Financial inertia is key in people not making perfect decisions. It makes people postpone decisions they know they have to take and therefore staying with the status quo or missing opportunities....Show moreFinancial inertia is key in people not making perfect decisions. It makes people postpone decisions they know they have to take and therefore staying with the status quo or missing opportunities. With the 32 items derived from a previous prototype analysis, an EFA was performed to form a possible scale for financial inertia, the model produced by the EFA was then tested via CFA. Using three waves, and 750 participants, a reliable, valid, and temporally stable scale with simple structure consisting of three subscales to measure individual differences in financial inertia was produced. The final model states that financial inertia consists of three separate factors: financial apathy, financial satisficing, and financial anxiety. Explorative research has shown that women, non-white people and younger people score higher on financial inertia via financial apathy and financial anxiety.Show less
Inertia as a concept in the natural sciences has been used since Newtonian times. However, the social science literature still struggles in defining inertia and its many variations. In current...Show moreInertia as a concept in the natural sciences has been used since Newtonian times. However, the social science literature still struggles in defining inertia and its many variations. In current social science literature, numerous definitions exist that define inertia differently; consequently, not much is known about inertia (Bozzo, 2002). Furthermore, inertia is often confounded with related phenomena, such as procrastination and status-quo bias (Cui et al., 2020). This ultimately hinders the effective study of inertia, as the quality of a theory or research is only as good as the quality of the definition that is used for the studied phenomenon (Rozin, 2009). The current study adds to the inertia literature by utilizing a prototype approach in defining “financial inertia”. For the purposes of this study “financial inertia” is viewed as inertia in a financial setting. Compared to classical definitions, a prototype definition is more encompassing and is not hindered by absolutes. Through a prototype analysis, we asked laymen in the United States of America and United Kingdom about their thoughts, views, and feelings regarding financial decision making. Afterwards, using this data we identified a list of features related to financial decision making (Study 1) and used these features to calculate their centrality in relation to financial inertia (Study 2). Centrality refers to the relatedness of these features to financial inertia and was used to divide the features into central features (more related) and peripheral features (related to a lesser extent). Using the gathered data, this paper proposes a working definition of financial inertia in the hopes of clarifying inertia literature and aiding the creation of an instrument that measures financial inertia. As we assume that all that applies to “financial inertia” reciprocally 4 applies to inertia itself, the current findings will contribute to future research on this topic as well.Show less
