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The financial vulnerability trap: using latent transition analysis to explore the dynamics of consumers’ financial vulnerability over time

Arvid Hoffmann (University of Adelaide Business School, Adelaide, Australia)
Simon McNair (Behavioural Insights Team (UK), London, UK)
Jason Pallant (Department of Management and Marketing, Swinburne University of Technology, Melbourne, Australia)

European Journal of Marketing

ISSN: 0309-0566

Article publication date: 4 January 2021

Issue publication date: 17 June 2021

582

Abstract

Purpose

The purpose of the paper is to examine how psychological characteristics predict membership of and transitions between states of higher vs lower financial vulnerability – and vice versa – over time.

Design/methodology/approach

This research uses a dynamic latent class model (latent transition analysis) to explore the dynamics of consumers’ financial vulnerability over time using longitudinal data obtained by repeatedly administering a measure of financial vulnerability.

Findings

This research finds that consumers in a state of lower vulnerability are “fragile” in having a relatively high likelihood of moving to a state of higher vulnerability, whereas those in a state of higher vulnerability are “entrenched” in having a relatively low likelihood of moving to a state of lower vulnerability. This pattern of results is called the “financial vulnerability trap.” While financial self-efficacy explains state membership, the consideration of future consequences drives state transitions.

Research limitations/implications

Future research could follow consumers over a longer period and consider the role of alternative psychological characteristics besides those examined.

Practical implications

This research provides practitioners with actionable insights regarding the drivers of changes in consumers’ financial vulnerability across time, showing the value of financial self-efficacy and the consideration of future consequences when developing strategies to prevent consumers from sliding from a state of lower to higher financial vulnerability over time.

Originality/value

There is scant research on financial vulnerability. Further, prior research has not examined whether and how consumers’ psychological characteristics help explain their membership of and transitions between states of different levels of financial vulnerability over time.

Keywords

Acknowledgements

The authors thank the Regional Editor, Associate Professor Francois Carrillat, and two anonymous reviewers for their constructive guidance throughout the review process. The authors also thank conference participants at the ANZMAC 2019 conference hosted by Victoria University of Wellington and seminar participants at the 2020 Pensions, Retirement and Ageing seminar hosted by the ARC Centre of Excellence in Population Ageing Research (CEPAR) for helpful comments on previous versions of the paper.

Citation

Hoffmann, A., McNair, S. and Pallant, J. (2021), "The financial vulnerability trap: using latent transition analysis to explore the dynamics of consumers’ financial vulnerability over time", European Journal of Marketing, Vol. 55 No. 6, pp. 1569-1593. https://doi.org/10.1108/EJM-04-2020-0255

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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