000 to $39,999 6.8
11 – $40,000 to $49,999 9.1
12 – $50,000 to $59,999 11.3
13 – $60,000 to $74,999 13.2
14 – $75,000 to $84,999 7.1
15 – $85,000 to $99,999 6.4
16 – $100,000 to $124,999 7.3
17 – $125,000 to $149,999 3.0
18 – $150,000 to $174,999 1.8
19 – $175,000 or more 1.3

Actual amount of savings 1 – None 20.5

2 – $1 to under $1,500 16.9
3 – $1,500 to under $3000 7.6
4 – $3,000 to under $5,000 6.7
5 – $5,000 to under $10,000 8.9
6 – $10,000 to under $20,000 9.6
7 – $20,000 to under $50,000 10.9
8 – $50,000 to under $100,000 7.0
9 – $100,000 or more. 11.9

Actual amount of consumer debt 1 – None 30.3

2 – $1 to under $1,500 16.9
3 – $1,500 to under $3000 9.1
4 – $3,000 to under $5,000 7.4
5 – $5,000 to under $10,000 10.5
6 – $10,000 to under $20,000 12.3
7 – $20,000 to under $50,000 8.9
8 – $50,000 to under $100,000 2.9
9 – $100,000 or more. 1.8

Note. Not all values sum to 100% due to rounding.

Journal of Financial Counseling and Planning Volume 22, Issue 1 2011 59