research areas in personal finance

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On a Mission to Teach the World the Basics of Personal Finance

Annamaria Lusardi has found high rates of financial illiteracy in the U.S. and around the globe. She’s determined to turn them around.

December 12, 2023

“Developing personal finance skills is as important as learning how to read and write.” | iStock/jemastock

Americans aren’t good at managing their money — and there are signs that the problem is getting worse.

Already saddled with record levels of student debt, young adults, for example, are even more unlikely to monitor their credit card debt and bank balances. Some people trick themselves into thinking that store refunds or anything less than $5 amount to free money. And too many people pay for online subscriptions they don’t use.

Thanks to the pioneering work of Stanford economist Annamaria Lusardi , numerous studies show how little people know about money. For two decades, Lusardi has been tracking financial literacy rates using three basic questions that she helped design and are now used as a standard measure around the world.

Her latest analysis of how Americans responded to those three questions in 2021 underscores their lack of financial know-how. In all, just 29% percent of survey participants answered all three questions correctly, while the rest either got them wrong or indicated they didn’t know.

Only 53% of respondents demonstrated an understanding of how inflation works as prices on everything from cereal and cars were spiking. About two-thirds (69%) knew how to do a simple interest-rate calculation, but only 42% understood how, when it comes to investment risks, mutual funds are generally safer investments than a single company’s stock.

Quote I’m not talking about expecting people to become Warren Buffet. I’m talking about teaching people, especially the young, how to make savvy financial decisions. Attribution Annamaria Lusardi

The results are especially troubling as methods of managing money have evolved, says Lusardi, a globally recognized expert on personal finance who joined Stanford in September as a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR) and as the director of the new Initiative for Financial Decision-Making. Workers now shoulder more of their retirement planning; consumers quickly and easily move money using their mobile phones; and investors make increasingly complex decisions.

“The world is changing really fast and we just expect people to have the skills to make financial decisions that have critical lifelong impacts,” says Lusardi, who is also a professor of finance (by courtesy) at Stanford Graduate School of Business.

High rates of financial illiteracy are also problematic, she says, given today’s heightened economic uncertainty and growing wealth inequality. Respondents who were young, less educated, female, or not employed scored the lowest. Black Americans and Hispanics were also among the least financially literate.

A Global Phenomenon

Financial illiteracy, it turns out, is pervasive around the world, according to a newly published global analysis in the Journal of Financial Literacy and Wellbeing . Whether they are in a Nordic country with strong education systems, like Finland, or in a Latin American country, like Peru, which experienced inflation in 1990 upwards of 10,000%, most people don’t understand how money works, says Lusardi. And just like in the United States, the least knowledgeable tend to be women, racial minorities, the least educated, and the unemployed.

Lusardi’s latest U.S. analysis — co-authored with Jialu Streeter , the executive director and a senior research scholar at SIEPR — is part of a special edition of the journal that includes analyses of 16 countries. Each study in the issue is based on the results of the “Big Three” questions that Lusardi and her longtime collaborator, economist Olivia Mitchell of the Wharton School at the University of Pennsylvania, crafted 20 years ago.

Quote The continuous surprise is just how low financial literacy is in the United States and around the world. Attribution Annamaria Lusardi

In 2011, Lusardi oversaw and contributed to a similar series of country comparisons — which yielded similar results and appeared in the Journal of Pension Economics & Finance .

“Financial illiteracy has been and continues to be a global phenomenon,” says Lusardi, who is one of the founders and inaugural editors of the Journal of Financial Literacy and Wellbeing , published by Cambridge University Press .

Beyond measuring and analyzing financial literacy rates, Lusardi’s extensive research has found that people who understand basic financial concepts are better at managing money. They save more for retirement, make smarter investment decisions, and manage their debts more effectively. Lusardi’s latest study shows that people who are financially literate are more likely to have money on hand to weather at least the early stages of an economic shock like a pandemic.

Lusardi has also shown that people think they know more about personal finance than they actually do, which she says makes them even more vulnerable to poor decision-making.

Dollars and Sense

Stanford’s commitment to improving financial literacy is a key reason Lusardi says she joined The Farm. In addition to the Initiative for Financial Decision-Making — a collaboration between SIEPR, Stanford GSB, and the department of economics in the School of Humanities and Sciences — Lusardi continues to serve as academic director of the Global Financial Literacy Excellence Center , which she founded in 2011. Prior to Stanford, Lusardi was the University Professor of Economics and Accountancy at the George Washington University.

In Lusardi, Stanford gains a leader in establishing financial literacy as a specialty within the field of economics. Her contributions to the field began in 2004, when the University of Michigan’s closely watched Health and Retirement Study added the so-called Big Three to a module dedicated to financial literacy and retirement planning. Then, in 2009, the financial education arm of the Financial Industry Regulatory Authority, which helps provide oversight of registered securities brokers and brokerage firms, began incorporating the same measures in its triennial survey of roughly 25,000 Americans.

Since then, other organizations, including central banks around the world, have integrated the Big Three into their respective assessments of household finances.

The underlying datasets in these surveys differ, but the results have uniformly shown that most people don’t understand how money, or financial systems broadly, functions, Lusardi says. In the U.S., this remained the case even after the Great Recession of 2008 and 2009 — the most severe economic downturn since the Great Depression — buffeted household finances.

“The continuous surprise is just how low financial literacy is in the United States and around the world,” says Lusardi, whose policy work includes advising the U.S. Treasury, the Organisation for Economic Co-operation and Development, and chairing the Italian Financial Education Committee in charge of designing a national strategy for financial literacy.

The ABCs of Personal Finance

To Lusardi, the answer to financial illiteracy lies in providing people with a basic education on the ABCs of personal finance.

“Developing personal finance skills is as important as learning how to read and write,” says Lusardi, who has been teaching financial literacy to undergraduate and graduate students for more than a decade. In fact, her move to Stanford is rooted in her experience working with SIEPR’s Michael Boskin and John Shoven to organize the first annual Teaching Personal Finance Conference in 2022.

“I’m not talking about expecting people to become Warren Buffet,” she says. “I’m talking about teaching people, especially the young, how to make savvy financial decisions. For first-generation or low-income students, it often means talking about topics they seldom discuss with their parents.”

Even as personal finance education has become somewhat of a cottage industry, results are mixed at best. Instructors, Lusardi says, often lack training, and students tend to forget what they learn. In a 2014 journal publication , Lusardi and Mitchell noted that a lack of sufficient funding or teacher training in financial education is still an issue; in a follow-up paper published this past fall, however, they said there’s reason for optimism.

More than half of U.S. states, for example, have added personal finance instruction as a high school graduation requirement. Universities, including Stanford, are now offering personal finance courses. Employers, too, are recognizing that financial anxiety hurts employee productivity and are sponsoring personal finance lessons in the workplace.

“Financial literacy education is really accelerating,” Lusardi says. “We’re finally seeing things turn around and, to me, that’s a very positive result.”

A version of this story was originally published on November 28, 2023, by the Stanford Institute for Economic Policy Research (SIEPR).

For media inquiries, visit the Newsroom .

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The Importance of Financial Literacy: Opening a New Field Annamaria Lusardi Olivia S. Mitchell

The Economic Importance of Financial Literacy: Theory and Evidence Annamaria Lusardi Olivia S. Mitchell

Financial Literacy Around the World: An Overview Annamaria Lusardi Olivia S. Mitchell

May 22, 2023 When Is It Too Late to Give Up Control of Your Finances? Investors know the risks of making financial mistakes as they get older, but also want to oversee their money for as long as possible.

January 12, 2023 Love & Money: How to Talk About Big Decisions Together In this podcast episode, Myra Strober and Abby Davisson share a framework to help us communicate professional goals with those we care about most.

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Theories of Personal Finance

• Personal Financial Planning

Research output : Chapter in Book/Report/Conference proceeding › Chapter › peer-review

This chapter provides an overview of the theories used in personal finance research, practice, and education. Personal finance encompasses financial planning, financial counseling, financial psychology, and financial therapy resulting in a diverse set of theoretical perspectives underpinning personal finance. This chapter highlights the theories unique to financial planning, financial counseling, financial psychology, and financial therapy, in addition to the theories that span across these areas. Lastly, this chapter addresses opportunities, challenges, and future directions for theoretical development within personal finance.

• Financial Counseling
• Financial Planning
• Financial Psychology
• Financial Therapy
• Personal Finance Theory

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• 10.1515/9783110727692-005

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• Link to publication in Scopus

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• Personal Finance Business & Economics 100%
• Financial Planning Business & Economics 42%
• Counseling Business & Economics 36%
• Psychology Business & Economics 32%
• Therapy Business & Economics 28%
• Future Directions Business & Economics 17%
• Education Business & Economics 10%

T1 - Theories of Personal Finance

AU - Asebedo, Sarah D.

N1 - Publisher Copyright: © 2022 Walter de Gruyter GmbH, Berlin/Boston.

PY - 2022/1/1

Y1 - 2022/1/1

N2 - This chapter provides an overview of the theories used in personal finance research, practice, and education. Personal finance encompasses financial planning, financial counseling, financial psychology, and financial therapy resulting in a diverse set of theoretical perspectives underpinning personal finance. This chapter highlights the theories unique to financial planning, financial counseling, financial psychology, and financial therapy, in addition to the theories that span across these areas. Lastly, this chapter addresses opportunities, challenges, and future directions for theoretical development within personal finance.

AB - This chapter provides an overview of the theories used in personal finance research, practice, and education. Personal finance encompasses financial planning, financial counseling, financial psychology, and financial therapy resulting in a diverse set of theoretical perspectives underpinning personal finance. This chapter highlights the theories unique to financial planning, financial counseling, financial psychology, and financial therapy, in addition to the theories that span across these areas. Lastly, this chapter addresses opportunities, challenges, and future directions for theoretical development within personal finance.

KW - Financial Counseling

KW - Financial Planning

KW - Financial Psychology

KW - Financial Therapy

KW - Personal Finance Theory

UR - http://www.scopus.com/inward/record.url?scp=85134907968&partnerID=8YFLogxK

U2 - 10.1515/9783110727692-005

DO - 10.1515/9783110727692-005

M3 - Chapter

AN - SCOPUS:85134907968

SN - 9783110727494

BT - De Gruyter Handbook of Personal Finance

PB - de Gruyter

Financial planning behaviour: a systematic literature review and new theory development

• Original Article
• Open access
• Published: 03 October 2023

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• Kingsley Hung Khai Yeo 1 ,
• Weng Marc Lim 1 , 2 , 3 &
• Kwang-Jing Yii 1  

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Financial resilience is founded on good financial planning behaviour. Contributing to theorisation efforts in this space, this study aims to develop a new theory that explains financial planning behaviour. Following an appraisal of theories, a systematic literature review of financial planning behaviour through the lens of the theory of planned behaviour (TPB) is conducted using the SPAR-4-SLR protocol. Thirty relevant articles indexed in Scopus and Web of Science were identified and retrieved from Google Scholar. The content of these articles was analysed using the antecedents, decisions, and outcomes (ADO) and theories, contexts, and methods (TCM) frameworks to obtain a fundamental grasp of financial planning behaviour. The results provide insights into how the financial planning behaviour of an individual can be understood and shaped by substituting the original components of the TPB with relevant concepts from behavioural finance, and thus, leading to the establishment of the theory of financial planning behaviour, which posits that (a) financial satisfaction (attitude), (b) financial socialisation (subjective norms), and (c) financial literacy, mental accounting, and financial cognition (perceived behavioural controls) directly affect (d) the intention to adopt and indirectly shape, (e) the actual adoption of financial planning behaviour, which could manifest in six forms (i.e. adoption of cash flow, tax, investment, risk, estate, and retirement planning). The study contributes to establishing the theory of financial planning behaviour, which is an original theory that explains how different concepts in behavioural finance could be synthesised to parsimoniously explain financial planning behaviour.

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Introduction

Background of financial planning.

Personal financial planning is critical to maintaining a healthy financial status and fulfilling future financial needs (Mahapatra et al. 2019 ). In essence, personal financial planning is a process of managing personal wealth to obtain economic satisfaction (Kapoor et al. 2014 ). This encompasses six areas of financial planning, namely cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning (Altfest 2004 ). Ideally, comprehensive financial planning should involve all six areas. However, the specific life stage of an individual, such as retirees, and life realities, such as retrenchment, may dictate the primary focus and/or relevance of these areas. For example, retirees might not be actively engaged in tax planning, and a retrenched worker might not be in a position to engage in investment planning. More importantly, personal financial planning is a profound concept that theoretically reflects and practically safeguards individuals’ financial resilience, and thus, it can be understood from two unique lenses: academic and practice.

From an academic perspective, the field of personal finance is interdisciplinary; it covers a wide range of areas, including economics, family studies, finance, information technology, psychology, and sociology (Schuchartdt et al. 2007 ). Different disciplines have varied theories that play a supporting role in understanding individuals’ financial behaviour and money management (Copur and Gutter 2019 ). However, the theories explaining personal finance are often borrowed rather than created, a situation that is common for emerging interdisciplinary fields (Murray and Evers 1989 ) such as personal finance (Lyons and Neelakantan 2008 ), which encompasses close to 250 publications only in Scopus by the end of 2022. Footnote 1

From a practice standpoint, Palmer et al. ( 2009 ) argued that it is necessary to develop financial planning for each individual that can deal with the uncertainty of the economic environment. Hanna and Lindamood ( 2010 ) echoed that personal financial planning can provide individuals sufficient economic benefits such as increasing wealth, preventing financial loss, and smooth consumption. Footnote 2 However, many individuals lack sufficient financial capability, skills, and knowledge to be able to effectively manage their personal finances (Chen and Volpe 1998 ).

Problems and importance of financial planning

Over time, the society is facing increasing challenges of high living expenses and various financial difficulties given the constant development of complexity in financial matters (Baker et al. 2023 ; Mahapatra et al. 2019 ). Individuals’ ability to manage their personal finances and financial affairs has been gaining attention across the world, wherein being financially healthy gets prioritised by individuals in their lives (e.g. changing investment approach and contributing more to retirement savings to hedge against inflation; Personal Capital 2022 ).

Birari and Patil ( 2014 ) state that individuals should practice and gain basic financial skills to manage their expenditures and acquire well-developed planning to avoid being in financial difficulties. Many factors may lead to irrational financial behaviours from individuals—for example, excess consumption, aggressive trading, lack of savings, and retirement planning. However, one of the major root causes that propels irrational financial behaviour as well as the many financial difficulties that people encounter is inarguably the lack of financial literacy (Organization for Economic Cooperation and Development 2020 ).

According to the Organization for Economic Cooperation and Development ( 2013 ), financial literacy consists of financial knowledge, skill, attitude, awareness, and behaviour to make a rational financial decision and achieve individual financial well-being. In other words, financial literacy is the ability to utilise knowledge and skills to manage financial matters effectively (Pailella, 2016 ; Tavares et al. 2023 ).

Noteworthily, financial behaviour in individuals’ daily lives cannot be separated from financial literacy. Tan et al. ( 2011 ) state that the process of personal financial planning requires individuals to acquire not only cognitive ability but also financial literacy. According to Ali et al. ( 2014 ), financial literacy should be given serious attention from individuals because it is able to affect their welfare. Indeed, financial literacy has been proven to have a positive impact on financial planning. Specifically, individuals who lack financial literacy will often end up in debt (Lusardi and Tufano 2009 ) and will most likely increase their financial burden (Gathergood 2012 ). By having sufficient relevant information, individuals can analyse their financial situation and make decisions wisely.

Gaps and necessity to theorise financial planning behaviour

As mentioned, extant understanding of financial planning is mainly derived from borrowed theories. While this practice remains acceptable, it is important that new theories are developed to enrich understanding of financial planning, particularly from a behavioural perspective, as the issue of good or poor financial planning is dependent on the individual and his or her financial planning behaviour. With the maturity of the literature on financial planning, the time is now opportune to engage in new theory development (Kumar et al. 2022 ).

The need for theory development is further accentuated as there is a notable lack of theory development in explaining financial planning behaviour. Noteworthily, existing frameworks and models remain piecemeal and do not fully cover the whole spectrum of financial planning. After an appraisal of theories related to financial planning (“ Evolution of theories ” Section), the theory of planned behaviour (TPB) has been found to be the most suitable theory on parsimonious grounds (i.e. the capability and capacity of the theory’s core components to act as an organising frame) and its track record of theory spinoffs (e.g. the theory of behavioural control; Lim and Weissmann 2023 ) to explain an individual’s financial planning behaviour. Therefore, an integration of the respective antecedents, decisions, and outcomes (ADO) to form a new, holistic theory is required to document the complexity and the extent of considerations required to explain financial planning behaviour. Such an integration can and will be pursued via a systematic literature review (Lim et al. 2022a , b ).

Goals and contributions of this study

The goal of this study is to establish a formal theory to explain financial planning behaviour. To do so, a systematic literature review is conducted, wherein the SPAR-4-SLR protocol is adopted to guide the review process, whereas the antecedents, decisions, and outcomes (ADO) framework (Paul and Benito 2018 ) and the theories, contexts, and methods (TCM) framework (Paul et al. 2017 ) are adopted and integrated to analyse the findings of the review—a best practice demonstrated and recommended by Lim et al. ( 2021 ). In doing so, this study makes two noteworthy contributions.

From a theoretical perspective, the integrated framework contributes to integrate fragmented knowledge and reduce the production of isolated knowledge on financial planning behaviour. In addition, the framework clarifies the state of existing insights and empowers the discovery of new insights on financial planning behaviour. Certainly, insights gathered from a well-structured framework can provide a better start to add to existing knowledge and increase growth in the field (Kumar et al. 2019 ; Lim et al. 2022a , b ). More importantly, the nomological structure of the framework also enables the study to establish a new theory called the theory of financial planning behaviour , which can act as a multi-dimensional behavioural guideline that involves planning, developing, and assessing the operation of cash flow, tax efficiency, investment planning, risk management, estate planning, and retirement planning within an individual.

From a practical standpoint, the insights from the study are expected to contribute to future financial service professionals gaining advantages in the understanding of financial planning behaviour in catering to the future needs of the public. Additionally, policymakers would benefit from utilising the information to effectively provide financial education programs to enhance individuals’ financial well-being. Further implications for this study focusing on consumers and managers are also discussed towards the end of this study.

Theoretical background

Evolution of theories.

Over the past decades, several theories have been used by researchers on financial planning and the determining factors that influence it. The evolution of theories relating to financial planning is based on the concept of behavioural finance. These theories remain important in financial planning research (Asebedo 2022 ; Overton 2008 ). The most well-known theory related to behavioural finance is the TPB (Ajzen 1991 ). It has been widely used on different research topics to predict and explain individuals’ behaviour or the insufficient control of their behaviour (Ajzen 1985 , 1991 , 2002 ). Noteworthily, the TPB is an extension of the theory of reasoned action, which suggested that human behaviour is determined by the intention to perform a certain behaviour, whereby the intention can be determined by attitudes and subjective norms (Fishbein and Ajzen 1975 ).

In addition, Maslow’s ( 1943 ) hierarchy of needs has been used by Chieffe and Rakes ( 1999 ) to identify and rate the different segments of financial services best suited to each level of income group. The hierarchical approach of this theory provides a framework that explains different financial planning services related to each income group. According to Xiao and Noring ( 1994 ) and Xiao and Anderson ( 1997 ), the notion of Maslow’s hierarchy of needs clearly explains an individual’s financial needs in the form of a hierarchy. The framework of a hierarchical form of financial planning indicates that individuals would only strive for a high level of financial needs after a lower level of financial needs is met. It is recommended for individuals to fulfil their needs step by step to avoid facing financial difficulties.

Another theory that has been applied to financial planning is the life-cycle hypothesis (Modigliani and Brumberg 1954 ), which is an economic theory that explains an individual’s saving and spending behaviour throughout their lifetime. The theory also points out that individuals want to have smooth consumption by saving more if their income increases and borrowing more when their income ceases. Shefrin and Thaler ( 1988 ) state that individuals mentally place their assets into three different accounts, which are current income, current assets, and future income. According to Modigliani and Brumberg ( 1954 ), this theory assumes that individuals will fully utilise their utility for future consumption and aim to accumulate savings and resources for future consumption after retiring. The model explains that individuals’ consumption and saving decisions are formed from a life-cycle perspective. Such individuals will begin with low income when they start working, and their income will slowly increase until it reaches a peak level. Taking a behavioural enrichment (or behaviourally realistic) perspective of the life-cycle theory, Shefrin and Thaler ( 1988 ) state that the behavioural life-cycle hypothesis includes mental accounting, self-control, and framing, which represent three important behavioural features that are usually missing in the economic perspective of the traditional life-cycle theory. The authors mention that individuals use mental accounting to control their propensity to spend on their assets. The willingness to spend is usually related to their current income. According to Warneryd ( 1999 ), individuals usually have a specific method to mentally allocate their expenditures into different accounts. In addition, the marginal propensity to save and consume will be different in each account. According to Shefrin and Thaler ( 1988 ), individuals may face difficulties in controlling their spending, and thus, these individuals may form personal behavioural incentives and constraints. For example, individuals would possess the intention to save and create assets when constraints are available. They also explain that individuals’ preferences are not fixed but vary depending on the constantly changing economic environment and social stimuli (Duesenberry and Turvey 1950 ; Katona 1975 ). Furthermore, the life-cycle theory faces some challenges while explaining individuals’ behaviour, such as assuming that individuals will act rationally, be consistent, and make wise intertemporal choices throughout their lifetime (Deaton 2005 ). The life-cycle theory explains that individuals’ saving decisions are based on their preferences for either present or future consumption. The theory also assumes that individuals determine a desirable age of retirement and level of consumption to fully utilise their utility throughout their lifetime.

Prospect theory is an economic theory that assumes individuals treat losses and gains differently, showing how an individual decides among several choices that involve uncertainties (Kahneman and Tversky 1979 ). This theory explains that their decisions are easily affected by psychological factors and that they are logical decision-makers. However, when individuals decide on whether to purchase or not, they are most likely affected by their cognitive biases. The theory also postulates that making losses will cause a larger emotional impact on individuals rather than a comparable amount of gain. Thus, individuals will prefer choosing the option with perceived gains. For example, individuals would prefer the option of a sure gain instead of a riskier option with a chance of receiving nothing or making a loss. Hence, the theory summarises that individuals are mostly loss averse when they face several choices. Individuals are more sensitive towards losses and would most likely prefer avoiding losses and prefer sure wins. This can be explained by the fact that the emotional impact of losses on an individual is greater than an equivalent gain.

The financial capability model is another prominent theory. Financial capability, which has been gaining prominence across the globe, is defined as the capability and skills of individuals to make rational and effective judgements on managing their financial resources (Noctor et al. 1992 ). Nowadays, individuals have been urged to ensure that they acquire sufficient resources for their retirement and provide a financial safeguard for any sudden occurrence. According to Atkinson et al. ( 2007 ), the financial capability model has been studied and is related to individuals’ financial behaviour, attitude, and knowledge. The researchers identified five different components under the financial capability model: (1) making ends meet (managing personal financial resources, i.e. individuals who have acquired financial knowledge skill sets can finance their resources well and meet financial goals); (2) keeping track (managing money, i.e. planning and recording personal daily expenses to avoid overspending); (3) planning ahead (this helps individuals to be future oriented, i.e. always planning and managing their financial resources to be prepared for any financial uncertainties in the future); (4) choosing products (accumulating resources and managing different assets’ risks, i.e. making a rational decision in choosing financial products and diversifying risks); and (5) staying informed (being updated and studying financial matters in the current market and economy, i.e. individuals have to be eager to keep track on financial matters happening in the market, such as changes in the overnight policy rate (OPR) and stock market movement).

After a review of all the theories (Table 1 ), the TPB has been found to be the most suitable theory to serve as a foundational lens for a review on financial planning behaviour with the aim of establishing a new theory in this field. Unlike the other theories (e.g. Maslow’s hierarchy of needs, life-cycle hypothesis including behavioural life-cycle hypothesis, financial capability model, prospect theory), the TPB is an adaptable yet parsimonious theory that has a track record of spinning off new theories (e.g. the theory of behavioural control; Lim and Weissmann 2023 ). Noteworthily, the TPB can be applied to financial behaviours (Bansal and Taylor 2002 ; East 1993 ; Xiao and Wu 2006 ), wherein the three antecedents of the TPB (attitude, subjective norms, and perceived behavioural control) are found to be associated with intention and contribute to financial behaviour (Shim et al. 2007 ; Xiao et al. 2007 ). Unlike other theories, the mediating effect of financial literacy, which provides an important lens to understand good and poor financial planning, can be applied to the TPB to explain an individual’s intention on financial behaviour. More importantly, it is necessary to understand how the TPB can further explain individuals’ behaviour before examining financial literacy through a behavioural approach. The theory assumes that intention is the best factor to predict an individual’s behaviour, which, in turn, is examined by attitude and social normative perceptions towards an individual’s behaviour (Montano and Kasprzyk 2015 ). Furthermore, individuals’ experiences normally affect their financial decision-making and the way they manage their personal finances. Therefore, financial literacy can be explained as an individual’s confidence and capability to make full use of their financial knowledge (Huston 2010 ) and manage financial matters (Lusardi and Mitchell 2014 ), which they would have perceived control over. In this regard, the theory can be applied to examine how the financial literacy process works on each individual. Moreover, Lusardi and Mitchell ( 2014 ) explain that the favour of financial literacy is more than that of financial capability, where individuals are responsible for their own financial decisions. Hence, financial literacy acknowledges the perceived control of individuals on their financial decisions. That being said, an individual will only show positive financial behaviour when they perceive the value of their behaviour based on their attitude. Therefore, financial behaviour will not be decided based on their financial knowledge but based on their attitude, which is the main component of this theory. In other words, the evaluation of financial knowledge will be better captured through the components of the TPB (e.g. perceived behavioural control), though conceptual contextualisation is necessary to better resonate with the financial planning behaviour of individuals. To aid this task, the next section provides a deeper discussion to understand the fundamental tenets of the TPB.

Theorisation of the theory of planned behaviour

According to Xiao ( 2008 ), the TPB is one of the best and most suitable theories related to financial behaviour that studies and predicts human behaviour. In essence, the TPB is an extension of the theory of reasoned action, which initially posits that attitude and subjective norms shape the intention to perform a behaviour, which, in turn, predicts the actual performance of that behaviour (Ajzen 1991 ). However, behavioural intention does not always translate into behavioural performance (Lim and Weissmann 2023 ), which is the main reason why the TPB was proposed to overcome the limitation of the theory of reasoned action, with the inclusion of perceived behavioural control in the TPB as a mechanism to recognise the volitional control that individuals possess in translating or not translating behavioural intention into behavioural performance (Ajzen 1991 , 2002 ).

Perceived behavioural control can be expressed as follows: Given an individual’s available resources and choices, how easy or hard it is to display a certain behaviour or act in a certain way? In this regard, the performance of an individual’s behaviour depends on his or her ability to act on said behaviour (Ajzen 1991 ). The TPB posits that the perceived control on certain behaviour will be greater when the individual has greater resources (social media, money, time) and choices (Lim and Weissmann 2023 ). Indeed, several researchers have found that perceived behavioural control has a positive relationship with intention and behaviour (Fu et al. 2006 ; Lee-Patridge and Ho 2003 ; Mathieson 1991 ; Shih and Fang 2004 ; Teo and Pok 2003 ).

Subjective norms can also be used to predict individual behavioural intention. As one of the original components of the theory of reasoned action, subjective norms refer to social influence and the social environment affecting an individual’s behavioural intention (Fishbein and Ajzen 1975 ). It is defined as an individual’s perception of the possibility that social agents approve or disapprove a behaviour (Ajzen 1991 ; Fishbein and Ajzen 1975 ). It focuses on everything around individuals, such as social networks, cultural norms, and group beliefs. This is known as a direct determinant of behavioural intention in the theory of reasoned action and the TPB. Through the lens of subjective norms, an individual is said to be willing to perform a certain behaviour even though he or she does not favour performing such behaviour while being under social pressure and social influence (Venkatesh and Davis 2000 ). Kuo and Dai ( 2012 ) state that as subjective norms become more positive, an individual’s behavioural intention to perform or act on a certain behaviour becomes more positive. Several studies have shown a significant relationship between subjective norms and intention (Chan and Lu 2004 ; May 2005 ; Teo and Pok 2003 ; Venkatesh and Davis 2000 ). Sharif and Naghavi’s ( 2020 ) research on family financial socialisation also finds that the behaviour of acquiring relevant norms and information on financial socialisation is associated with subjective norms. The informational subjective norms are known to predict perceived information. Ameliawati and Setiyani ( 2018 ) mention that subjective norms in the TPB represent financial socialisation. Their study describes subjective norms as financial socialisation to research the influence of financial management behaviour. In addition, the research of Jamal et al. ( 2015 ) on the effects of social influence and financial literacy on students’ saving behaviour used the TPB to develop the model. The author uses subjective norms to represent the social pressures influencing students’ intentions to save. It analyses the influences of parents and peers on the impact on the students’ saving behaviour. Hence, subjective norms have a significant effect on the intentions of individuals towards financial planning behaviour.

Attitude has been identified as a construct that guides an individual’s intention, which results in them acting on a particular behaviour. In essence, attitude can be defined as the evaluation of the positive and negative effects on individuals performing an act or behaviour (Fishbein and Ajzen 1975 ), and by extension, reflects the individual’s belief in certain behaviours or acts that contribute positively or negatively to a person’s life (Ajzen and Fishbein 2000 ). There are two components of attitude: the attitude towards a physical object (money, savings, pension) and the attitude towards behaviour or performing a certain act (using savings or money to practice financial planning). Keynes ( 2016 ) and Katona ( 1975 ) state that most individuals possess positive attitudes towards personal saving. Many studies have determined a significant relationship between attitudes and intention (Lu et al. 2003 ; Ramayah et al. 2020 ; Wu and Chen 2005 ). Therefore, attitude can be one of the most important factors to determine and predict human behaviour (Ajzen 1987 ). According to Xiao ( 2008 ), the more favourable the attitude of an individual on performing a behaviour, the easier it is for the individual to perform the behaviour and the stronger the behavioural intention. Further understanding of an individual’s attitude can help to predict their intention and behaviour.

Intention can be defined as an individual’s perception of performing a particular act or behaviour (Fishbein and Ajzen 1975 ). In this regard, intention is said to produce a direct effect on an individual’s behaviour as it signals the willingness of an individual to act (Ajzen 1991 ). The TPB explains that the degree of intentions that are converted into behaviour is determined by the amount of volitional control. Behaviour such as saving money is not considered as full volitional control given the lack of resources and opportunities able to affect the capability to perform the behaviour. While individuals can control their behaviour, their actual behaviour can easily be predicted by their intention accurately, but this does not prove that the measure of correlation is perfect between intention and behaviour (Fishbein and Ajzen 1975 ). Moreover, strong bias always exists in individuals, where they will overestimate the possibility of acting on desired behaviour and underestimate the possibility of acting on undesired behaviour. This can cause inconsistencies between intention and behaviour (performing an actual action) (Ajzen et al. 2004 ). Behaviour and intention will show high correlation whenever the interval time between them is low (Fishbein and Ajzen 1981 ). Yet, intention is known to change over time, and thus, if the interval between intention and behaviour is greater, the possibility of change in intention is higher (Ajzen 1985 ).

Behaviour refers to an observable response to a specific target (Fishbein and Ajzen 1975 ). In essence, the performance of a given behaviour is a direct outcome of the intention to perform that behaviour as well as an indirect result of attitude, subjective norms, and perceived behavioural control (Ajzen 1991 ), as discussed above.

The TPB has been widely used in different fields of research over the past decades: medicine (Hagger and Chatzisarantis 2009 ; McEachan et al. 2011 ), marketing and advertising (King et al. 2008 ; Yaghoubi and Bahmani 2010 ), tourism and hospitality (Han 2015 ; Quintal et al. 2010 ), information science (Lee 2009 ; Shih and Fang 2004 ), and, last but not least, human behaviour (Kobbeltvedt and Wolff 2009 ; Perugini and Bagozzi 2001 ). All the studies listed above have concluded on the positive and significant effect of attitude, subjective norms, and perceived behavioural control on an individual’s intention to act on behaviour. In the financial context, Shih and Fang ( 2004 ) apply the TPB to an individual’s financial decisions regarding internet banking. The study concludes that the TPB can be successfully applied to understand an individual’s intention to use internet banking. Lau et al. ( 2001 ) and Lee ( 2009 ) also apply the TPB to study investors’ intentions on online banking and trading online. To provide a more accurate account for financial planning behaviour, a systematic literature review is conducted and reported in the next sections.

Methodology

Study approach: systematic literature review.

This study conducts a systematic literature review to develop comprehensive insights into financial planning behaviour based on the TPB. As mentioned above, the TPB is the extension of the theory of reasoned action, and it strongly posits that an individual’s behaviour is determined by the three factors (attitude, subjective norms, and perceived behavioural control) and is backed by their behavioural intention (Ajzen 1991 ).

A systematic literature review is known as a ‘research synthesis’, an extensive process of summarising primary research based on an explicit research question, where it attempts to identify, select, synthesise, and assess all the evidence by providing answers to the research question (Donthu et al. 2021 ; Lim et al. 2022a , b ). In this regard, systematic literature reviews not only summarise and synthesise existing knowledge but also facilitate knowledge creation (Kraus et al. 2022 ; Mukherjee et al. 2022 ). Moreover, systematic literature reviews gathered eligible and pertinent evidence based on a preset criterion to answer a specific research question, and thus, a transparent and explicit systematic methodology can be used for systematic literature reviews to analyse and reduce biases (Harris et al. 2014 ; Paul et al. 2021 ).

Systematic literature reviews can be conducted through various methods. Generally, systematic literature reviews can be domain-based, theory-based, and method-based (Palmatier et al. 2017 ; Paul et al. 2021 ). In this study, a theory-based review was used for new theory development. Specifically, the theory-based review is chosen over the other approaches because it serves the purpose of analysing a specific role played by a theory in a given field. One of the examples given by Hassan et al. ( 2015 ) is the role of the TPB in the field of consumer behaviour. In this study, the TPB was applied to financial planning behaviour.

Study procedure: SPAR-4-SLR

Few protocols exist for systematic literature reviews. The most common protocol used by researchers in conducting systematic literature reviews is the preferred reporting items for systematic reviews and meta-analysis (PRISMA) by Moher et al. ( 2009 ). PRISMA is a comprehensive protocol that helps researchers to develop systematic literature reviews. It gathers and reports decisions that researchers have justified from their reviews. However, an uprising protocol was proposed by Paul et al. ( 2021 ) to address the existing limitations of PRISMA, namely the Scientific Procedures and Rationales for Systematic Literature Reviews protocol or the SPAR-4-SLR protocol. As shown in Fig.  1 , the protocol consists of three stages and six sub-stages, followed by sequences.

Assembling This stage constitutes the (1a) identification and (1b) acquisition of literature that is yet to be synthesised.

Arranging This stage entails the (2a) organisation and (2b) purification of literature in the stage of being synthesised.

Assessing This stage reflects the (3a) evaluation and (3b) reporting of literature that has been synthesised.

Review process

Systematic reviews assembling, arranging, and assessing the literature according to the SPAR-4-SLR protocol are expected to: (1) provide significant insights and (2) stimulate nuanced agendas for knowledge advancement in the review domain. Substantially, by providing such significant insights and agendas using the SPAR-4-SLR protocol, (1) the review is comprehensively justified for logical and pragmatic reasons, and (2) each stage and sub-stage is reported with full transparency.

The researchers begin with assembling in the (1a) identification stage, identifying the research domain and research question. The research domain of this study is behavioural finance with a specific focus on financial planning. The research question of this study is ‘How can the TPB be contextualised to develop a theory of financial planning behaviour?’ Thus, academic articles selected should focus on financial planning (i.e. the focus of this review) and the TPB (i.e. the theory contextualised for this review). The source quality was established based on Scopus or Web of Science indexing in line with Paul et al. ( 2021 ). Moving on to the (1b) acquisition stage, the search mechanism will rely on Google Scholar, which is free and can be easily accessed for article search. Footnote 3 The search period will begin from 2000 to 2020 (20 years) as most articles on the TPB and financial planning behaviour started to appear in the early 2000s. Related articles searched between these years are included in this study. The search was conducted multiple times with different keywords based on American and British spelling as well as different combinations: (1) ‘financial planning’ + ‘theory of planned behavior’, (2) ‘financial planning’ + ‘theory of planned behaviour’, (3) ‘personal financial planning’ + ‘theory of planned behavior’, and (4) ‘personal financial planning’ + ‘theory of planned behaviour’. Footnote 4

Next, the researchers move onto arranging in the (2a) organisation stage, wherein the organising code for this study is ADO and TCM, which rely on the suggested frameworks used, the ADO framework (Paul and Benito 2018 ; Pansari and Kumar 2017 ) and the TCM framework (Paul et al. 2017 ). Refer to Fig.  2 for the overview of ADO on the insights of the TPB on financial planning behaviour and its supporting TCM. In the (2b) purification stage, the articles gathered are filtered in this process. The researchers decided which articles to include and exclude from the study. The criteria to exclude articles in this stage include duplicate articles, irrelevant articles, inaccessible articles, and lastly, non-journal-title articles; 41 articles were excluded based on the criteria, and 30 articles proceeded to the next stage.

The state of the art of the antecedents, decisions, and outcomes of financial planning behaviour and its supporting theories, contexts, and methods

Finally, the researchers move into assessing in the (3a) evaluation stage, which involves the analysis and the agenda proposal. The study utilised content analysis, a methodical approach for coding and interpreting textual data from the selected articles to draw meaningful conclusions (Kraus et al. 2022 ). This systematic technique, which was executed by one author (a doctoral scholar) and cross-validated by another author (a senior academic) with an intercoder reliability of ± 95% and differences clarified and resolved, enabled the researchers to identify, categorise, and analyse patterns within the text, contributing to a comprehensive understanding of the subject matter (Patil et al. 2022 ). The theory development and future research agenda were formulated through conceptual extrapolation and sensemaking (i.e. scanning, sensing, and substantiating) (Lim and Kumar 2023 ). This process entailed critically examining the existing theories, extracting key concepts, and extrapolating these to propose new research directions. Thus, this study provided a roadmap for future studies, fostering further evolution in the field of financial planning behaviour. In the (3b) reporting stage, the reporting conventions used include figures, tables, and words. No ethical approval is required since the review is based on accessible secondary data (journal articles), which can be accessed by anyone with subscription (Lim et al. 2022a , b ).

Profile of TPB and financial planning behaviour research

The systematic review of 30 articles covered different insights into the existing research of the TPB and financial planning behaviour, covering the six components of financial planning (i.e. cash flow planning, tax planning, risk management, investment planning, estate planning, and retirement planning) (Fig.  2 ). Appendix 1 summarises the articles in Appendix 2 based on the approaches of Paul and Mas ( 2019 ) and Harmeling et al. ( 2016 ). The articles are classified based on author citations, years, number of citations, methods, sample, related financial planning components and variables, and lastly findings. The findings of each article briefly explained how the construct of the TPB is a predictor or shows a significant effect on financial planning behaviour.

Based on this review, which begins from 2000 to 2020, the past two decades of research in the field of behavioural economics (later known as behavioural finance) have been on continuously identifying and explaining an individual's finances from an extended social science perspective, which includes psychology and sociology. Behavioural finance can be defined as the field of study where psychological factors affect an individual's financial behaviour (Shiller 2003 ). The combination of the TPB and financial planning has proven to be impactful with over 3000 citations among the 30 articles. The articles utilised four different methods: the quantitative approach ( n  = 24), the qualitative approach ( n  = 3), the mixed method approach ( n  = 1), and the conceptual approach ( n  = 2).

Lastly, the TPB (i.e. attitude, subjective norms, perceived behavioural control, and behavioural intention) has been found to be a good predictor of financial planning behaviour (i.e. cash flow planning, tax planning, risk management, investment planning, estate planning, and retirement planning) and possesses positive relationships with each component of financial planning. For example, the TPB was found to be positively related to the intention to invest, mental budgeting behavioural intention, influencing savings and investment, and the intention to prevent risky credit behaviour, among others.

Contextualising the TPB for financial planning behaviour

Table 2 and Fig.  3 show the contextualisation of the TPB for financial planning behaviour, leading to the establishment of the theory of financial planning behaviour. Pansari and Kumar ( 2017 ) suggest the use of such a table to compare and explain each construct of the framework. The table, which leverages the findings from the review depicted in Fig.  2 , clearly illustrates how the TPB can be contextualised to explain financial planning behaviour. Attitude can manifest as financial satisfaction, wherein individuals who are dissatisfied, not fully satisfied, or wish to be more satisfied with their financial state will develop a positive disposition towards financial planning. Subjective norms can manifest as financial socialisation, wherein individuals learn about societal expectations of financial planning when they socialise with others (e.g. family, friends, work colleagues). Perceived behavioural control can manifest as financial literacy, mental accounting, and financial cognition, wherein the effect of financial satisfaction and financial socialisation is mediated through financial literacy, which may be shaped by the capability to perform mental accounting and the capacity for financial cognition. These factors can collectively shape the individual's intention to engage in financial planning, which, in turn, motivates the actual behaviour of engaging in financial planning, which can take six forms, namely cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning.

Visual representation of contextualising the TPB into the theory of financial planning behaviour

Reflections and ways forward

Behavioural decision-making has been one of the most significant research interests for economists over the past decades. Past researchers (Xiao and Wu 2006 ; East 1993 ; Bansal and Taylor 2002 ) have applied the TPB to financial behaviour. The three antecedents of the TPB (attitude, subjective norms, and perceived behavioural control) were found to be associated with the intention of an individual and contribute to financial behaviour (Shim et al. 2007 ; Xiao et al. 2007 ). Unlike other theories, the mediating effect of financial literacy can be applied to the TPB to explain financial behaviour intentions. The variables of mental accounting and financial cognition were not frequently used by the researchers in the study of financial planning, while in this study, both variables are positioned as relevant components of perceived behavioural control in the TPB.

The concept of mental accounting has been extensively studied in the research area of psychology on financial decisions (Mahapatra and Mishra 2020 ). However, past studies on mental accounting in financial planning are insufficient. The formation and influences of mental accounting as a cognitive process—which consists of the concepts of current income, current assets, and future income as well as mental budgeting—play an important role in the personal financial planning process to each individual. It serves as a guideline in the process of financial planning and provides useful insights. Budgeting plays a key role in managing the financial life of an individual in terms of short-term (e.g. prioritising spending in different categories) and long-term (e.g. setting aside money for investment and future use) financial planning.

Previous research has applied mental accounting with the theory of the behavioural life-cycle model. Shefrin and Thaler ( 1988 ) mentioned that people mentally divide their incomes into current income, current assets, and future income, where the marginal propensity to consume (MPC) for each account is relatively different. Mental accounting is helpful and crucial for individuals to plan for their future financial needs so that they can deal with any unexpected financial difficulties in the future. However, there are still gaps to fill to come out with optimal financial decisions. Therefore, given the need of individuals for personal financial planning, it is necessary to apply mental accounting to each individual by determining their spending and saving tendencies.

Moreover, the 2008 global financial crisis and the COVID-19 pandemic have also taught the world painful lessons; the need for financial literacy and cash flow control has been highlighted and considered by the public. A study conducted by Shahrabani ( 2012 ) on the effect of financial literacy and intention to control personal budget concludes that individuals with high levels of financial knowledge and literacy can influence the intention to have budgetary control. The study shows a positive relationship between the intention to budget and financial knowledge. Selvadurai and Siraj ( 2018 ) study financial literacy education and retirement planning in Malaysia. The authors mention that mental accounting is closely related to financial literacy education. Financial literacy can enhance mental accounting as it affects the behaviour of an individual in planning their savings and expenditure. In particular, individuals who acquire financial literacy education are most likely able to control their expenditure by not spending more than their income, which results in having sufficient savings in the long run. The relationship between mental accounting and financial literacy has been proven to be indispensable.

Cognitive ability also plays an important role in financial literacy as it entails understanding financial knowledge and the ability to perform with available resources. While the relationship between financial cognition and financial literacy is strong, individuals can use their cognitive abilities to solve financial problems. Yet, the cognitive biases exist and influence financial decision-making. Agarwal and Muzumder ( 2013 ) state that individuals with no cognitive ability are most likely to face difficulties while making financial decisions. Also, individuals must at least acquire good memory skills, conceptual ability, and financial sophistication to be involved in financial activities. According to Fu et al. ( 2010 ), understanding the attitude of an individual enables one to predict their intentions and behaviour. This could also influence the formation of their attitude. Lusardi and Mitchell ( 2014 ) mention that cognitive abilities are a significant component of financial literacy to determine desirable financial decision-making. In the case of financial literacy, a link between cognitive abilities and the adaptability of financial decision-making has been studied extensively in the field of personal finance. An individual must acquire cognitive skills to make a sound financial decision in an effortless way, which consists of the ability to recall and utilise financial knowledge (memory) and to implement various numerical operations (numeracy) (Chirstelis et al. 2010 ; McArdle et al. 2009 ). Three variables were discussed under the model of financial cognition: financial attitude, risk attitude, and financial knowledge.

Based on the information mentioned above, the mediating effect of financial literacy on mental accounting and financial cognition is indispensable. Policymakers and researchers should work on improving financial literacy and forming positive financial behaviours. Several studies have proven that financial literacy has slowly become a significant component of rational financial decision-making and that it also provides implications for financial behaviour. Individuals or families with higher levels of financial literacy will have an advantage compared to others and higher wealth accumulation as they have the knowledge and skills to participate in financial activities (Schmeiser and Seligman 2013 ). Past studies have proven that financial literacy plays a remarkable role in determining financial outcomes in terms of the components of financial planning (Hilgert et al. 2003 ). Hence, the need for financial literacy in financial planning is indispensable, and it should be considered by individuals as it affects their welfare.

However, no one has attempted to contextualise the TPB and financial planning with the variable of mental accounting and financial cognition with the mediating effect of financial literacy to understand and determine financial behaviour. Thus, this new theory clarifies the conceptualisation and operationalisation of the theory of financial planning behaviour between the variables of mental accounting and financial cognition, and, most importantly, the mediating effect of financial literacy. However, the new theory, in its present and encompassing form, has yet to be tested empirically, and therefore, this warrants future research across different financial products across countries and populations to establish its generalisability.

Discussion and conclusion

This study developed a new theory called the theory of financial planning behaviour using the TPB of Ajzen to understand the financial behaviour of individuals in managing their personal finances. This study examines how the TPB can be contextualised into a theory that more relevantly explains financial planning behaviour. The theoretical background section of this study presents a comprehensive review of the evolution of theories as well as theorisation for the TPB. With a systematic review of the literature, it can be concluded that the constructs of the TPB can be contextualised to better explain financial planning behaviour—that is, the review results showed how different concepts and factors affect the financial planning of an individual by substituting the original components of the TPB with financial variables. Moving on, this study concludes with an articulation of its implications for academics, consumers, and managers.

Implications for academics

The main theoretical contribution of this study is the establishment of the theory of financial planning behaviour. Noteworthily, this new theory represents a noteworthy attempt to demonstrate how a grand theory such as the TPB can be contextualised and thus transformed into a new theory that resonates with realities in the field, in this case, financial planning. The systematic literature review methodology has also proven itself as a useful approach to source for scholarly evidence to offer preliminary support for the new theory.

Another noteworthy contribution is the extrapolation of perceived behavioural control, which answers the call by Lim and Weissmann ( 2023 ) to identify or source for new forms of behavioural control, going beyond the traditional psychological conceptualisation of self-efficacy. Through this study, three types of perceived behavioural control were revealed: financial literacy, mental accounting, and financial cognition. Moreover, the interdependent relationships between these three forms of perceived behavioural control were also identified and theorised, wherein the capability of mental accounting and the capacity for financial cognition shape the financial literacy of the individual, which, in turn, mediates the effects of financial satisfaction (attitude) and financial socialisation (subjective norms) on that individual’s intention and actual behaviour to engage in financial planning.

For researchers seeking to apply the theory of financial planning behaviour in a study, they might operationalise the variables in the following way. Financial satisfaction, financial socialisation, and financial literacy could be assessed using the scales validated by Madinga et al. ( 2022 ). Financial cognition and mental accounting, being somewhat newer constructs in the literature, might require the development of new scales, which could be validated through exploratory and confirmatory factor analysis. For data analysis, researchers might employ a structural equation modelling (SEM) approach to test the relationships between these constructs, as SEM allows for the simultaneous examination of multiple relationships among observed and latent variables. This technique also enables researchers to test the mediating role of financial literacy in the relationship between financial satisfaction, financial socialisation, and financial planning behaviour, thereby assessing the robustness of the proposed theory. If researchers are interested in examining the moderating effects of certain variables (e.g. age, education, or household income), they could use moderation analysis to determine whether the strength or direction of these relationships varies under different conditions.

To this end, the theory of financial planning behaviour should serve as a useful foundational theory to understand a myriad of individual financial planning behaviour such as cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning. In this regard, future research is encouraged to explore for new mechanisms that can positively influence or strengthen the variables espoused by the new theory, such as financial satisfaction (e.g. mechanisms that can prompt individuals to evaluate their financial satisfaction—e.g. advertising), financial socialisation (e.g. platforms to encourage individuals to socialise within a financial setting—e.g. metaverse and social media groups), and financial literacy (e.g. ways to enhance mental accounting capability and financial cognition capacity). Nonetheless, this study does not discount the possibility of discovering additional attitudinal, normative, and control variables, which could lead to possible extensions to the theory of financial planning behaviour, as in the case witnessed by TPB. Thus, the new theory herein is intended to inspire new ideas, not to limit them.

Implications for consumers

This study reaffirms the importance of financial planning to safeguard financial resilience in individuals' daily lives. Adopting financial planning entails endless benefits for consumers who do so. Noteworthily, it is important to determine short-term and long-term financial goals and to achieve them via financial planning. Having these goals in mind can provide a sense of direction and purpose in life.

This study is important for all consumers who wish to make ideal financial decisions. Consumers may adopt better cash flow management by implementing financial planning to have a stable financial flow. A cash flow plan can provide an estimation of future income and expenses to achieve financial efficiency and create an emergency fund. Hence, implementing financial planning may help to relieve financial stress and plan for future needs.

Also, consumers can not only gain monetary benefits but also improve their financial literacy. The world has slowly become more financialised, where financial products have developed rapidly and become more complex (Kumar et al. 2023 ; Goodell et al. 2021 ), which requires consumers to be financially literate before making ideal financial decisions (She et al. 2023 ; Bannier and Schwarz 2018 ). Thus, financial institution managers and policymakers are working on improving the financial literacy of consumers and forming positive financial behaviour.

Indeed, financial literacy is a significant component of rational financial decision-making, and it also provides implications towards financial behaviour. Individuals or families with higher levels of financial literacy will have an advantage compared to others as well as higher wealth accumulation as they have the knowledge and skills to participate in financial activities.

Crucial to developing financial literacy is the capability to do mental accounting and the capacity for financial cognition. That is to say, consumers must seek financial education, be it formally or informally, so that they are able to identify and evaluate the different options for financial planning. Similarly, consumers should allocate adequate resources (effort, time) to think about financial planning, which is not a low but rather high involvement process.

Implications for managers

Promoting financial planning has always been a major challenge for financial managers. The newly established theory of financial planning behaviour emerging from the grand TPB can be put into practice by authorities. The findings of this study can be used by financial managers to understand the financial planning behaviour of consumers.

Based on the results and implications of past studies, introducing financial planning behaviour can benefit banks as well as investment and insurance companies that aim to promote consumer financial well-being. It can provide insights into how different factors affect the intention and adoption of financial planning.

Financial literacy needs to be considered as it is an important mediating factor that influences the intentions and behaviour of consumers. For example, whenever a bank introduces financial products to a prospect, that bank must ensure that the prospect is financially literate or else provide sufficient financial knowledge before the prospect develop a financial plan or purchase any financial product from that bank. This is to ensure that their customers possess knowledge of and clarity on the program or product.

In addition, financial institution managers are encouraged to focus on factors (i.e. mental accounting, financial cognition, financial socialisation, financial satisfaction, and financial literacy) that influence customer behaviour towards financial planning before implementing financial programs. For example, understanding the budgeting styles and minimum level of financial satisfaction of customers may help to develop relevant and applicable financial plans for them. Consider a middle-aged client, John, who has recently experienced a job loss. John is feeling uncertain about his financial future and seeks advice from a financial advisor. The financial advisor, following the theory of financial planning behaviour, would first evaluate John's financial literacy level to assess his understanding of financial products and concepts. Then, the advisor would use the theory's constructs such as mental accounting (how John organises his finances and prioritises spending), financial cognition (how John understands his financial situation), and financial satisfaction (how content John is with his current financial state) to develop a comprehensive financial plan. For instance, the financial advisor may realise that John's financial cognition is low, indicating a lack of understanding of the severity of his financial situation. Therefore, to improve his financial cognition, the advisor would emphasise financial education and assist John in developing better mental accounting habits, such as setting up separate 'pots' for his savings, expenses, and investments. This approach is aligned with promoting financial literacy and ensuring the client's knowledge and clarity on his financial plan, which are aspects underscored in our theory.

Implications for policymakers

The findings of this study serve to inform and guide policymaking in significant ways. Policymakers play a crucial role in shaping the financial landscape that influences financial planning behaviour. A key aspect is the importance of financial literacy, which suggests that national education policies should incorporate financial education from early learning stages. Special focus should be given to underprivileged and marginalised communities, who may lack access to financial literacy resources. This might involve legislation mandating financial institutions to fund these education programs as a part of their corporate social responsibility.

This study also illuminates the role of mental accounting and financial cognition in financial planning behaviour. This could inspire policymakers to collaborate with technology developers to create user-friendly digital tools and applications that promote mental accounting practices. Such initiatives should be supported by national policies encouraging technological innovation in the financial sector.

Furthermore, the impact of financial satisfaction on financial planning behaviour underscores the need for regulation in financial advertising. Policymakers should ensure that financial advertising does not create unrealistic expectations that lead to dissatisfaction, and transparency should be mandated, with severe penalties for institutions found to be misleading consumers.

Moreover, the study's findings encourage the creation of financial socialisation platforms. Policies should support the development of both online and offline platforms for learning, sharing, and discussing financial planning strategies and experiences. Policymakers should work with technology companies, local communities, and financial institutions to ensure these platforms are safe, accessible, and inclusive.

Lastly, the responsibility of policymakers extends to the protection of citizens from unfair financial practices. Legislation should ensure transparency in financial markets, particularly regarding fees, interest rates, and risks associated with financial products. Policymakers may also consider mandating financial counselling for complex financial decisions, such as mortgages or large investments, to increase financial satisfaction.

Limitations and future research directions

Notwithstanding the contributions of this study, several limitations exist that may pave the way for future research.

First, financial planning behaviour remains in the infant stage and thus the newly established theory was limited to available evidence. In this regard, this study does not discount the possibility of extending the theory of financial planning behaviour in enriching ways, such as by adding new dimensions of the original TPB components (e.g. additional forms of perceived behavioural control).

Second, the theory of financial planning behaviour has not been empirically examined in its entirety. Thus, future research is encouraged to adopt or adapt this newly established theory in empirical investigations to ascertain its reliability, validity, and generalisability.

Third, the systematic literature review herein was limited to a single theoretical lens (TPB). As indicated through the theoretical foundation discussion, multiple theories exist to explain financial planning behaviour. In this regard, it is important to acknowledge that the development of theories in this area is continuously evolving. As other theories mature, it would be beneficial for future research to consider conducting similar reviews using those theories, to provide a more comprehensive understanding of financial planning behaviour. This could potentially uncover novel insights and lead to the development of new frameworks that could more holistically explain individuals' financial behaviours.

Fourth, the outcomes of financial planning have not been theorised. While the assumption is that good financial planning results in financial resilience, further investigation is needed to empirically verify this assumption. Further exploration of other possible outcomes is also encouraged, both at the micro-level (e.g. life satisfaction, quality of life) and at the macro-level (e.g. country happiness and financial strength).

Fifth, the relationships in the theory of financial planning behaviour are inherently linear. Nonetheless, as experience in financial planning accumulates over time, this study does not discount the possibility of a cyclical loop that reinforces the said relationships. In this regard, future research that extrapolates the theory through a longitudinal perspective is also encouraged.

Sixth, the research landscape of financial behaviour is broad and includes other aspects such as financial counselling and financial therapy. Although these areas were not covered in this study, they may be relevant in the context of the TPB and could contribute to a more comprehensive understanding of financial behaviours. Thus, future research could consider investigating these areas using the TPB, which could also include other related theories, as a guiding theoretical framework. The expansion of search terms in subsequent studies would allow for a more diverse exploration of financial behaviours, potentially enhancing the generalisability and applicability of the findings. Furthermore, it may also reveal a broader range of factors influencing financial planning behaviour and related areas. Hence, researchers are encouraged to extend the current study by exploring the use of TPB alongside related theories in different areas of financial behaviour.

In closing, while this study viewed financial planning within the context of behavioural finance, it is crucial to underscore the fact that financial planning is a distinct profession with its own body of literature. Financial planning transcends the boundary of understanding and predicting individual financial behaviours. It encompasses a broad spectrum of activities, from cash flow management to estate planning, which are geared towards enhancing an individual's economic satisfaction. Each of these areas possesses a unique set of complexities and necessitates a specialised set of knowledge and skills. The profession of financial planning is dedicated to addressing these complexities and enhancing individuals' financial well-being. Our exploration of financial planning behaviour through behavioural finance should be seen as a facet of the broader, multi-dimensional discipline of financial planning. Future research should therefore endeavour to add to the rich and varied literature of financial planning to offer a more holistic and nuanced understanding of financial behaviour.

Based on a search for “personal finance” in the “title, abstract and keywords” and the subject area of “business, management and accounting” in Scopus on 25 December 2022.

Smooth consumption refers to consumption that balances or optimises spending and saving during different life phases to achieve the greatest overall standard of living (Morduch 1995 ).

Instead of Scopus or Web of Science, which are subscription-based, Google Scholar was used as the search mechanism because it is free to use and thus more accessible. Source quality can still be maintained by referring to Scimago Journal Ranks, which relies on Scopus, and Web of Science Master Journal List, albeit manually. With the journal lists acting as a cross-check mechanism and without the need for bibliometric data, Google Scholar is deemed to be adequate for the search and review. This practice is similar to that of existing reviews (e.g. Lim and Weissmann 2023 ; Lim et al. 2021 ).

Unlike Scopus or Web of Science, which use search string, Google Scholar use search keywords.

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Kingsley Hung Khai Yeo, Weng Marc Lim & Kwang-Jing Yii

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KHKY did conceptualisation, investigation, methodology, data curation, formal analysis, visualisation, writing—original draft; WML done conceptualisation, investigation, methodology, supervision, writing—review and editing; K-JY was involved in conceptualisation, investigation, methodology, supervision, writing—review and editing.

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Appendix 1: Articles on financial planning behaviour and TPB

• NA not available, TPB theory of planned behaviour.

Appendix 2: List of articles reviewed

Akhtar, F. and Das, N. (2019). Predictors of investment intention in Indian stock markets. International Journal of Bank Marketing 37(1): 97–119.

Ali, S., Zani, R. M., and Kasim, K. (2015). Factors influencing investors' behavior in Islamic unit trust: An application of theory of planned behavior. Journal of Islamic Economics Banking and Finance 10(2): 183–201.

Aziz, S., Md Husin, M. and Hussin, N. (2017). Conceptual framework of factors determining intentions towards the adoption of family takaful- An extension of decomposed theory of planned behaviour. International Journal of Organizational Leadership 6(3): 385–399.

Balushi, Y. A., Locke, S. and Boulanouar, Z. (2018). Islamic financial decision-making among SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour. Journal of Behavioral and Experimental Finance 20): 30–38.

Cloutier, J. and Roy, A. (2020). Consumer credit use of undergraduate, graduate and postgraduate students: An application of the theory of planned behaviour. Journal of Consumer Policy 43(3): 565–592.

Croy, G., Gerrans, P. and Speelman, C. (2012). Normative influence on retirement savings decisions: Do people care what employers and the government want? Australian Journal of Psychology 64(2): 83–91.

Danes, S.M. and Yang, Y. (2014). Assessment of the use of theories within the journal of financial counseling and planning and the contribution of the family financial socialization conceptual model. Journal of Financial Counseling and Planning 25: 53–68.

Gopi, M. and Ramayah, T. (2007). Applicability of theory of planned behavior in predicting intention to trade online. International Journal of Emerging Markets 2(4): 348–360.

Griffin, B., Loe, D. and Hesketh, B. (2012). Using proactivity, time discounting, and the theory of planned behavior to identify predictors of retirement planning. Educational Gerontology 38(12): 877–889.

Habibah, U., Hassan, I., Iqbal, M. S. and Naintara. (2018). Household behavior in practicing mental budgeting based on the theory of planned behavior. Financial Innovation 4(1): 1–14.

Hofmann, E., Hoelzl, E. and Kirchler, E. (2007). A comparison of models describing the impact of moral decision making on investment decisions. Journal of Business Ethics 82(1): 171–187.

Kimiyagahlam, F., Safari, M. and Mansori, S. (2019). Influential behavioral factors on retirement planning behavior: The case of Malaysia. Journal of Financial Counseling and Planning 30(2): 244–261.

Kimiyaghalam, F., Mansori, S., Safari, M. and Yap, S. (2017). Parents' influence on retirement planning in Malaysia. Family and Consumer Sciences Research Journal 45(3): 315–325.

Koropp, C., Kellermanns, F. W., Grichnik, D. and Stanley, L. (2014). Financial decision making in family firms. Family Business Review 27(4): 307–327.

Lai, C. P. (2019). Personality traits and stock investment of individuals. Sustainability 11(19): 5474.

Magwegwe, F. M. and Lim, H. (2020). Factors associated with the ownership of individual retirement accounts (IRAs): Applying the theory of planned behavior. Journal of Financial Counseling and Planning 32(1): 116–130.

Md Husin, M. and Ab Rahman, A. (2016). Predicting intention to participate in family takaful scheme using decomposed theory of planned behaviour. International Journal of Social Economics 43(12): 1351–1366.

Nosi, C., D'Agostino, A., Pagliuca, M. and Pratesi, C. (2017). Securing retirement at a young age: Exploring the intention to buy longevity annuities through an extended version of the theory of planned behavior. Sustainability 9(6): 1069.

Nurwanah, A., T., S., Rosidi, R. and Roekhudin, R. (2018). Determinants of tax compliance: theory of planned behavior and stakeholder theory perspective. Problems and Perspectives in Management 16(4): 395–407.

Paramita, S., Isbanah, Y., Kusumaningrum, T.M., Musdholifah, M. and Hartono, U. (2018). Young investor behavior: Implementation theory of planned behavior. International Journal of Civil Engineering and Technology 9(7): 733–746.

Raut, R. K., Das, N. and Kumar, R. (2018). Extending the theory of planned behaviour: Impact of past behavioural biases on the investment decision of Indian investors. Asian Journal of Business and Accounting 11(1): 265–291.

Rutherford, L.G. and DeVaney, S. (2009). Utilizing the theory of planned behavior to understand convenience use of credit cards. Journal of Financial Counseling and Planning 20(2): 48–63.

Shim, S., Barber, B. L., Card, N. A., Xiao, J. J. and Serido, J. (2009). Financial socialization of first-year college students: The roles of parents, work, and education. Journal of Youth and Adolescence 39(12): 1457–1470.

Sultana, S., Zulkifli, N. and Zainal, D. (2018). Environmental, social and governance (ESG) and investment decision in Bangladesh. Sustainability 10(6): 1831.

Taing, H. B. and Chang, Y. (2020). Determinants of tax compliance intention: Focus on the theory of planned behavior. International Journal of Public Administration 44(1): 62–73.

Warsame, M. H. and Ireri, E. M. (2016). Does the theory of planned behaviour (TPB) matter in Sukuk investment decisions?. Journal of Behavioral and Experimental Finance 12): 93–100.

Xiao, J. J. and Wu, J. (2006). Applying the theory of planned behavior to retain credit counseling clients. SSRN Electronic Journal .

Xiao, J. J., Tang, C., Serido, J. and Shim, S. (2011). Antecedents and consequences of risky credit behavior among college students: Application and extension of the theory of planned behavior. Journal of Public Policy & Marketing 30(2): 239–245.

Xiao, J.J. and Wu, G. (2008). Completing debt management plans in credit counseling: An application of the theory of planned behavior. Journal of Financial Counselling and Planning 19(2): 29–45.

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Yeo, K.H.K., Lim, W.M. & Yii, KJ. Financial planning behaviour: a systematic literature review and new theory development. J Financ Serv Mark (2023). https://doi.org/10.1057/s41264-023-00249-1

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5 Theories of Personal Finance

From the book de gruyter handbook of personal finance.

• Sarah D. Asebedo

This chapter provides an overview of the theories used in personal finance research, practice, and education. Personal finance encompasses financial planning, financial counseling, financial psychology, and financial therapy resulting in a diverse set of theoretical perspectives underpinning personal finance. This chapter highlights the theories unique to financial planning, financial counseling, financial psychology, and financial therapy, in addition to the theories that span across these areas. Lastly, this chapter addresses opportunities, challenges, and future directions for theoretical development within personal finance.

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What Is Personal Finance?

The importance of personal finance, areas of personal finance, personal finance services, personal finance strategies, personal finance skills, personal finance education.

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Breaking Personal Finance Rules

Frequently asked questions, the bottom line.

• Personal Finance

What Is Personal Finance, and Why Is It Important?

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Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, and retirement, tax, and estate planning. The term often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities.

Individual goals and desires—and a plan to fulfill those needs within your financial constraints—also impact how you approach the above items. To make the most of your income and savings, it’s essential to become financially savvy—it will help you distinguish between good and bad advice and make intelligent financial decisions.

Key Takeaways

• Few schools have courses on managing your money, so it is important to learn how through free online articles, courses, blogs, podcasts, or books.
• The core areas of managing personal finance include income, spending, savings, investments, and protection.
• Smart personal finance involves developing strategies that include budgeting, creating an emergency fund, paying off debt, using credit cards wisely, saving for retirement, and much more.
• Being disciplined is important, but it’s also good to know when you shouldn't adhere to the guidelines.

Personal finance is about meeting your personal financial goals. These goals could be anything—having enough for short-term financial needs, planning for retirement, or saving for your child’s college education. It depends on your income, spending, saving, investing, and personal protection (insurance and estate planning).

Not understanding how to manage finances or be financially disciplined has led Americans to accumulate enormous debt. In February 2024, the Federal Reserve Bank reported household debt had increased by $3.4 trillion since December 2019, prior to the recession. In addition, the following balances increased from the third quarter of 2023 to the fourth:

• Credit card balances : Up by $50 billion
• Auto loans : Up by $12 billion
• Consumer loans and store cards : Up by $25 billion
• Total non-housing : Up by $89 billion
• Mortgages : Up by $112 billion

Student loans remained unchanged, at about $1.6 trillion.

Americans are taking on an ever-increasing amount of debt to finance purchases, making managing personal finances more critical than ever, especially when inflation is eating away at purchasing power and prices are rising.

The five areas of personal finance are income, saving, spending, investing, and protection.

Income is the starting point of personal finance. It is the entire amount of cash inflow that you receive and can allocate to expenses, savings, investments, and protection. Income is all the money you bring in. This includes salaries, wages, dividends, and other sources of cash inflow.

Spending is an outflow of cash and typically where the bulk of income goes. Spending is whatever an individual uses their income to buy. This includes rent, mortgage, groceries, hobbies, eating out, home furnishings, home repairs, travel, and entertainment.

Being able to manage spending is a critical aspect of personal finance. Individuals must ensure their spending is less than their income; otherwise, they won't have enough money to cover their expenses or will fall into debt. Debt can be devastating financially, particularly with the high-interest rates credit cards charge.

Savings is the income left over after spending. Everyone should aim to have savings to cover large expenses or emergencies. However, this means not using all your income, which can be difficult. Regardless of the difficulty, everyone should strive to have at least a portion of savings to meet any fluctuations in income and spending—somewhere between three and 12 months of expenses.

Beyond that, cash idling in a savings account becomes wasteful because it loses purchasing power to inflation over time. Instead, cash not tied up in an emergency or spending account should be placed in something that will help it maintain its value or grow, such as investments.

Investing involves purchasing assets, usually stocks and bonds, to earn a return on the money invested. Investing aims to increase an individual's wealth beyond the amount they invested. Investing does come with risks, as not all assets appreciate and can incur a loss.

Investing can be difficult for those unfamiliar with it—it helps to dedicate some time to gain an understanding through readings and studying. If you don't have time, you might benefit from hiring a professional to help you invest your money.

Protection refers to the methods people take to protect themselves from unexpected events, such as illnesses or accidents, and as a means to preserve wealth. Protection includes life and health insurance and estate and retirement planning.

Several financial planning services fall under one or more of the five areas. You're likely to find many businesses that provide these services to clients to help them plan and manage their finances. These services include:

• Wealth Management
• Loans and Debt
• Risk Management
• Estate Planning
• Investments
• Credit Cards
• Home and Mortgage

The sooner you start financial planning , the better, but it’s never too late to create financial goals to give yourself and your family financial security and freedom. Here are the best practices and tips for personal finance.

The 2022 Investopedia Financial Literacy Survey surveyed 4,000 adults and found that most Americans are concerned about personal finance basics, retirement funding, and investing in crypto.

1. Know Your income

It's all for nothing if you don't know how much you bring home after taxes and withholding. So before deciding anything, ensure you know exactly how much take-home pay you receive.

2. Devise a Budget

A budget is essential to living within your means and saving enough to meet your long-term goals. The 50/30/20 budgeting method offers a great framework. It breaks down like this:

• Fifty percent of your take-home pay or net income (after taxes) goes toward living essentials, such as rent, utilities , groceries, and transport.
• Thirty percent is allocated to discretionary expenses, such as dining out and shopping for clothes. Giving to charity can go here as well.
• Twenty percent goes toward the future—paying down debt and saving for retirement and emergencies.

It’s never been easier to manage money, thanks to a growing number of smartphone personal budgeting apps that put day-to-day finances in the palm of your hand. Here are just two examples:

• YNAB (an acronym for You Need a Budget) helps you track and adjust your spending to control every dollar you spend.
• Mint streamlines cash flow, budgets, credit cards, bills, and investment tracking from one place. It automatically updates and categorizes your financial data as information comes in, so you always know where you stand financially. The app will even dish out custom tips and advice.

3. Pay Yourself First

It’s important to “pay yourself first” to ensure money is set aside for unexpected expenses, such as medical bills, a significant car repair, day-to-day expenses if you get laid off, and more. The ideal safety net is three to 12 months of living expenses.

Financial experts generally recommend putting away 20% of each paycheck every month. Once you’ve filled up your emergency fund , don’t stop. Continue funneling the monthly 20% toward other financial goals, such as a retirement fund or a down payment on a home .

4. Limit and Reduce Debt

It sounds simple enough: Don't spend more than you earn to keep debt from getting out of hand. But, of course, most people have to borrow from time to time, and sometimes going into debt can be advantageous—for example, if it leads to acquiring an asset . Taking out a mortgage to buy a house might be one such case. Still, leasing sometimes can be more economical than buying outright, whether renting a property, leasing a car, or even getting a subscription to computer software.

On the other hand, minimizing repayments (to interest only, for instance) can free up income to invest elsewhere or put into retirement savings while you’re young when your nest egg gets the maximum benefit from compounding interest . Some private and federal student loans are even eligible for a rate reduction if the borrower enrolls in auto pay.

Student loans account for $1.59 trillion of consumer debt—if you have an outstanding student loan, you should prioritize it. There are myriad loan repayment plans and payment reduction strategies available. If you’re stuck with a high interest rate, paying off the principal faster can make sense.

Flexible federal repayment programs worth checking out include:

• Graduated repayment—progressively increases the monthly payment over 10 years
• Extended repayment—stretches out the loan over a period that can be as long as 25 years
• Income-driven repayment—limits payments to 10% to 15% of your income (based on your income and family size)

5. Only Borrow What You Can Repay

Credit cards can be major debt traps, but it’s unrealistic not to own any in the contemporary world. Furthermore, they have applications beyond buying things. They are crucial to establishing your credit rating and a great way to track spending, which can be a considerable budgeting aid.

Credit needs to be managed correctly , meaning you should pay off your entire balance every month or keep your credit utilization ratio at a minimum (that is, keep your account balances below 30% of your total available credit).

Given the extraordinary reward and incentives offered these days (such as cashback), it makes sense to charge as many purchases as possible—if you can pay your bills in full.

Avoid maxing out credit cards at all costs, and always pay bills on time. One of the fastest ways to ruin your credit score is to constantly pay bills late—or even worse, miss payments.

Using a debit card , which takes money directly from your bank account, is another way to ensure that you will not be paying for accumulated small purchases over an extended period with interest.

6. Monitor Your Credit Score

Credit cards are the primary vehicle through which your credit score is built and maintained, so watching credit spending goes hand in hand with monitoring your credit score. If you ever want to obtain a lease, mortgage, or any other type of financing, then you’ll need a solid credit report . There are a variety of credit scores available, but the most popular one is the FICO score .

Factors that determine your FICO score include:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• Credit mix (10%)
• New credit (10%)

FICO scores are calculated from 300 to 850. Here’s how your credit is rated:

• Exceptional: 800 to 850
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 579 and below

To pay bills, set up direct debiting where possible (so you never miss a payment) and subscribe to reporting agencies that provide regular credit score updates. In addition, you can detect and address mistakes or fraudulent activity by monitoring your credit report. Federal law allows you to obtain free credit reports once a year from the “Big Three” major credit bureaus : Equifax, Experian, and TransUnion.

Reports can be obtained directly from each agency, or you can sign up at AnnualCreditReport.com, a federally authorized site sponsored by the Big Three.

Some credit card providers, such as Capital One, will provide customers with complimentary, regular credit score updates, but it may not be your FICO score. Instead, Capital One's CreditWise program offers your VantageScore .

Due to the COVID-19 pandemic, the three major credit bureaus are providing free credit reports weekly. The program was extended twice in 2022 and it is now permanent.

7. Plan for Your Future

To protect the assets in your estate and ensure that your wishes are followed when you die, be sure you make a will and—depending on your needs—possibly set up one or more trusts . You also should look into insurance and find ways to reduce your premiums, if possible: auto , home , life , disability , and long-term care (LTC) . Periodically review your policy to ensure it meets your family’s needs through life’s major milestones.

Other critical documents include a living will and a healthcare power of attorney . While not all of these documents directly affect you, all of them can save your next of kin considerable time and expense when you fall ill or become otherwise incapacitated.

Retirement may seem like a lifetime away, but it arrives much sooner than expected. Experts suggest that most people will need about 80% of their current salary in retirement. The younger you start, the more you benefit from what advisors call the magic of compounding interest—how small amounts grow over time.

Setting aside money now for your retirement not only allows it to grow over the long term but also can reduce your current income taxes if funds are placed in a tax-advantaged plan, such as an individual retirement account (IRA) , a 401(k) , or a 403(b) .

While your children are young, take the time to teach them about the value of money and how to save, invest, and spend wisely.

If your employer offers a 401(k) or 403(b) plan , start paying into it immediately, especially if your employer matches your contribution. By not doing so, you’re giving up free money. Take time to learn the difference between a Roth 401(k) and a traditional 401(k) if your company offers both.

Investing is only one part of planning for retirement. Other strategies include waiting as long as possible before opting to receive Social Security benefits (which is smart for most people) and converting a term life insurance policy to permanent life .

8. Buy Insurance

As you age, it's natural for you to accumulate many of the same things your parents did—a family, home or apartment, belongings, and health issues. Insurance can be expensive if you wait too long to get it. Health care, long-term care insurance, life insurance; it all increases in cost the older you get. Additionally, you never know what life will send your way. If you're the sole breadwinner for the family, or you and your partner both work to make ends meet, a lot depends on your ability to work.

Insurance can cover most of the hospital bills as you age, leaving your hard-earned savings in your family's hands; medical expenses are one of the leading reasons for debt. If something happens to you, life insurance can give those you leave behind a buffer zone to deal with the loss and get back on their feet financially.

9. Maximize Tax Breaks

Due to an overly complex tax code , many people leave hundreds or even thousands of dollars sitting on the table every year. By maximizing your tax savings, you’ll free up money that can be invested in your reduction of past debts, enjoyment of the present, and plans for the future.

You should start saving receipts and tracking expenditures for all possible tax deductions and tax credits . Many office supply stores sell helpful “tax organizers” that have the main categories already labeled.

After you’re organized, you’ll want to focus on taking advantage of every tax deduction and credit available, as well as deciding between the two when necessary. In short, a tax deduction reduces the amount of income on which you are taxed, whereas a tax credit reduces the amount of tax that you owe. This means that a $1,000 tax credit will save you much more than a $1,000 deduction.

10. Give Yourself a Break

Budgeting and planning can seem full of deprivations. Make sure you reward yourself now and then. Whether it’s a vacation, a purchase, or an occasional night on the town, you need to enjoy the fruits of your labor. Doing so gives you a taste of the financial independence you’re working so hard for.

Last but not least, don’t forget to delegate when needed. Even though you might be competent enough to do your own taxes or manage a portfolio of individual stocks, it doesn’t mean you should. Setting up an account at a brokerage and spending a few hundred dollars on a certified public accountant (CPA) or a financial planner —at least once—might be a good way to jump-start your planning.

The key to getting your finances on the right track is using skills you likely already have. It’s also about understanding that the principles that contribute to success in business and your career work just as well in personal money management. Three key skills are finance prioritization, assessing the costs and benefits, and restraining your spending.

• Finance Prioritization : This means that you can look at your finances, discern what keeps the money flowing in, and make sure that you stay focused on those efforts.
• Assessing the Costs and Benefits : This key skill keeps professionals from spreading themselves too thin. Ambitious individuals always have a list of ideas about other ways that they can hit it big, whether it is a side business or an investment idea. While there is a place and time for taking a flier, running your finances like a business means stepping back and honestly assessing the potential costs and benefits of any new venture.
• Restraining Your Spending : This is the final big-picture skill of successful business management that must be applied to personal finances. Time and again, financial planners sit down with successful people who still manage to spend more than they make. Earning $250,000 a year won’t do you much good if you spend $275,000 annually. Learning to restrain spending on non-wealth-building assets until after you’ve met your monthly savings or debt reduction goals is crucial in building net worth .

Personal money management isn't one of the most popular topics in educational systems. Many college degrees require some financial education, but it isn't geared toward individuals, which means that most of us will need to get our personal finance education from our parents (if we’re lucky) or learn it ourselves.

Fortunately, you don’t have to spend much money to find out how to manage it better. You can learn everything you need to know for free online and in library books. Almost all media publications regularly dole out personal finance advice, too.

Online Blogs

Reading personal finance blogs is a great way to start learning about personal finance. Instead of the general advice you’ll get in personal finance articles, you’ll learn exactly which challenges real people face and how they address them.

Mr. Money Mustache has hundreds of posts full of insights on escaping the rat race and retiring early by making unconventional lifestyle choices. CentSai helps you navigate myriad financial decisions via first-person accounts. Million Mile Secrets and The Points Guy each teach you how to travel for a fraction of the retail price using credit card rewards. These sites often link to other blogs, so you’ll discover more sites as you read.

Of course, we can’t help tooting our own horn in this category. Investopedia offers a wealth of free personal finance education. You might start with our special sections on budgeting , buying a home , and planning for retirement —or the thousands of other articles in our personal finance section.

At the Library

You may need to visit your library in person to get a library card if you don’t already have one, but after that, you can check out personal finance audiobooks and e-books online without leaving home. Some of the following best sellers may be available from your local library: I Will Teach You to Be Rich , The Millionaire Next Door, Your Money or Your Life , and Rich Dad Poor Dad . Personal finance classics such as Personal Finance for Dummies , The Total Money Makeover , The Little Book of Common Sense Investing , and Think and Grow Rich are also available as audiobooks.

Free Online Classes

If you enjoy the structure of lessons and quizzes, try one of these free digital personal finance courses:

• Morningstar Investing Classroom offers a place for beginning and experienced investors alike to learn about stocks, funds, bonds, and portfolios. Some of the courses you’ll find include “Stocks Versus Other Investments,” “Methods for Investing in Mutual Funds,” “Determining Your Asset Mix,” and “Introduction to Government Bonds.” Each course takes about 10 minutes and is followed by a quiz to help you make sure that you understood the lesson.
• EdX is an online learning platform created by Harvard University and the Massachusetts Institute of Technology. It offers at least three courses that cover personal finance: 'Personal Finance, Part 1: Investing in Yourself" from Wellesley College, “Personal Finance” from Purdue University, and “Finance for Everyone: Smart Tools for Decision-Making” from the University of Michigan. These courses will teach you how credit works, which types of insurance you might want to carry, how to maximize your retirement savings, how to read your credit report, and what the time value of money is.
• “Planning for a Secure Retirement” is an online course from Purdue University. It’s broken up into 10 main modules, and each has four to six sub-modules on topics such as Social Security, 401(k) and 403(b) plans, and IRAs. You’ll learn about your risk tolerance , think about what kind of retirement lifestyle you want, and estimate your retirement expenses.

Personal finance podcasts are a great way to learn how to manage your money if you’re short on free time. While you’re getting ready in the morning, exercising, driving to work, running errands, or preparing for bed, you can listen to expert advice on becoming more financially secure. In addition to “The Investopedia Express with Caleb Silver,” you may find these valuable:

• Freakonomics Radio and NPR’s Planet Money both make economics enjoyable by using it to explain real-world phenomena such as “how we got from mealy, nasty apples to apples that actually taste delicious,” the Wells Fargo fake-accounts scandal, and whether we should still be using cash.
• American Public Media’s Marketplace helps make sense of what’s happening in the business world and the economy.
• So Money with Farnoosh Torabi combines interviews with successful business people, expert advice, and listeners’ personal finance questions.

The most important thing is to find resources that work for your learning style and that you find interesting and engaging. If one blog, book, course, or podcast is dull or difficult to understand, keep trying until you find something that clicks.

Education shouldn’t stop once you learn the basics. The economy changes, and new financial tools like the budgeting apps mentioned earlier are always being developed. Find resources you enjoy and trust, and keep refining your money skills through retirement and beyond.

What Personal Finance Classes Can’t Teach You

Personal finance education is a great idea for consumers, especially people starting out who want to learn investing basics or about credit management; however, understanding the basic concepts is not a guaranteed path to financial sense. Human nature can often derail the best intentions to achieve a perfect credit score or build a substantial retirement nest egg. These three key character traits can help you stay on track:

One of the most important tenets of personal finance is systematic saving. For example, say your net earnings are $60,000 per year, and your monthly living expenses—housing, food, transportation, and the like—amount to $3,200 per month.

There are choices to make surrounding your remaining $1,800 in monthly salary. Ideally, the first step is to establish an emergency fund or perhaps a tax-advantaged health savings account (HSA) .

To be eligible for a health savings account, your health insurance must be a high-deductible health plan (HDHP) .

Establishing an emergency fund takes financial discipline—without it, giving in to the temptation to spend rather than save can have dire consequences. In the event of an emergency, you may not have the money to pay the expenses—leading you to finance them through debt.

Once you have your emergency stash, you'll need to develop investing discipline—it’s not just for institutional money managers who make their living buying and selling stocks. Average retail investors tend to do better by setting an investment target and abiding by it rather than buying and selling stocks trying to time the market.

A Sense of Timing

Timing can be crucial. For instance, imagine you're three years out of college, have established your emergency fund, and want to reward yourself. A Jet Ski costs $3,000, but you want to start investing also. "Investing in growth stocks can wait another year," you say. "I have plenty of time to launch an investment portfolio."

However, putting off investing for one year can have significant consequences. The opportunity cost of buying a personal watercraft can be illustrated through the time value of money.

The $3,000 used to buy the Jet Ski would have amounted to nearly $49,000 in 40 years at 7% interest, a reasonable average annual return for a growth mutual fund over the long haul. Thus, delaying the decision to invest wisely may likewise delay the ability to reach your goal of retiring at age 65.

Doing tomorrow what you could do today also extends to debt payment. If you were to put the Jet Ski on your credit card, the $3,000 credit card balance would take 222 months (18.5 years) to pay off if you only made minimum payments of $75 each month. And don’t forget the interest you’re paying: at an 18% annual percentage rate (APR) , it comes to $3,923 over those months. So, if you were to plunk down the $3,000 to pay the balance rather than let it compound, you'd see substantial savings—nearly $1,000.

Emotional Detachment

Personal finance matters are business, and business should not be personal. A difficult but necessary facet of sound financial decision-making involves removing emotions from a transaction.

Making impulsive purchases feels good but can significantly impact long-term investment goals. So can making unwise loans to family members. Your cousin Fred, who has already burned your brother and sister, will likely not pay you back, either. The smart thing to do is decline his requests for help—you're trying to make ends meet also.

The key to prudent personal financial management is to separate feelings from reason. However, when loved ones are experiencing real trouble, it pays to help if you can—just try not to take it out of your investments and retirement.

Many people have loved ones who always seem to need financial help—it is difficult to refuse to help them. If you include planning to assist them in real emergencies using your emergency fund, it can make the burden easier.

The personal finance realm may have more guidelines and tips to follow than any other. Although these rules are good to know, everyone has their own circumstances. Here are some rules prudent people, especially young adults, are never supposed to break—but can break if necessary.

Saving or Investing a Set Portion of Your Income

An ideal budget includes saving a portion of your paycheck every month for retirement—usually around 10% to 20%. However, while being fiscally responsible is important and thinking about your future is crucial, the general rule of saving a given amount for retirement may not always be the best choice, especially for young people just getting started.

For one thing, many young adults and students need to consider paying for their biggest expenses, such as a new car, home, or postsecondary education. Taking away 10% to 20% of available funds would be a definite setback in making those purchases.

Additionally, saving for retirement doesn’t make much sense if you have credit cards or interest-bearing loans to pay off. The 19% interest rate on your Visa card probably would negate the returns you get from your balanced mutual fund retirement portfolio five times over.

Finally, saving money to travel and experience new places and cultures can be especially rewarding for a young person who’s still unsure about their life path.

Long-term Investing/Investing in Riskier Assets

The rule of thumb for young investors is that they should have a long-term outlook and stick to a buy-and-hold philosophy. This rule is one of the easier ones to justify breaking. Adapting to changing markets can be the difference between making money or limiting your losses and sitting idly by and watching your hard-earned savings shrink. Short-term investing has its advantages at any age.

Common investing logic suggests that because young investors have such a long investment time horizon, they should be investing in higher-risk ventures; after all, they have the rest of their lives to recover from any losses that they may suffer; however, you don’t have to take on undue risk in your short- to medium-term investments if you don’t want to.

The idea of diversification is an important part of creating a strong investment portfolio; this includes both the riskiness of individual stocks and their intended investment horizon .

At the other end of the age spectrum, investors near and at retirement are encouraged to cut back to the safest investments—even though these may yield less than inflation —to preserve capital . Taking fewer risks is important as the number of years you have to earn money and recover from bad financial times dwindles, but at age 60 or 65, you could have 20, 30, or even more years to go. Some growth investments could still make sense for you .

Personal finance is the knowledge, instruments, and techniques used to manage your finances. When you understand the principles and concepts behind personal finance, you can manage debt, savings, living expenses, and retirement savings.

What Are the 5 Main Components of Personal Finance?

The five main components are income, spending, savings, investing, and protection.

What Is an Example of Personal Finance?

One of the key ideas behind personal finance is not to spend more than you make. For instance, if you make $50,000 a year but spend $65,000, you'll end up with debt that continues to compound because you'll be spending more than you make to pay for past expenses.

Why Is Personal Finance So Important?

The concepts behind managing your personal finances can guide you in making intelligent financial decisions. In addition, the decisions you make throughout your life on what to buy, sell, hold, or own can affect how you live when you can no longer work.

Personal finance is managing your money to cover expenses and save for the future. It is a topic that covers a broad array of areas, including managing expenses and debt, how to save and invest, and how to plan for retirement. In addition, it can include ways to protect yourself with insurance, build wealth , and ensure wealth is passed on to the people you want it to pass to.

Understanding how to manage your finances is an important life-planning tool that can help set you up for a life without debt; you gain control of financial stresses and have a way to manage the expensive surprises that life can throw at you.

Federal Reserve Bank of New York. " Quarterly Report on Household Debt and Credit; 2023: Q4 (Released February 2024) ." Summary Page.

YNAB. “ Gain Total Control of Your Money .”

Intuit Mint. " What is Mint, And How Does It Work? "

Discover. " Private Student Loans: Automatic Payments & Auto Debit Reward Terms and Conditions ."

Federal Student Aid. " Repaying Student Loans 101 ."

Federal Student Aid. " Repayment Plans ."

myFICO. " What Should My Credit Utilization Ratio Be? "

myFICO. “ What’s the Difference Between FICO Scores and Non-FICO Credit Scores? ”

myFICO. " What's In My FICO Scores? "

myFICO. " What is a FICO Score? "

Federal Trade Commission. “ Understanding Your Credit .”

Capital One. " CreditWise: Get Your Free Credit Report ."

Federal Trade Commission. " You Now Have Permanent Access to Free Weekly Credit Reports ."

Fidelity. " How Much Will You Spend in Retirement? "

Consumer Financial Protection Bureau. " Medical Debt Burden in the United States ."

Internal Revenue Service. " Credits and Deductions for Individuals ."

Mr. Money Mustache. “ Mr. Money Mustache: Financial Freedom Through Badassity .”

CentSai. “ Take the Fear Out of Finance .”

Million Mile Secrets. “ Beginner’s Guide to Credit Cards, Miles, and Points .”

The Points Guy. “ TPG Beginner’s Guide: Everything You Need to Know About Points, Miles, Airlines, and Credit Cards .”

Morningstar. “ Morningstar Investing Classroom .”

EdX. " About EdX ."

EdX. " Catalog ."

Purdue University, College of Agriculture. “ Planning for a Secure Retirement .”

Freakonomics. “ Freakonomics Radio .”

NPR. “ Planet Money: The Economy Explained .”

Apple Podcasts. “ Marketplace: American Public Media .”

So Money Podcast — Farnoosh. “ So Money with Farnoosh Torabi: Candid Conversations for a Richer, Happier Life .”

Internal Revenue Service. " Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans ." Pages 3-4.

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The Personal Finance Research Centre is an independent research centre that specialises in social research across all areas of personal finance, mainly from the consumer's perspective. Much of our work focuses on the following areas:

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Beyond individual responsibility – towards a relational understanding of financial resilience through participatory research and design

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People, places, and problem debt: understanding personal borrowing and personal contexts for young adults from 2006 to 2018 in england, wales, and scotland.

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Original research

Systematic review of personal finance training for physicians and a proposed curriculum, joel akachukwu igu.

1 Carey Business School, Johns Hopkins University, Baltimore, Maryland, USA

Sammy Zakaria

2 School of Medicine, Johns Hopkins University, Baltimore, Maryland, USA

Yuval D Bar-Or

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bmjopen-2022-064733supp001.pdf

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All data relevant to the study are included in the article or uploaded as online supplemental information.

Many physicians complete medical school and graduate medical education (GME) burdened by high debt and financial illiteracy. This places them at increased risk for ill-informed financial decisions, which can result in increased stress and anxiety and a lower quality of life. Furthermore, financial concerns impact physicians’ specialty selections and may partly explain the scarcity of primary care practitioners. In response, medical wellness programmes have increasingly sought to offer personal finance education, but there is little guidance on optimal curricula. Our objective is to systematically review the existing literature examining physician financial literacy curricula and to recommend a standardised personal finance curriculum.

This review used the Preferred Reporting Items for Systematic Reviews and Meta-Analyses 2020 checklist to report the results of literature searches in PubMed, ERIC, MedEdPortal, EBSCO, JSTOR and Google Scholar. Three researchers used predetermined inclusion and exclusion criteria to select articles, including a focus on financial concepts applicable in the USA. Selected articles published between 2000 and 2022 were assessed using the BEME strength of findings tool, and further assessed using modified Côté-Turgeon and Kirkpatrick model qualitative analyses tools.

49 articles met all inclusion criteria. Ten specifically described personal finance literacy curricula for medical students or GME trainees, with varied criteria for selecting instructors, topics and outcomes. All studies reported that audiences were ill prepared for making financial decisions but strongly desired financial literacy education. Qualitative analysis revealed Strength of Findings summary scores ranging from 2 to 4, while applicable Kirkpatrick Model scores were all 3 or greater. Based on these findings, a 14-module personal finance curriculum is proposed by the researchers, along with learning objectives.

Interpretation

Although medical students and GME trainees value financial literacy, few publications report the impact of actual curricula. These efforts vary in depth, breadth and measured impact. Future research should focus on development of valid testing instruments specifically for physicians, content standardisation, selection of credible instructors and delivery formats.

STRENGTHS AND LIMITATIONS OF THIS STUDY

• This systematic review is the first study that comprehensively assesses the literature on personal finance literacy.
• This article uses three key frameworks to assess all relevant articles in an effort to ensure objectivity and reduce bias.
• Few studies report on physician personal finance literacy curricula.
• Most studies are based on small sample sizes and many of the surveys have not been validated.
• Assessed articles are limited to publications in English that address physicians and medical students in the USA.

Introduction

A lack of personal finance literacy makes financial decision-making difficult among medical trainees and practitioners. 1–14 As a result, medical students, trainees and early career physicians may not make optimal choices regarding budgeting, saving, investing, insurance and other financial decisions, which are particularly important during a time when finances are especially constrained by high debt. 4–7 10–13 15–22 Therefore, these groups can experience increased stress and anxiety and a lower quality of life. 10 14 18 20 21 23–25 Furthermore, financial stress and medical student loans may influence medical student subspecialty choice and exacerbate subspecialty disparities among new residents. 26 Accordingly, the UME and graduate medical education (GME) communities have recommended financial literacy training to reduce debt-related anxiety, 10 27 28 decrease burnout, 10 11 14 29–31 and improve physician wellness. 10 12 14 32 33 In addition, medical students and trainees recognise the lack of personal finance knowledge and want a greater emphasis on the development of financial skills during their training. 1 9 10 18 24 34–36

However, UME and GME institutions are not mandated by accrediting organisations (such as the Accreditation Council for GME or the Liaison Committee on Medical Education) to provide personal finance literacy training. 9 12 37 Few programmes offer structured courses in personal finance because some institutions have not accepted that the content is necessary. In addition, there is a lack of standardised curricula, qualified unbiased instructors and time and resources for teaching sessions. 10 25 32 35 Because of these limitations, many institutions invited or allowed credentialled financial industry professionals, such as financial advisors, brokers and insurance agents, to lead finance education trainings on campus. 25 38 Since many of these invitees also sell financial products and services to participants, 14 23 32 38 39 many medical students and trainees distrust these educational attempts. 14 32 38 39 In contrast, trainees prefer expert and unbiased sources to address their unmet financial training needs, resulting in a recent rise in the number of peer-reviewed publications addressing objective and impactful personal finance literacy.

This article systematically reviews the published literature examining physician financial literacy curricula and proposes a personal finance curriculum that can be adopted or modified to address the personal finance needs of medical trainees and practitioners. Both the proposed curriculum and the systematic review focus on studies that detail the needs of trainees, the execution of a personal finance curriculum and the impact of these curricula.

We used the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) 2020 Checklist to guide the reporting of this qualitative systematic review, which assessed and collected all the literature on physician personal financial literacy programmes for medical students or physician trainees in the USA. All articles meeting our inclusion criteria were subjected to qualitative analysis, and the subset of articles that reported the implementation of financial literacy curricula were analysed further using a BEME-guided Strength of Findings approach, 40 41 a modified Côté-Turgeon tool, 42 and the Kirkpatrick Model for curricular assessment. 43

PRISMA guided publication selection

We identified all published literature on personal financial literacy training programmes for physicians and trainees in the USA from 2000 to 2022. We generated a list of keywords associated with medical students, trainees, medical personnel, financial literacy and education ( online supplemental table A1 ). Our detailed search strategy is outlined in the accompanying online supplemental file 2 titled ‘Search Strategy.’ Search terms included: “curriculum,” “debt,” “doctor,” “financial decision,” “financial literacy,” “financial management,” “financial planning,” “undergraduate medical education”, “graduate medical education,” “medical personnel,” “medical staff,” “personal finance,” and “physician,” We applied available Medical Subject Headings terms corresponding to these search terms, and initiated article searches using Boolean operators. We searched multiple databases including PubMed, ERIC, MedEdPortal, EBSCO, JSTOR, EMBASE and Cochrane Central. For all articles, we found using the above search strategy, we used a snowball approach to identify more relevant articles in each article’s reference section by reviewing every reference in each article for additional articles that fit our inclusion criteria, until saturation was achieved. This search spanned all UME and GME training programmes with available publications.

Supplementary data

All included article information was compiled in a Microsoft Excel (Microsoft Corporation, Redmond, Washington, USA) spreadsheet. Article acquisition was performed by all three coauthors with the help of an informationist, and full text analysis was performed independently by all authors.

Inclusion and exclusion criteria

The included articles satisfied the following requirements:

• English language articles.
• Published between 1 January 2000 and 8 March 2022.
• Described curriculum or curricula.
• Targeted UME or GME participants.

Since the included articles used a variety of words to describe financial literacy topics, we categorised them using more general terms. For example, ‘financial planning’ referred to general financial literacy content; ‘retirement accounts’ was included in the ‘retirement planning’ topic; ‘education debt,’ ‘credit cards,’ ‘home purchase,’ and ‘home mortgages’ were all categorised into the ‘debt’ topic; and ‘salary and benefits’ was included in ‘contract negotiation.’

Articles that were excluded did not fit our inclusion criteria or displayed the following characteristics:

• Articles authored by financial industry professionals, such as financial advisors, insurance agents, brokers or financial consultants, all of whom could have an inherent financial interest in encouraging the sale of financial instruments and thus harbour potential conflicts of interest.
• Articles whose authors appear to receive significant compensation from the financial services industry, which we determined through review of author disclosures and personal websites.
• Articles that addressed retired physicians.
• Articles that focused primarily on debt, a topic which has been well discussed in other articles. 17 20 44–53

BEME findings, Modified Côté-Turgeon Tool and Kirkpatrick Model

Descriptive statistics were employed for all included articles. Studies that implemented financial literacy curricula were assessed qualitatively using a BEME-guided Strength of Findings approach per BEME Guides 10 and 13 40 41 and graded from 1 to 5, with 1 indicating the lowest score with the least significant findings and 5 indicating the highest score with the most significant findings. 40 The subset of articles that covered personal finance literacy curricula were further assessed using the Kirkpatrick Model, which examined the reactions, learning, behaviour and results for each curriculum 43 ; and a modified Côté-Turgeon tool, which critically assessed multiple characteristics for each qualitative medical education article using 12 items on an evaluative grid. 42

The Kirkpatrick Model assessed each of four levels of curriculum impact (reaction, learning, behaviour and results) on a 1–5 point scale, with 1 representing the least favourable outcome and 5 indicating the most favourable impact: level 1 reaction—measured participant reaction to personal finance training (eg, satisfaction). Level 2 learning—measured participant understanding of personal finance training (eg, change in attitude, increase in knowledge or skills). Level 3 behaviour—measured whether participants used what they learnt (eg, change in behaviours). Level 4 results—measured whether the personal finance training material had a positive impact on participants’ work and personal environments/organisations, for example, a hospital, private practice or household.

Modifications to the Côté-Turgeon tool involved splitting item 7, ‘Data analysis is credible,’ into three fields: triangulation, referring to whether researchers used multiple methods or data sources to support findings 54 ; internal validity and external validity. Additional fields assessed the depth and breadth of curricula. Breadth considered the number of financial literacy topics covered while depth reflected the total time allocated for the number of addressed topics.

All 12 items and three subdivisions of item 7 in the modified Côté-Turgeon tool were independently ranked by each author on a scale of 1–5, with one being ‘poor,’ three being ‘neutral,’ and five being ‘excellent.’ Strength of Findings scores were determined, with grade 1 indicating non-significant findings and grade 5 signifying unequivocal results. For all assessment scores, inter-rater reliability was maintained by standardising tool assessments prior to use. Reconciliation was performed if authors deviated by more than one point on any rating by discussions and score revisions. For each criterion, scores were averaged following reconciliation. Of note, one of the papers was authored by two of the authors (YDB-O and SZ). 38 This study was reviewed last, to help the authors anchor scores based on similar criteria as the other studies. To avoid conformity bias, the independent author (JI) provided rankings results first for all papers assessed.

Patient and public involvement

Not applicable. No patients and no members of the public were involved in the study.

As shown in figure 1 , the initial search yielded 207 publications and of these, 158 were excluded. Articles were excluded because they focused on private practice management or business finance, 49 had a primary focus on student debt, 17 focused on nurses, pharmacists, chiropractors or non-US physicians, 30 were authored or coauthored by financial advisors, bankers or others with potential conflicts of interest, 12 primarily addressed moonlighting, 8 referred only tangentially to finance but focused on medical curricula, 8 were only abstracts or posters, 4 or addressed the needs of retired physicians. 2 The remaining 49 articles included 10 peer-reviewed reports of financial literacy curricula ( table 1 ), 21 reports of cross-sectional surveys and 18 opinion pieces ( online supplemental table A2 ).

Characteristics and qualitative assessments of studies offering curricula

GME, graduate medical education.

PRISMA protocol literature search results. PRISMA, Preferred Reporting Items for Systematic Reviews and Meta-Analyses.

Grading key

Strength of Findings determined per BEME guides 10 and 13. 40 41

Grade 1: No clear conclusions can be drawn. Not significant.

Grade 2: Results ambiguous, but there appears to be a trend.

Grade 3: Conclusions can probably be based on the results.

Grade 4: Results are clear and very likely to be true.

Grade 5: Results are unequivocal.

Kirkpatrick Model categories were assessed on a 1–5 point scale, with 1 representing the least favourable outcome and five the most favourable impact. Dash indicates inability to assess.

Level 1 reaction: participant reaction to the training (eg, satisfaction).

Level 2 learning: participant understanding of the training (eg, change in attitude, increase in knowledge or skills).

Level 3 behaviour: participant utilisation of learning (eg, change in behaviours)

Level 4 results: impact on participants’ work and personal environments/organisations, for example, a hospital, private practice or household.

Most of the 49 included articles focused on GME trainees in a variety of specialty areas, although some addressed UME needs. All 49 articles (100%) reported that participants were ill prepared to make financial decisions and 42 articles (86%) recommended that UME or GME institutions provide financial literacy education for their medical students and trainees.

As shown in table 2 , each of these articles addressed general financial planning principles and/or a variable number of finance topics, such as debt/liabilities, savings/assets, investing, budgeting, money basics (eg, time-value of money, discounting and compounding), contract negotiation, selecting and interacting with financial advisors, children’s college savings plans, insurance (life, disability, property and casualty), retirement planning, estate planning and taxes. The number of topics discussed in each article varied, with two articles addressing only general financial planning, 35 39 while seven covered 10 or more topics. 9 10 22 25 38 55 56 The most covered topic was debt (90%), followed by retirement planning (78%), budgeting (67%) and investing (65%). Children’s college planning (10%), money basics (16%), contract negotiation (18%) and estate planning (18%) were the least popular.

Financial literacy topics included in prior curricula or in prior surveys/commentaries

Ten studies discussed financial literacy curricula. Table 1 summarises the study characteristics, key findings, BEME Strength of Findings and Kirkpatrick Model scores. For the Strength of Findings summary scores, two articles were graded a 2, 57 58 three articles received a 3 2 11 32 and the remaining five articles received a 4. 10 13 30 33 38 online supplemental table A3 lists the reconciled scores for each criterion of the modified Côté-Turgeon assessment tool as well as the total score for each study. Bar-Or 38 and Ng 33 tied for the top score. The number of conflicts requiring reconciliation varied: Dhaliwal: 1 conflict 30 ; Boehnke, Walsh and Ng: 2 conflicts each 2 11 33 ; Bar-Or: 3 conflicts 38 ; Shappell 4: conflicts 13 ; Mizell: 5 conflicts 32 ; Liebzeit: 7 conflicts 57 ; Grewal: 7 conflicts 10 and Meleca: 10 conflicts. 58 In general, individual scores ranged from 2 to 5, and were higher for components assessing research question definition, study objectives and participant selection. Most studies had lower scores for components assessing validity and generalisability.

We were unable to assign criterion 14, ‘Depth of curriculum,’ scores to the two online curricula papers 10 13 as we could not quantify the amount of time spent by participants on each curriculum component. Criterion 9, ‘The quotations make it easier to understand the results,’ disadvantaged the four papers which did not include participant quotes. 11 13 33 58 If we ignore these two criteria, Ng 2022 33 is the highest scoring paper. Exclusion of our breadth and depth measures also results in Ng 2022 33 scoring highest.

For the Kirkpatrick Model grades, all applicable scores were 3 or greater, with all studies reporting favourable participant reactions to personal finance literacy education (Reaction). 2 10 11 13 30 32 33 38 57 58 Most studies also reported increased knowledge (Learning), 2 10 11 13 32 57 58 with two studies demonstrating increased retention of knowledge in the following months. 2 58 One of these studies found that self-assessed learning overestimated actual learning as assessed by objective quiz results. 32 Finally, two studies showed an increased utilisation of knowledge (Behaviour). 13 30 33 38 However, no study revealed the impact of the curricula on participant organisations, employers or households (Results).

The 10 curricula studies covered multiple topics, with 1 study particularly focused on retirement plans. 30 Curriculum content selection varied across the studies. For example, one study identified topics through review of the general academic literature supplemented with topics specific to GME trainees. 2 In another study, an expert financial literacy educator collated a topic list, which was then modified based on participant feedback. 38 Four studies appeared to rely on author consensus to determine content. 10 11 13 30 One indicated that ‘non-commercial curricular content’ was developed with the expertise of an institutional financial advisor. 33 The remaining three studies heavily relied on participant input. 32 57 58 One of these studies found that holding sessions during protected time slots helped to increase attendance. 32

Instructor selection also varied. Four studies used faculty members with a personal interest in finance but with unclear levels of expertise. 2 11 30 57 One of those studies was led by the medical school’s associate director of financial aid and scholarships. 57 Two used business professors. 10 38 One of those was an academician with specific expertise in the field of physician personal finance. 38 Another involved ‘content experts with graduate-level expertise in their fields.’ 10 One study involved a physician who owns a personal finance website and funding from the Council of Residency Directors in Emergency Medicine. 13 The three remaining studies used a combination of faculty and credentialed financial-services professionals. 32 33 58

Two of the 10 studies were primarily offered asynchronously online. 10 13 The others were all primarily delivered in-person.

Despite the importance attributed to personal finance literacy training by medical students and GME trainees, we found only 10 publications describing actual curricula. All 10 curricula were highly regarded by attendees, and most studies reported increased financial knowledge and beneficial effects on financial decision-making or well-being. While only four of the 10 studies assessed postintervention financial decision-making, there were tangible effects on retirement account choices and subjective improvements in financial decision-making. However, none of the 10 studies assessed unequivocal and lasting long-term impacts. Also, most studies had issues with validation and generalisability, differences in instructor selection and variations in curriculum selection, all of which are discussed in more detail below. Finally, there may have been conflicts of interest, including in our inclusion/exclusion criteria, as well as within the papers themselves, particularly in selecting instructors.

Validation and generalisability

To our knowledge, none of the studies used truly validated preintervention or postintervention surveys and knowledge tests, although one study partially addressed validation. 13 Due to lack of validation, some questions measuring participant knowledge and attitudes could have been unclear or overestimated learning. In fact, one of the studies compared self-assessments with tests of financial concepts and found a significant discrepancy between the two. 32 Reliable assessment of long-term knowledge was also uncertain, because the three studies that reported long-term outcomes lacked controls. 2 30 33

Also, the reviewed studies may not have had generalisable results. Most publications were single-institution studies or involved trainees from one specialty. For example, one study focused on California-specific retirement plans, which are unlikely to be relevant for residents in other states. Further, most studies had relatively small sample sizes and only four had more than 100 participants, 10 11 33 57 which also constrained the significance of results.

Instructor selection

Studies varied in selecting instructors, with most relying on physician instructors affiliated with the target audience (eg, faculty, residency programme directors or advisors). One study recommended using credentialled financial industry professionals as a cost-saving measure. 32 Another used a financial advisor to develop and present ‘noncommercial curricular content.’ 33 However, reliance on these types of professionals, such as insurance agents, brokers and financial advisors, is problematic. Although they are a cheaper resource willing to volunteer their time, they have an inherent interest in selling and marketing financial products and are therefore distrusted by participants. 8 10 14 18 23 32 38 39 Even with some oversight mitigating overt commercial agendas, there is a possibility that content and/or presentation will be biased. This spotlights a key dilemma for UME and GME programmes: delivering a low-cost curriculum utilising industry professionals versus expending more resources to secure instructors who have no conflicts. The choice is further complicated by the relative scarcity of unbiased, expert instructors. Local business schools may be a good source of instructors, but likely in limited numbers since more business faculty examine the financial services profession from a corporate perspective rather than from the perspective of consumers. One feasible method for instructor recruitment is the ‘train-the-trainer’ model, in which interested physicians learn the material from qualified, unbiased sources and then use that knowledge to deliver curricula at their home institutions. An alternative is to mandate financial literacy education in every programme and develop future expert faculty from earlier generations of programme participants. 25

Curriculum content

Curriculum content selection varied across studies, with some emphasising participant input, 32 58 and others with topics selected by instructors or provided by external sources. Regardless of the method of topic selection, most studies covered debt management, investing, insurance and retirement planning. In contrast, fewer addressed children’s college planning, contract negotiation or estate planning. The latter topics may reflect a relative lack of interest by medical students and trainees. For example, contract negotiation is only applicable to trainees who are poised to take their first full-time jobs. Similarly, children’s college planning and estate planning are less relevant for younger trainees, who are less likely to have families or assets requiring protection. Nonetheless, more comprehensive financial literacy curricula included these topics, since financial needs can quickly change due to life events. Therefore, our proposed curriculum ( online supplemental table A4 ) provides a comprehensive standardised programme to prepare undergraduate medical students and trainees for important financial decisions.

Conflicts of interest

As noted in our inclusion and exclusion criteria, we rejected papers authored by finance industry professionals as well as those whose authors accept payment from the financial services industry. We acknowledge a potential conflict in paper selection as one of our authors (YDB-O) is paid to teach personal finance topics (fewer than 6 days a year) to healthcare professionals and has written books on the subject.

A significant conflict applies in instructor selection for teaching personal finance in UME and GME programmes, as acknowledged by several curriculum papers discussing potential instructor bias by finance industry professionals. 10 32 33 38

Development of curriculum

Since there are strong benefits for comprehensive, standardised financial literacy curricula for physicians, we compiled a sample curriculum encompassing all the financial themes identified in this review. The recommended curriculum and objectives are described in online supplemental table A4 . The curriculum topics are all derived from the studies summarised in table 2 , and are also considered core subjects in a standard personal financial planning textbook. 59

This model curriculum may be delivered over the course of a semester or in a more concentrated fashion. If there are time constraints, the topics labelled as optional may be dropped. Of note, the curricula may be delivered in-person or virtually as recommended by Shappell et al , 8 and as executed by Shappell et al 13 and Grewal and Sweeney. 10 Virtual content can be delivered either synchronously or asynchronously. The latter may be particularly advantageous due to common scheduling challenges faced by medical students and trainees. Based on prior studies, we hypothesise that the comprehensive curriculum will improve Kirkpatrick model 43 Learning scores, and an exclusion of potentially biased instructors will likely lead to better Behaviour scores. Ultimately, there will also be improved Results scores.

Limitations

This review highlights several challenges, including a paucity of validated measures to evaluate curricula and the lack of higher-level Kirkpatrick (Results) scores. In addition, it was difficult to compare the relative merits of the 10 studies due to varied depths of reporting, especially for the two brief reports. 2 57 Furthermore, participants varied from medical students to residents and fellows and spanned many specialties. Consequently, the resulting curricula were heterogeneous, shaped by a variety of scheduling challenges, time constraints and objectives. Also, we were unable to assess the quality or accuracy of the content offered to participants. We could not observe the researchers in action, so our Côté-Turgeon and Kirkpatrick Model assessments are based only on what we were able to glean from the written word.

We did not review popular bloggers who are active in this space. Their participation may be considered positive in providing relevant content, but it must be noted that some of them receive money from the financial services industry, raising concerns regarding their objectivity.

Finally, our review may have excluded relevant articles by limiting our attention to physicians and medical trainees, even though dentists, nurses and pharmacists, to name a few professions, have similar personal finance concerns. We assessed only articles written in the English language and omitted articles from outside the USA, which may have useful recommendations, including two high-quality Canadian studies. 31 60 Although some terminology and accounting rules differ across national jurisdictions, concepts such as financial planning, saving, investing, budgeting, taxation, retirement planning, insurance coverage, estate planning and dealing with financial advisors are important for professionals worldwide.

Future research

Further research is critical to determine the most effective modes of instruction and assessment. Quantifying knowledge retention is particularly important because the value of financial literacy interventions dissipates over time. 61 Also, rigorous longitudinal studies are needed to quantify the impact of financial literacy curricula on decision-making and wellness; and to explore whether alternative instructional modalities, such as webinars or asynchronous online presentations, are more effective than traditional in-person instruction. Identification of effective alternative delivery methods is especially important because novel modalities could help overcome scheduling challenges. Further study should also assess the impact of personal finance training for medical students on choice of specialty, and in particular selection of primary care careers.

Conclusions

Our study is the first review of existing research on personal finance literacy for medical students and physician trainees. It is also the first study that proposes a curriculum guided by extensive review of published curricula. Our review confirms strong interest in financial literacy among medical students and physician trainees in a variety of specialties and highlights the importance of financial decision-making as a necessary personal skill. Further research is needed to quantitatively examine longitudinal outcomes, including changes in quality and quantity of actual financial decisions, and impact on physician wellness. Our proposed curriculum, covering all major personal finance topics, may provide the opportunity to investigate these areas through impact evaluation.

Supplementary Material

Acknowledgments.

The authors wish to thank informationist Christine Caufield-Noll for her assistance with the initial article search strategy.

Contributors: JAI participated in conception and design, acquisition of data, analysis and interpretation of data and critical manuscript revision. SZ participated in conception and design, acquisition of data, analysis and interpretation of data, and critical manuscript revision. YDB-O participated in conception and design, acquisition of data, analysis and interpretation of data, and critical manuscript revision. All authors approved the final manuscript. YDB-O is responsible for the overall content as the guarantor.

Funding: The authors have not declared a specific grant for this research from any funding agency in the public, commercial or not-for-profit sectors.

Competing interests: JAI and SZ report no conflicts of interest. YDB-O reports that he owns and operates the physician financial literacy site pillarsofwealth.com, has written books on financial literacy, and is occasionally paid to teach financial literacy. His book sales and compensation for teaching physician personal finance account for less than 3% of his annual income. His book content is also freely available on his website. He does not receive money from the financial services industry.

Patient and public involvement: Patients and/or the public were not involved in the design, or conduct, or reporting, or dissemination plans of this research.

Provenance and peer review: Not commissioned; externally peer reviewed.

Supplemental material: This content has been supplied by the author(s). It has not been vetted by BMJ Publishing Group Limited (BMJ) and may not have been peer-reviewed. Any opinions or recommendations discussed are solely those of the author(s) and are not endorsed by BMJ. BMJ disclaims all liability and responsibility arising from any reliance placed on the content. Where the content includes any translated material, BMJ does not warrant the accuracy and reliability of the translations (including but not limited to local regulations, clinical guidelines, terminology, drug names and drug dosages), and is not responsible for any error and/or omissions arising from translation and adaptation or otherwise.

Data availability statement

Ethics statements, patient consent for publication.

Not applicable.

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Home > Finance > What Are The 5 Areas Of Personal Finance?

What Are The 5 Areas Of Personal Finance?

Published: January 22, 2024

Discover the 5 key areas of personal finance and take control of your financial future. Learn how to manage your money and achieve financial success.

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Table of Contents

Understanding the foundations of personal finance, mastering the art of financial planning, cultivating financial resilience through strategic saving, navigating the path to wealth accumulation, shielding your financial fortunes with comprehensive protection, navigating the terrain of taxation: maximizing efficiency and compliance, introduction.

Welcome to the world of personal finance, where every decision you make regarding your money can have a profound impact on your future. Whether you’re a recent graduate embarking on your career journey, a seasoned professional looking to secure your retirement, or someone in between, mastering the principles of personal finance is crucial for achieving financial stability and prosperity.

Personal finance encompasses a wide array of financial topics and disciplines, all of which are interconnected and vital for managing your monetary resources effectively. From budgeting and saving to investing and insurance, each facet plays a pivotal role in shaping your financial well-being. Moreover, understanding the implications of taxes and how they influence your financial landscape is equally essential.

In this comprehensive guide, we will delve into the five fundamental areas of personal finance, equipping you with the knowledge and insights needed to navigate the intricate world of money management. By gaining proficiency in these key areas, you can cultivate a solid financial foundation that empowers you to make informed decisions, mitigate risks, and work towards achieving your short- and long-term financial goals.

So, let’s embark on this enlightening journey through the realms of budgeting, saving, investing, insurance, and taxes, unraveling the intricacies of each domain and uncovering the strategies to optimize your financial standing.

At the core of sound financial management lies the art of budgeting. A budget serves as a blueprint for your financial resources, providing a structured framework for allocating income towards expenses, savings, and investments. By meticulously outlining your income and expenditures, you gain clarity on where your money is flowing and can identify opportunities for optimizing your financial resources.

Creating a budget involves a systematic assessment of your income sources, including salaries, bonuses, and any additional sources of revenue, juxtaposed with your regular expenses such as rent or mortgage payments, utilities, groceries, and transportation costs. Moreover, factoring in discretionary spending on leisure activities, dining out, and entertainment is crucial for a comprehensive budget.

One of the primary objectives of budgeting is to foster a disciplined approach towards spending, enabling you to prioritize essential expenses while curbing unnecessary outlays. This, in turn, facilitates the accumulation of savings and the ability to allocate funds towards investments that can yield long-term returns.

Embracing technology can significantly enhance the budgeting process, with a myriad of personal finance apps and software available to streamline expense tracking, goal setting, and financial analysis. These tools empower individuals to monitor their financial health in real-time, offering insights that facilitate informed decision-making and proactive adjustments to spending patterns.

Ultimately, a well-crafted budget serves as a compass for your financial journey, guiding you towards prudent money management, debt reduction, and the realization of your financial aspirations. By mastering the art of budgeting, you lay a solid foundation for achieving financial stability and propelling yourself towards a prosperous future.

Amidst the dynamic landscape of personal finance, the practice of saving stands as a cornerstone of financial resilience and security. Saving entails setting aside a portion of your income for future needs, emergencies, and long-term objectives, thereby fortifying your financial foundation and mitigating unforeseen risks.

Establishing a robust saving habit involves a multifaceted approach, encompassing short-term savings for immediate contingencies, such as medical expenses or car repairs, as well as long-term savings earmarked for significant milestones like homeownership, education, or retirement. By delineating specific saving goals, individuals can imbue their financial journey with purpose and direction, fostering a sense of control and preparedness.

Moreover, leveraging dedicated savings accounts or instruments tailored for different objectives, such as high-yield savings accounts, certificates of deposit (CDs), or retirement accounts like 401(k)s or IRAs, enables individuals to optimize their savings potential through accrued interest and tax advantages.

Embracing frugality and conscientious spending habits complements the act of saving, as it bolsters the accumulation of financial reserves and instills a mindful approach towards consumption. Additionally, harnessing automated transfers to divert a portion of income directly into savings vehicles cultivates a disciplined saving routine, ensuring consistent progress towards financial goals.

Furthermore, the concept of ‘paying yourself first’ underscores the significance of prioritizing savings before allocating funds to discretionary expenses, reinforcing the notion that saving is not merely residual, but a deliberate and integral component of financial planning.

By integrating saving as a fundamental tenet of your financial strategy, you fortify your resilience against economic uncertainties, capitalize on growth opportunities, and pave the way for a secure and prosperous financial future.

Embarking on the journey of investing heralds a pivotal milestone in the realm of personal finance, offering a gateway to wealth accumulation and long-term financial prosperity. Investing entails deploying financial resources into various vehicles, such as stocks, bonds, mutual funds, real estate, and other assets, with the aim of generating returns and building a robust portfolio.

One of the cardinal principles of investing revolves around the concept of risk and return. By delineating your risk tolerance and investment horizon, you can tailor your investment strategy to align with your financial objectives, whether they encompass capital appreciation, income generation, or a blend of both.

Diversification emerges as a cornerstone of prudent investing, as it mitigates risk by spreading investments across different asset classes and sectors, thereby safeguarding against market volatility and potential downturns. Additionally, harnessing the power of compounding through reinvesting dividends and interest amplifies the growth potential of investments over time.

Moreover, staying abreast of market trends, economic indicators, and company performance empowers investors to make informed decisions and capitalize on opportunities for growth and value creation. Harnessing the expertise of financial advisors or investment professionals can provide valuable insights and guidance in navigating the complexities of the investment landscape.

Furthermore, embracing a long-term perspective and exercising patience are integral facets of successful investing, as they enable individuals to weather market fluctuations and harness the potential for sustained growth and wealth accumulation over time.

By cultivating a strategic and diversified investment portfolio, individuals can harness the power of compounding, capitalize on growth opportunities, and work towards realizing their financial aspirations, thereby charting a course towards enduring financial prosperity.

Embracing the realm of insurance constitutes a pivotal facet of holistic financial planning, offering a shield of protection against unforeseen adversities and mitigating potential financial risks. Insurance serves as a bulwark, safeguarding individuals and their assets from the financial repercussions of unforeseen events, ranging from medical emergencies and property damage to liability claims and loss of income.

One of the fundamental principles of insurance revolves around risk management, wherein individuals transfer the financial burden of potential losses to an insurance provider in exchange for periodic premiums. This symbiotic arrangement offers peace of mind and financial security, assuring individuals that they are shielded from the adverse financial ramifications of unforeseen events.

Various forms of insurance cater to diverse facets of life, encompassing health insurance, which defrays medical expenses and facilitates access to quality healthcare, and property insurance, which safeguards homes, vehicles, and other tangible assets against damage or loss. Additionally, life insurance stands as a testament to financial prudence, offering a safety net for loved ones and dependents in the event of an individual’s demise.

Embracing comprehensive insurance coverage aligns with the ethos of prudent risk mitigation, empowering individuals to navigate life’s uncertainties with confidence and resilience. Furthermore, periodic reassessment of insurance needs and policy coverage ensures that individuals remain adequately protected in the face of evolving circumstances and life stages.

Moreover, leveraging the expertise of insurance professionals and staying informed about policy intricacies and coverage nuances empowers individuals to make informed decisions, aligning insurance provisions with their unique needs and risk profiles.

Ultimately, integrating insurance as a cornerstone of your financial strategy fortifies your resilience against unforeseen adversities, offering a shield of protection that underpins your financial well-being and fosters peace of mind amidst life’s myriad uncertainties.

Taxation constitutes an integral component of personal finance, exerting a profound impact on individuals’ financial landscapes and necessitating a nuanced approach towards compliance and optimization. Understanding the intricacies of taxation empowers individuals to navigate the terrain of tax laws, optimize their financial efficiency, and fulfill their civic responsibility while minimizing the burden of taxation.

One of the pivotal facets of tax management revolves around strategic planning and compliance, encompassing prudent utilization of tax-advantaged accounts, deductions, and credits to optimize tax efficiency. Leveraging retirement accounts such as 401(k)s or IRAs not only fosters long-term financial security but also offers tax benefits, enabling individuals to defer taxes on contributions and potentially lower their taxable income.

Moreover, staying abreast of tax deductions and credits, such as those related to education expenses, homeownership, and charitable contributions, offers avenues for reducing tax liabilities and maximizing savings. Engaging the services of qualified tax professionals or utilizing reputable tax preparation software can facilitate accurate and comprehensive tax filings, ensuring compliance with regulatory requirements while capitalizing on available tax benefits.

Furthermore, embracing a proactive approach towards tax planning, especially in the realm of investment taxation and capital gains, empowers individuals to optimize their investment strategies while mitigating tax implications. By aligning investment decisions with tax considerations, individuals can capitalize on tax-efficient investment vehicles and strategies, thereby enhancing their after-tax returns.

Additionally, periodic review and adjustment of tax strategies in response to legislative changes and evolving financial circumstances are essential for maintaining tax efficiency and compliance. Staying informed about tax reforms and seeking professional guidance enable individuals to adapt their tax planning strategies in alignment with the prevailing regulatory landscape.

By navigating the terrain of taxation with prudence and foresight, individuals can optimize their tax efficiency, fulfill their fiscal obligations, and harness the potential for maximizing savings and long-term financial prosperity within the bounds of regulatory compliance.

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Research Areas

The faculty in the Department of Finance is committed to developing original, high-quality research in finance, and they produce cutting-edge research and analyse finance industry topics in most areas of finance.

Asset management is an umbrella term and encompasses alternative investments, asset and liability management, dynamic asset allocation and portfolio choice, intertemporal household choice, financial markets, life cycle models and saving, personal finance, quantitative trading, real estate, responsible investing, and sustainable investing.

Francesco Corielli

Massimo Guidolin

Christian Skov Jensen

Alberto Manconi

Andrea Cesare Resti

Claudio Tebaldi

Hannes Wagner

Asset pricing and econometrics are broad-based areas and include applied econometrics, asset pricing, big data, data analytics, derivatives, econometric modelling, empirical option pricing, financial econometrics, financial economics, financial risk and volatility, financial markets and the macroeconomy, fiscal policy, information and market efficiency, international finance, international macrofinance, market microstructure, mathematical finance, mathematical statistics, forecasting, monetary and fiscal policy, monetary economics, network analysis, OTC markets, quantitative methods, theory of finance, and time series models for macroeconomics and finance.

Anna Battauz

Andrea Beltratti

Paolo Colla

Mariano Massimiliano Croce

Nicola Gennaioli

Gabriele Gurioli

Fulvio Ortu

Barbara Rindi

Francesco Rotondi

Jakob Ahm Sorensen

The areas of banking and financial intermediation include banking, banking monitoring and supervision, big data, blockchain, credit risk, cryptocurrencies, development economics, financial crises and regulation, financial development and access, financial literacy, financial planning and sustainability, fintech, government policies and regulation, insurance, international banking regulation, investment banking, and ratings.

Brunella Bruno

Elena Carletti

Stefano Caselli

Giuseppe Corvino

Giacomo De Laurentis

Filippo De Marco

Stefano Gatti

Nicola Limodio

Davide Maspero

Clement Jonathan Mazet-Sonilhac

Anna Eugenia Omarini

Francesco Saita

Andrea Sironi

Lucia Spotorno

Claudio Zara

Stefano Zorzoli

The realm of behavioral finance includes behavioral economics, behavioral finance, behavior of economic agents, experiments, mechanism design, information and knowledge, neuroeconomics, and the psychological and cognitive factors involved in decision making in financial markets.

Matthias Rodemeier

Katrin Goedker

Corporate finance is a broad area that includes applied microeconomics, bankruptcy and financial distress, capital structure, competition and antitrust, corporate finance, corporate governance, corporate valuation, debt financing, entrepreneurship, family firms, industrial organization, institutional investors, law and finance, mergers and acquisitions, machine learning, private equity and venture capital, privatizations, project and infrastructure finance, restructuring, shareholder activism, strategy and finance, structured finance, and sustainable finance.

Cesare Conti

Maurizio Dallocchio

Alessandro Frova

Thorsten Martin

Florian Nagler

Alessandro Nova

Stefano Rossi

Stefano Salvatori

Nicolas Andre Benigno Serrano-Velarde

Laura Zanetti

Fintech (short for financial technology) is a term to include, among other, the fast-evolving research areas of blockchain and cryptocurrencies, machine learning, big data in finance, peer-to-peer lending, robo-advising in financial decision making, and the role of digital technology for banking and financial development.

Release Summary

Lack of financial knowledge is leading to costly financial missteps for many Americans according to new research released today by Experian®.

• What is a recession? 

Recessions and the business cycle

• What is a depression? 

Recession vs. depression

• How recessions affect you 
• Recession FAQs

What is a recession?

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• A recession and a depression describe periods during which the economy shrinks, but they differ in severity, duration, and scale.
• A recession is a decline in economic activity spread across the economy that lasts more than a few months.
• A depression is a more extreme economic downturn, and there has only been one in US history: The Great Depression, which lasted from 1929 to 1939.

Economic downturns are a lousy time for everyone. You may be worried about losing your job and being able to pay your bills — or you may be alarmed at just how abruptly that little red line that represents your investment portfolio has dropped. It's even worse if that red line represents your 401(k) savings. As a result, it can be helpful to know the signs of a recession, as well as the different ways this term is defined. 

While you've probably heard the terms "recession" and "depression" before, you may not know what they actually mean and what the difference is between the two. Chiefly, a depression is a more severe, long-lasting recession that extends beyond the confines of a single country's border and into the economies of other nations.

To help you better understand the business cycle and prepare for the twists and turns of an economic crisis, here's what you need to know about recessions, depressions, and how they're different. 

What is a recession?  

Defining a recession , technical definition .

The technical definition of a recession is "a significant decline in economic activity that is spread across the economy and that lasts more than a few months," according to the National Bureau of Economic Research (NBER), a nonprofit organization that officially declares U.S. recessions and expansions. 

An economic recession is often defined as a decline of real (meaning inflation-adjusted) gross domestic product (GDP) for two consecutive quarters — but it's not that simple. Over the course of a business cycle, you might see GDP contract for a period of time, but that doesn't necessarily mean that there's a recession. 

The NBER takes a broader view. The group defines recessions as "a significant decline in economic activity spread across the economy, lasting more than a few months," with indicators including:

• Decline in real GDP
• Decline in real income
• Rise in unemployment
• Slowed industrial production and retail sales
• Lack of consumer spending

The NBER's view of recessions takes a more holistic outlook of the economy, meaning recessions are not necessarily defined by one single factor. But many of these factors are intertwined, meaning a significant drop in something like GDP could rattle consumer spending or unemployment.

In simpler terms 

A recession can be defined as a time during which the economy shrinks, businesses make less money and the unemployment rate goes up. The business cycle is not characterized by neverending increases in GDP. As a result, there are times when this economic yardstick is decreasing, and if it declines for a long enough time, the economy has entered recession. 

These periods of economic decline frequently last about a year, according to figures provided by the International Monetary Fund (IMF). 

During these times, many economic indicators experience notable declines. Investment and production both decline, according to an IMF paper. Consumption also declines, which reduces the overall demand for goods and services created by corporations. 

This, in turn, can reduce profitability and motivate companies to lay off employees in an effort to ensure their bottom line remains healthy. 

It is worth noting that while recessions frequently last about a year, expansions generally last longer , as the economy is usually growing in size, according to the IMF. 

More specifically, the global organization examined 21 advanced economies between 1960 and 2007, revealing that they were in recession roughly 10% of the time, at least according to this sample. 

Causes of recession

Generally speaking, expansion and growth in an economy cannot last forever. A significant decline in economic activity is usually triggered by a complex, interconnected combination of factors, including:

Economic shocks 

An economic shock is an unpredictable event that causes widespread economic disruption, such as a natural disaster or a terrorist attack. The most recent example of such a shock was the COVID-19 outbreak, which triggered a brief recession. 

Another example of an event that served as a shock to the economy was Hurricane Katrina. One estimate was that this natural disaster caused $200 billion worth of damage, according to figures from the U.S. Bureau of Labor Statistics. 

High interest rates 

High interest rates make it more expensive for consumers to borrow money. This means that they are less likely to spend, especially on major purchases like houses or cars. Companies will probably reduce their spending and growth plans as well because the cost of financing is too high.

Asset bubbles

During an asset bubble, for example a housing bubble , the prices of investments like tech stocks in the dot-com era or real estate before the Great Recession rise rapidly, far beyond their fundamentals. These high prices are supported only by artificially inflated demand, which is caused by overly optimistic expectations of future asset values. This artificially inflated demand eventually dissipates, and the bubble bursts. At this point, people lose money and confidence collapses. Both consumers and businesses cut down on spending and the economy goes into recession. 

Loss of confidence

The sentiment of consumers has a substantial impact on the economy. Consumer spending accounts for close to 70% of U.S. GDP, so when these individuals tighten up their purse strings, it can tip the economy into recession. Even if this change in mindset is not enough to trigger a recession, a drop in consumer demand gives companies less incentive to produce goods and services, which can in turn motivate them to lay off employees in order to maintain profitability.

It is worth noting that the confidence of business executives, as well as other key decision makers in corporations, has a substantial impact on the health of the economy. If these decision makers become less confident, then they could cut budgets, laying off workers and potentially reducing expenditure on capital equipment in an effort to bolster profitability. 

To understand the macroeconomic variables that constitute recessions, Giacomo Santalego , PhD, a senior lecturer of economics at Fordham University, says it's important to acknowledge the relationship between recessions and the business cycle.

A business cycle tracks the up-and-down fluctuations natural to any capitalistic economies. Because the cycle traces the wide-ranging upward and downward comovements of economic indicators, it is often a focal point for monetary and fiscal policy as governments attempt to curtail the effects of these peaks and valleys.

Business cycles are understood as having four distinct phases:

• Expansion: This phase represents a period of economic growth, also considered the "normal" phase of the business cycle. It is often characterized by an increase in employment and a swelling of consumer spending and demand, which leads to an increase in the production and cost of goods and services.
• Peak: The highest point of a business cycle that signifies when an economy has reached its crest of output. Here, there's nowhere to go but down, sending the economy into a contraction phase. This can happen for any number of reasons, either investors get too speculative and create an asset bubble or industrial production starts outpacing demand. This is commonly seen as the turning point into the contraction phase.
• Contraction: A period that is marked by a decline in economic activity often identified by a rise in unemployment as well as a bear market . Additionally, GDP growth falls under 2%. As growth contracts, the economy enters a recession. 
• Trough: A peak is to an expansion what a trough is to a contraction. A trough marks the bottom of a business cycle's economic activity and marks the start of a new wave of expansion and a new business cycle. This is a turning point that's followed by a new wave of expansion. 

It's important to note that business cycles do not occur at predictable intervals. Instead, they are irregular in length, and their severity is reflected by the economic variables of the time. That said, the average post-World War II business cycle lasted 65 months, according to the Congressional Research Service . 

What is a depression? 

An economic depression is typically understood as an extreme downturn in economic activity lasting several years, but the exact definition and specifications of a depression are less clear. 

"The way people think about it is a depression is a more widespread and severe recession," says Laura Ullrich, senior regional economist with the Federal Reserve Bank of Richmond, says, "but there is no clear-cut moment where we can say 'we hit X unemployment rate or Y GDP growth — we're now officially in a depression.'"

The NBER notes that economists differ on the period of time that designates a depression. Some experts believe a depression lasts only when economic activity is declining, while the more common understanding is that a depression extends until economic activity has returned to close to normal levels. 

A depression is a more severe recession. However, it's a little tricky to concretely, quantifiably describe the difference between a recession and a depression, mainly because there's only been one. 

Because economists do not have a set definition for what constitutes a depression, the general public sometimes uses it interchangeably with the term recession. However, the difference makes itself evident when you compare the Great Recession to the Great Depression. 

Generally speaking, a depression spans years, rather than months, and typically sees higher rates of unemployment and a sharper decline in GDP. And while a recession is often limited to a single country, a depression is usually severe enough to have global impacts.

How recessions affect you 

Job losses .

One major consequence of economic downturns is job losses. When the economy starts to contract, revenues decline, which gives companies substantial incentive to lay off employees in order to turn a profit. A perfect example of how a downturn can cause employers to eliminate jobs is the recession that coincided with the COVID-19 pandemic. The global pandemic began in early 2020, and during March, April and May of that year, the nation's employers shed 1.5 million jobs, according to figures from the Bureau of Labor Statistics. Further, economic downturns result in reduced tax revenue, which can prompt governments to lay off workers. Many state governments, in particular, need to balance their budgets each year, which can cause them to slash jobs. 

Reduced income 

Economic downturns can lower the income of residents by eliminating jobs and lowering wages. In addition, companies reduce investment in capital equipment during recessions, which lowers productivity. This can, in turn, adversely impact wages. Lowered incomes can have significant impacts on the economy in the long-term, for example undermining nutrition and making it more difficult for people to pursue college education. Both of these adverse effects can impact productivity in the long-run. 

Difficulty finding work 

One very noticeable impact of an economic downturn is a tighter labor market. When the economy goes into recession, many jobs will get eliminated, both in the public and private sectors. This can increase the number of applicants for every available position, resulting in a highly competitive labor market. This increased competition for jobs can undermine the power that employees have to demand adequate compensation, which can in turn place downward pressure on salaries and wages. 

Declining investments 

One common challenge that investors encounter during economic downturns is the impact that falling asset values can have on their net worth. When the economy goes into recession, the value of assets held by everyday investors, for example stocks and real estate, can decline substantially. This can undermine the value of their retirement accounts and also wealth they hold outside of these accounts, for example in brokerage accounts. When investors feel less wealthy, it can make them less likely to spend, something referred to as the wealth effect . This can in turn contribute to further economic contraction. 

Recession FAQs 

The length of a recession varies, from a matter of months to multiple years. According to IMF research cited in this piece, recessions typically last a year. 

Economists at the National Bureau of Economic Research (NBER) officially declare US recessions. 

Yes, you can prepare for a recession by paying off debt, building up savings and also creating a diversified investment portfolio. 

Governments may respond to recessions by cutting taxes or spearheading other forms of economic stimulus in order to fuel expansion. 

Yes, there are different types of recessions, which can vary in terms of length and intensity. A depression, for example, is a severe recession. 

• Main content

Money latest: Drivers warned 'psychological shock' coming from petrol prices

The RAC and the AA have said drivers should brace for "tough" times ahead as prices at the pump rise. Read this and all the latest consumer and personal finance news in the Money blog. Listen to the latest Sky News Daily podcast about inflation as you scroll.

Thursday 18 April 2024 19:00, UK

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Barristers and judges have the biggest gender pay gap in the UK, a study has shown.

Women in the profession earn just over 29% less than their male counterparts - around £8.31 an hour. 

That's according to ONS data analysed by Claims.co.uk. 

Financial managers and directors were found to have the second-biggest difference, with women paid approximately £11.56 less an hour than men in the same occupation. 

"Perhaps in 2024, studies like this will raise awareness of the gender pay gap and precipitate change in these industries, starting with pay reviews," Claims.co.uk said.

You can see the 10 jobs with the biggest pay gaps below...

As the season for high pollen count is upon us, anyone who suffers from hay fever will be thinking about stocking up on their medication.

But this can mean the pocket takes a hit.

Branded tablets from pharmacies can set buyers back quite a bit, with Clarityn allergy relief costing £10.99 for 30 tablets . Piriteze is another common brand, priced at  £11.55 for 30 tablets .

But most of these medications have identical properties, regardless of brand.

It's important to look out for the "active" ingredients - and then buy the cheapest option. 

These include loratadine and cetirizine hydrochloride. 

Supermarkets and discount stores can provide cheaper alternatives to the brand names. 

Poundstretcher, for example, sells 30 loratadine tablets for 79p. 

Supermarkets will often sell the branded versions alongside their own cheaper equivalents - so compare the ingredients before deciding which to go for. 

Here are some examples:

• Asda: £2.50 for cheapest generic v £6.50 for cheapest Clarityn tablets
• Boots: £5.99 for cheapest generic v £11.55 for Piriteze, Zirtek or branded equivalent
• Boots: £2.75 for cheapest generic v £10.99 for Clarityn tablets
• Sainsbury’s: £2.50 for cheapest generic v £11.10 for Clarityn tablets
• Tesco: £2.95 for cheapest generic v £11 for Piriteze, Zirtek or branded equivalent
• Waitrose: £3.25 for cheapest generic v £11.85 for Clarityn tablets

There are no cheaper equivalent options for Benadryl tablets, but Amazon offers cheaper deals of £7.20 or £6.48 with Prime vs a standard price of around £10 from supermarkets.

Remember, certain options could seem cheaper, such as an option of 90p for 10 tablets vs £1 for 10 one-a-day tablets.

However, you'll need to keep taking the first option throughout the day, with the second option lasting you much longer.

You should only buy medications from legitimate pharmacies and shops, as they must adhere to certain standards and inspections.

By Mickey Carroll, science and technology reporter 

If you had a great meal out, you'd probably leave a tip. Why don't you tip the people that make your video games too? 

That's the suggestion from former game studio president Mike Ybarra. He sparked a debate on X when he posted the idea he'd been thinking about "for a while".

"When I beat a game, there are some that just leave me in awe of how amazing the experience was. 

"I've often thought 'I wish I could give these folks another $10 or $20' because it was worth more than my initial $70 and they didn't try to nickel and dime me every second," he posted.

His idea was a flop.  

A lot of the more than 1,700 replies asked why games studios didn't just pay their developers properly, at a time when the industry is in crisis. 

"Maybe it's time companies start giving salaries and a bonus structure adequate to all their employees," posted @leqvist.

Game developers are facing mass redundancies. ( You can read more about that here .)

In the Past two years, more than 19,000 people have lost their jobs and just four months into 2024, another 8,000 have gone. 

Only yesterday, an estimated 600 redundancies were announced by Grand Theft Auto-6 publisher Take-Two, which could include jobs at Scotland’s Rockstar Games UK.

The other criticism that cropped up a lot was that games are pretty expensive anyway and should just be… good?

"A horrible idea. The game should be an amazing experience for $70! Paying extra for a 'great game' means that you are settling for a **** or mediocre game normally," posted @LinuxMostly. 

The average price for a boxed video game in the UK is now £35.70, according to the Entertainment and Retail Association yearbook.

After posting his idea, Mr Ybarra clearly went about his life, posting afterwards: "Whoever runs SteamDB [a database of everything on Steam], I tip my hat to you."

"Maybe you should tip them," came the reply.

Crisis-hit Boeing has rushed to defend itself from fresh whistleblower allegations of poor practice as the airline grapples its latest safety crisis.

A Congressional investigation heard evidence yesterday on the safety culture and manufacturing standards at the company - rocked in January by a mid-air scare that saw an Alaska Airlines 737 MAX 9 flight suffer a panel blowout.

One Boeing quality engineer, Sam Salehpour, told members of a Senate subcommittee that Boeing was taking shortcuts to bolster production levels that could lead to jetliners breaking apart.

Read more on this story here ...

Almost one million private renters in England have been handed no-fault evictions since the Conservative government promised to abolish them, new data has shown.

Research by YouGov on behalf of homelessness charity Shelter - and shared exclusively with Sky News - showed that since April 2019 943,000 people had been given Section 21 notices, the equivalent of more than 500 renters every day.

The figures also showed unwanted moves were costing private renters in England £550m a year, with 830,000 people having to move in the past 12 months alone due to either their fixed tenancies coming to an end, being priced out by rent increases or being served with a Section 21.

You can read more on our political reporter Jennifer Scott's exclusive here ...

The Co-operative Bank will this week move a step closer to regaining its mutual status when it announces that it has struck a £780m deal to be bought by the Coventry Building Society.

Sky News has learnt that the two organisations are expected to announce as early as today that they have reached agreement on the terms of a transaction.

Insiders said the cash price to be paid by the Coventry would be close to £800m.

Read more on this story here ... 

The 10 cheapest European summer holidays have been revealed, with some "surprising" destinations making the list. 

Which? compiled the list after analysing more than 4,500 package holidays. 

The consumer group found the least expensive were often in locations that people "assume come with a higher price tag", such as Italy's Amalfi Coast or Greek islands.

Interestingly, traditionally low-cost destinations such as Bulgaria and Turkey failed to make the top 10. 

Which? said this was partly because of the type of packages available, with the Amalfi Coast having a wide choice of accommodation on either a self-catering or bed and breakfast basis, which is usually cheaper than full board packages.

These are the 10 cheapest package holidays for seven nights during the first week of August: 

Petrol prices could go well above 150p a litre, the RAC has warned, as data shows it has already risen by nearly 8p this year. 

The price at the pump has hit a five-month high of 148.5p, according to government figures. 

It was 140.8p at the start of the year.

During this week alone, the cost has gone up by 1.6p - there has not been a sharper weekly rise since August 2023.

Average pump prices for diesel have also increased to 157.5p, the highest since November 2023.

"This year is proving to be another tough one for drivers," RAC fuel price spokesperson Simon Williams said. 

"Both petrol and diesel are now the most expensive they've been since November last year, which is bad for households, businesses and the economy, especially as we know there is a close link between fuel prices and inflation.

"With increased tensions in the Middle East, the cost of oil is only likely to go up, which could push petrol well above 150p a litre."

This was echoed by AA fuel price spokesman Luke Bosdet, who said pump prices were climbing towards the point "drivers fear". 

"It is a psychological shock that shouts out from the price boards each time motorists drive past," he said. 

"The early part of the summer could be a tough time for UK motorists."

Mr Williams also explained that while diesel is edging towards 160p, that is due to retailers taking much bigger margins. 

"There's only been a few pence between the wholesale prices of both fuels since mid-March," he added. 

"We find it hard to believe that a margin of 13p a litre on diesel - compared to the long-term average of 8p - is fair.

"This surely won't go unnoticed by the Competition and Markets Authority, which only two weeks ago expressed its concern about higher retailer margins."

Virgin Media has topped the rankings of the most complained-about broadband, landline and pay-TV providers, Ofcom figures show.

The regulator said Virgin Media received the most complaints between October and December last year. 

The company received 20 complaints per 100,000 broadband customers in the three-month period. 

But this was an improvement on the 32 per 100,000 in the previous quarter.

Complaints handling was the cause of 43% of customer complaints, compared with an industry average of 32%.

Some 22% of its complaints were about faults, service and provisioning, well below the industry average of 37%.

It was slightly ahead of Now Broadband, which received 18 complaints per 100,000, but lagged behind the industry average of 12.

Sky, Sky News' parent company, came in with the fewest complaints at five per 100,000 customers. 

Virgin Media complaints for landline came in at 13 per 100,000, just ahead of Shell Energy and Now Broadband.

It also received 13 complaints per 100,000 for pay-TV, almost double that of BT.

A Virgin Media O2 spokesman said: "We're committed to providing an excellent service to our customers, and while overall these complaints represent a very small proportion of our customer base, we acknowledge there is a need for improvement, which is under way, and we're focused on getting this right.

"We are investing heavily and making changes across our business to deliver tangible improvements, for example through multi-skilling our teams and rolling out new IT platforms that will make it easier for customers to get support when they need it, and empowering our people to resolve any issues quickly and effectively first time."

By James Sillars , business reporter

The FTSE 100 has recovered a bit more ground in early dealing after Tuesday's sharp losses. 

The index opened 0.4% higher at 7,880, building on a 0.4% gain yesterday. 

The Tuesday rout, on fears of US interest rates remaining higher for longer, saw more than 1.8% of its value lost. 

While the issue remains a concern for investors, miners have dug the FTSE's way to recovery. 

Among other sectors making strides were airline and holiday stocks. That was after easyJet reported strong summer bookings and an easing of first-half losses. 

The no-frills carrier, which makes all its profits in the six months to the end of September, said it expected to be among the fastest growing European airlines. Shares took off by 4.5%. 

Deliveroo stock also gained, by 2.3%, after it returned to order growth in the first three months of the year. 

One deal making waves is a takeover of troubled British music investor Hipgnosis Songs Fund. The FTSE 250 firm, which has a catalogue including rights to work by artists including Shakira, Ed Sheeran, Blondie and Red Hot Chili Peppers, is set to be bought by Concord Chorus. Under the terms of the deal, shareholders of Hipgnosis will get $1.16 per share in cash, valuing the company at $1.4bn (£1.1bn). 

The price, musical and theatrical rights holder Concord said, represented a 30% premium on the recent value of Hipgnosis shares. 

Hipgnosis has been mired by troubles since mid-last year, including valuation concerns, board and legal battles, and a shareholder revolt against a catalogue sale deal that forced a strategic review. 

By Emily Mee, Money team 

A complaints expert has warned local authorities are making it "increasingly difficult" to claim for pothole damage. 

The AA reported last October that pothole breakdowns had hit a five-year high - with the incidents causing tyre punctures, distorted wheels, damaged shock absorbers and broken suspension springs. 

Drivers can expect to pay an average of up to £440 if they hit a pothole and their car sustains damage more serious than a puncture, according to RAC data. 

Scott Dixon, also known as The Complaints Resolver , says an increasing number of drivers are being forced to pay out themselves or claim through their insurance because local authorities are making it "virtually impossible to claim direct". 

In fact, insurer Admiral said pothole-related claims rocketed by 40% in 2023. 

Mr Dixon says it's a "lottery" in terms of whether claims will be upheld, with some authorities paying out for less than 1% of claims. 

Who is responsible for paying out? 

Whoever controls the road must maintain it to a suitable standard and pay for repairs.

That means drivers whose cars are damaged by poorly maintained roads are able to claim compensation. 

In England, Scotland and Wales, local roads, B roads and smaller A roads will be maintained by the council.

Motorways and A roads in England are controlled by Highways England, and in Scotland by Traffic Scotland. 

Roads listed as red routes in Greater London are under Transport for London, while all road types in Northern Ireland are controlled by Dfl Roads. 

Should you make a claim? 

It's up to you whether you want to make a claim, or whether you will pay for the repairs yourself or through your insurance. 

It is worth remembering that if you make a claim through the local authority, this is taxpayers' money and could put councils under strain. 

Even if you choose not to claim, you should still report the pothole to prevent it remaining a danger to other road users. 

How to claim 

If you decide to make a claim, you should first report the pothole through  www.fixmystreet.com  or  www.fillthathole.org.uk  - or contact the local authority directly. 

Take photos of the pothole if it is safe to do so, and if you can put your foot by the hole for scale. 

To count as a pothole, it must usually be at least 40mm deep, or the height of two 20p coins. Mr Dixon says the width of the hole is seen as "irrelevant". 

The local authority will want to know exactly where the pothole is so you should provide a sketch (or you can use Google Earth for this). 

You should also get an estimate for the damage to your vehicle so the council knows how much to compensate you. 

Your claim will then be passed on to claims handlers - and you should be prepared for it to be rejected. 

Mr Dixon says authorities often "won't make it easy for you" and you've got to be ready to "put the leg work in" if you want your money back. 

So what can you do next? 

If your claim is indeed rejected, you don't have to give up there. 

Your next port of call is to put in a freedom of information request to your council. 

Every citizen has the right to ask for recorded information held by public authorities, and you can do this by letter, email, social media, online form or fax. 

In your request, you can ask for 12 months' worth of inspection reports on the road in question, how many times the pothole was reported, when the last repair was made and whether it was reported before you hit it. 

FOI requests can take up to 20 working days to come back, so be prepared to wait for it. 

When you receive it back, you should look for whether the last repair was made within the statutory timeframe, whether it was a temporary or permanent repair, and whether it had been reported before you hit it. You should also check for whether it was repaired to the correct specification and criteria. 

Being able to point out negligence may be enough for your claim to be accepted. 

If not, you can go through a small claims court. 

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