Earned Income Tax Credit (EITC), Theory of Planned Behavior, self-esteem, efficacy, financial therapy
The Earned Income Tax Credit (EITC) seeks to reduce poverty and provide the resources necessary for an individual to become self-sufficient. The EITC achieves this annually by lifting millions of households above the poverty level through income supplementation. However, recent evidence suggests that the long-term upward economic mobility provided by the EITC in practice is limited. To investigate the factors associated with achieving this financial independence, this study utilized the Theory of Planned Behavior to determine if (a) attitudes—as measured by time preference and self-esteem, (b) subjective norms—as measured by education, parents’ poverty level or work status, and religiosity, and/or (c) perceived behavioral control—as measured by self-efficacy (perceived effectiveness in accomplishing tasks) were significant in moving beyond qualification standards of the EITC. Using data from the National Longitudinal Survey of Youth (NLSY79), the EITC utilization pattern of a sample of 178 individuals was investigated. Results reaffirmed the economic advantages of marriage, suggesting that, by protecting and support healthy marriages, financial therapists can actively contribute to improved financial outcomes. Results also indicated that individuals with a high degree of mastery (feeling in control) were more likely to experience economic improvement, as measured through movement above EITC qualification standards. This suggests that financial therapists should work to facilitate growth in personal mastery as a part of helping clients reach their financial goals.
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License
Zimmerman, L., Canale, A., Britt, S. L., & Seay, M. (2015). The Theory of Planned Behavior and the Earned Income Tax Credit. Journal of Financial Therapy, 6 (1) 5. https://doi.org/10.4148/1944-9771.1066
Aniol, J. C., & Snyder, D. K. (1997). Differential assessment of financial and relationship distress: Implications for couples therapy. Journal of Marital and Family Therapy, 23(3), 347-352.
Archuleta, K. L., Burr, E., Dale, A. K., Canale, A., Danford, D., Rasure, E.,…Horwitz, E. (2012). What is financial therapy? Discovering the mechanisms and aspects of an emerging field. Journal of Financial Therapy, 3(2), 57-78. http://dx.doi.org/10.4148/jft.v3i2.1807
Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179-211. http://dx.doi.org/10.1016/0749-5978(91)90020-T
Ajzen, I. (2002). Perceived behavioral control, self-efficacy, locus of control and the theory of planned behavior. Journal of Applied Social Psychology, 32(4), 665-683. http://dx.doi.org/10.1111/j.1559-1816.2002.tb00236.x
Athreya, K. B., Reilly, D., & Simpson, N. B. (2010). Earned income tax credit recipients: Income, marginal tax rates, wealth, and credit constraints. Economic Quarterly - Federal Reserve Bank of Richmond, 96(3), 229-258.
Bandura, A., & Locke, E. A., (2003). Negative self-efficacy and goal effects revisited. Journal of Applied Psychology, 88(1), 87-99. http://dx.doi.org/10.1037/0021-9010.88.1.87
Bandura, A., Adams, N.E., Hardy, A. B., & Howells, G. N. (1980). Tests of the generality of self-efficacy theory. Cognitive Therapy and Research, 4, 39-66.
Beverly, S., Tescher, J., Romich, J., & Marzahl, D. (2005). Linking tax refunds and low-cost bank accounts to bank the unbanked. In M. Sherraden (Ed.), Inclusion in the American dream: Assets, poverty, and public policy (pp.167-184). New York, NY: Oxford University Press.
Chatterjee, S., Finke, M., & Harness, N. (2009). Individual wealth management: Does self-esteem matter? Journal of Applied Business and Economics, 10(2), 11-24.
Davis-Kean, P. E. (2005). The influence of parent education and family income on child achievement: The indirect role of parental expectations and the home environment. Journal of Family Psychology, 19(2), 294-304. http://dx.doi.org/10.1037/0893-3188.8.131.524
Dubofsky, D., & Sussman, L. (2009). The changing role of the financial planner part 1: From financial analytics to coaching and life planning. Journal of Financial Planning, 48-57. falsePress the Escape key to close
Duncan, G. J., Brooks-Gunn, J., Yeung, W. J., & Smith, J. R. (1998). How much does childhood poverty affect the life chances of children? American Sociological Review, 63(2), 406-423. http://dx.doi.org/10.2307/2657556
Ford, M. R., Baptist, J. A., & Archuleta, K. L. (2011). A theoretical approach to financial therapy: The development of the Ford Financial Empowerment Model. Journal of Financial Therapy, 2(2), 20-40. http://dx.doi.org/10.4148/jft.v2i2.1447
Greene, S. S. (2012). The broken safety net: A study of earned income tax credit recipients and a proposal for repair. New York University Law Review. Forthcoming. Available at SSRN: http://ssrn.com/abstract=2134578
Hershey, D. A., & Mowen, J. C. (2000). Psychological determinants of financial preparedness for retirement. The Gerontologist, 40(6), 687-697.
Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection between knowledge and behavior. Federal Reserve Bulletin, July: 309-322.
Holden, K. (2010). Theories of human behavior and emotions: What they imply about the financial behavior of vulnerable populations. University of Wisconsin Center for Financial Security, CFS Issue Brief 2010-4, Madison, WI: University of Wisconsin Madison.
Hotz, V. J., & Scholz, J. K. (2003). The earned income tax credit. In R. A. Moffitt, National Bureau of Economic Research means-tested transfer programs in the United States (pp. 141-197). Chicago: University of Chicago Press. Retrieved from http://www.nber.org/chapters/c10256.pdf.
Internal Revenue Service. (2012). EITC Statistics. Retrieved from http://www.eitc.irs.gov/central/eitcstats/
Kahler, R. S. (2005). Financial integration: Connecting the client's past, present, and future. Journal of Financial Planning, 18(5), 62-71.
Kim, J. H., Gale, J., Goetz, J., & Bermudez, J. M. (2011). Relational financial therapy: An innovative and collaborative treatment approach. Contemporary Family Therapy, 33, 229-241.
Klontz, B., & Klontz, T. (2009). Mind over money: Overcoming the money disorders that threaten our financial health. New York, NY: Crown Business.
Lim, Y., DeJohn, T. V., & Murray, D. (2012). Free tax assistance and the earned income tax credit: Vital resources for social workers and low-income families. Social Work, 57(2), 175-184. http://dx.doi.org/10.1093/sw/sws035
Madden, T. J., Ellen, P. S., & Ajzen, I. (1992). A comparison of the theory of planned behavior and the theory of reasoned action. Personality and Social Psychology Bulletin 18(1), 3-9.
Malka, A., Soto, C. J., Cohen, A. B., & Miller, D. T. (2011). Religiosity and social welfare: Competing influences of cultural conservatism and prosocial value orientation. Journal of Personality, 79(4), 763-792. http://dx.doi.org/10.1111/j.1467-6494.2011.00705.x
Manchester, C., & Mumford, K. (2010). Welfare stigma due to public disapproval. Working Paper. Retrieved from http://documents.apec.umn.edu/ApEcSemSp2010Manchester%20paper.pdf
Maton, C. C., Maton, M., & Martin, W. M. (2010). Collaborating with a financial therapist: The why, who, what, and how. Journal of Financial Planning, 23(2), 62-70.
Manturuk, K., Dorrance, J., & Riley, S. (2012). Factors affecting completion of a matched saving program: Impacts of time preference, discount rate, and financial hardship. The Journal Socio-Economics. http://dx.doi.org/10.1016/j.socec.2012.08.006
McBride Murry, V., Brody, G. H., Brown, A., Wisenbaker, J., Cutrona, C. E., & Simons, R. L. (2002). Linking employment status, maternal psychological well-being, parenting, and children’s attributions about poverty in families receiving government assistance. Family Relations, 51, 112-120.
Neustadt, I. (2011). Do religious beliefs explain preferences for income redistribution? Experimental evidence. CESifo Economics Studies, 57(4), 623-652. http://dx.doi.org/10.1093/cesifo/ifr002
Papp, L. M., Cummings, E. M., & Goeke-Morey, M. C. (2009). For richer, for poorer: Money as a topic of marital conflict in the home. Family Relations, 58, 91-103.
Pearlin, L. I., & Schooler, C. (1978). The structure of coping. Journal of Health and Social Behavior, 19(1), 2-21. http://dx.doi.org/10.2307/2136319
Pearlin, L. I., Liebernam, M. A., Menaghan, E. G., & Mullan, J. T. (1981). The stress process. Journal of Health and Social Behavior, 22(4), 337-356. http://dx.doi.org/10.2307/2136676
Perry, V. G., & Morris, M. D. (2005). Who is in control? The role of self perception, knowledge, and income in explaining consumer financial behavior. The Journal of Consumer Affairs, 39(2), 299-313. http://dx.doi.org/10.1111/j.1745-6606.2005.00016.x
Prawitz, A. D., Kalkowski, J. C., & Cohart, J. (2012). Responses to economic pressure by low-income families: Financial distress and hopefulness. Journal of Family Economics.
Rabinovich, A., Morton, T., & Postmes, T. (2010). Time perspective and attitude-behaviour consistency in future-oriented behavior. British Journal of Social Psychology, 49(1), 69-89. http://dx.doi.org/10.1348/014466608X401875
Renneboog, L., & Spaenjers, C. (2011). Religion, economic attitudes, and household finance. Oxford Economic Papers, 64(1), 103-127. http://dx.doi.org/10.1093/oep/gpr025
Rosenberg, M. (1965). Society and the Adolescent Self-image. Princeton, NJ: Princeton University Press.
Scheve, K., & Stasavage, D. (2006). Religion and preferences for social insurance. Quarterly Journal of Political Science, 1(3), 255-286. http://dx.doi.org/10.1561/100.00005052
Seay, M. C., Goetz, J. W., & Gale, J. (2015). Collaborative relational model. In Klontz, Britt, & Archuleta (Eds.), Financial Therapy Theory, Research, and Practice. (pp. 161-172).
Simpson, N. B., Tiefenthaler, J., & Hyde, J. (2010). The impact of the earned income tax credit on economic well-being: A comparison across household types. Population Research and Policy Review, 29(6), 843-864. doi: 10.1007/s11113-009-9170-5
Smeeding, T. M., Phillips, K. R., & O’Connor, M. (2000). The EITC: Expectation, knowledge, use, and economic and social mobility. National Tax Journal, 53(4), 1187–1209. http://dx.doi.org/10.2139/ssrn.186690
Steensland, B. (2006). Cultural categories and the American welfare state: The case of guaranteed income policy. American Journal of Sociology, 111(5), 1273–1338. http://dx.doi.org/10.1086/499508
Trachtman, R. (2015). Psychodynamic financial therapy. In Klontz, Britt, & Archuleta (Eds.), Financial Therapy Theory, Research, and Practice (pp. 285-301).
Turnham, J. (2010). Attitudes to savings and financial education among low-income populations: Findings from the financial literacy focus groups. Center for Financial Security WP 10, 7.
U.S. Census Bureau. (2011). Income, Poverty, and Health Insurance Coverage: 2010. Retrieved from http://www.census.gov/prod/2011pubs/p60-239.pdf
U.S. Congress. House. Committee on Ways and Means. Tax Reduction Act of 1975. House Report No. 94-19. February 26, 1975. Washington, D.C.: GPO, 1975.
Ventry, Jr. D. J. (2000). The collision of tax and welfare politics: The political history of the Earned Income Tax Credit, 1969-1999. National Tax Journal, 53(4), 983-1026.
Wittman, M., & Paulus, M. P. (2007). Decision making, impulsivity, and time perception. Trends in Cognitive Sciences, 12(1), 7-11.
Xiao, J. J. (2008). Applying behavior theories to financial behaviors. In J. J. Xiao (Ed.), Handbook of Consumer Finance Research (pp. 69-81). New York, NY: Springer.