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Financial Literacy and Indebtedness: New Evidence for U.K. Consumers
Abstract
We utilise questions concerning individual ‘debt literacy’ incorporated into market research data on households’ unsecured debt positions to examine the association between consumer credit and individual financial literacy. We examine the relationship between individual responses to debt literacy questions and household net worth, consumer credit use and over-indebtedness. We find that financially illiterate households have lower net worth, use higher cost credit and are more likely to report credit arrears or difficulty paying their debts. However, financially literate households are more likely to co-hold liquid savings and revolving consumer credit, suggesting that the co-holding might arise as a result of rational financial behaviour. We consider the potential endogeneity of financial literacy.
... It is widely acknowledged that a significant portion of the population lacks the necessary financial knowledge to make informed decisions (Anderloni et al., 2012;Sherraden, 2013). However, the effectiveness of these policies is still being evaluated, and some scholars point to a weak connection between financial knowledge and positive financial behaviors (Disney & Gathergood, 2011;Fernandes et al., 2014;Loke, 2017;Nicolini & Haupt, 2019). ...
... In recent years, household FV has gained the attention of scholars and policymakers. Some studies have defined FV as a consequence of high levels of household debt (Allgood & Walstad, 2016;Disney & Gathergood, 2011;Ray et al., 2019), while broader definitions encompass households' inability to meet basic living expenses (Loke, 2016;Singh & Malik, 2022) or unforeseen expenses Philippas & Avdoulas, 2020), as well as to raise a given amount of funds to tackle a rush (Friedline & West, 2016;Philippas & Avdoulas, 2020;West & Mottola, 2016). Additionally, adverse economic shocks (e.g., interest or unemployment rates, adjustments in housing or retirement accounts.) ...
... As can be seen in Table 1, dichotomous variables are predominantly used (15 out of the 23 papers), resulting in households being categorized as either ''financially vulnerable'' or ''not financially vulnerable,'' rather than assuming that a household can be financially vulnerable to some degree (O'Connor et al., 2019). In the latter case, continuous variables are more appropriate (Abdullah Yusof et al., 2015;Anderloni et al., 2012;Disney & Gathergood, 2011). An intermediate approach involves creating an ordinal scale for FV, which has been done by nine of the studies analyzed, with five of them based on a single item, mostly subjective, and associated with consumption and saving capacity (Abdullah Yusof et al., 2015;Giannetti et al., 2014;Loke, 2017;McCarthy, 2011;Seldal & Nyhus, 2022). ...
In the aftermath of the 2007–08 financial crisis, the worsening financial conditions of households increased concerns about their financial vulnerability (FV). In this context, policymakers embraced the notion of financial knowledge to foster sound financial behaviors among individuals and households, aiming to mitigate the detrimental effects of FV on households’ financial wellbeing and the overall economy. However, the relationship between FV and financial literacy remains inconclusive. This lack of definitive findings may stem from limitations in measuring FV and narrow focus on specific dimensions of financial literacy. This paper analyzes the relationship between financial literacy and FV by creating a comprehensive measure of (the level of) FV and considering different dimensions of financial literacy. Using a sample of 8,554 individuals in Spain obtained from the 2016–17 Survey of Financial Competences, we construct a continuous measure of FV by using Nonlinear Principal Components Analysis (NLPCA). Then, we employ OLS and ordered probit regressions to examine the potential association between different dimensions of financial literacy and FV. The findings indicate that the level of FV is negatively related to self-perceived financial knowledge, while no statistically significant relationship is found regarding objective financial knowledge. Evidence also reveals that “highly financially included” individuals are more likely to exhibit financial resilience. These findings highlight the need for the development of financial education initiatives that are action-oriented.
... A nivel sociodemográfico, las investigaciones encuentran que la edad es un factor relacionado con la reducción de la VF (Kempson, 2002;Disney y Gathergood, 2011). Este resultado tiene su justificación teórica en la LCH, según la cual las personas desarrollan sus comportamientos de ahorro y consumo pensando en sus circunstancias vitales. ...
... Las evidencias referidas a las variables demográficas y económicas ayudan a identificar para el ámbito español algunos de los determinantes de la VF ya encontrados en investigaciones referidas a otros contextos. En concreto, a medida que aumenta la edad de las personas (Disney y Gathergood, 2011;Loke, 2017), su nivel educativo (Anderloni et al., 2012) y su nivel de ingresos 183 (Friedline y West, 2016;Daud et al., 2019) se reduce el nivel de VF que experimentan. Por el contrario, tener hijos a su cargo está asociado con un mayor índice de VF (Šubová et al., 2021). ...
... En lo que se refiere a las variables conductuales, mientras las personas más aversas al riesgo muestran un mayor índice de VF (Loke, 2017), los coeficientes referidos a la alfabetización financiera auto reportada muestran alguna relación negativa y significativa con la VF. No se puede afirmar lo mismo para la alfabetización financiera objetiva (Disney y Gathergood, 2011). Dicho de otro modo, importa más lo que la persona percibe que sabe que lo que realmente sabe. ...
La vulnerabilidad financiera (VF) de los hogares ha ganado interés entre los responsables políticos durante las dos últimas décadas. Además, la VF parece estar más extendida entre el género femenino. Siguiendo a Arellano y Cámara (2021), el 55,7% de las mujeres españolas padecía en 2017 una elevada VF, frente al 44,28% de sus homólogos masculinos. Este trabajo contempla dos objetivos. En primer lugar, se explora la relación entre el género y el riesgo de soportar VF. En segundo lugar, se analiza si la relación entre la VF y otras variables demográficas y conductuales podría estar siendo moderada por el género. Para conseguir dichas metas se recurre a la muestra obtenida de la Encuesta de Competencias Financieras (ECF) referida al periodo 2016-17 y compuesta por 8.554 personas. A nivel univariante, el porcentaje de mujeres en los valores superiores del índice de VF (entre los 80 y los 100 puntos) excede al de los hombres. Pese a que los coeficientes estimados no arrojan una relación clara entre el género y la VF, si se observa cierto papel moderador a través de factores como el nivel educativo, la alfabetización financiera objetiva y la subjetiva.
... Yusof et al., 2015), or qualitative ones such as those reflecting the holding of certain debts (e.g. Disney and Gathergood, 2011). However, given that financial fragility can also be found in non-indebted households, other studies use measures based on consumption or saving capacity, such as the holding of emergency funds (e.g. ...
... Secondly, most of the papers that address this issue opt for a single measure of financial vulnerability (namely, 13 out of 18 studies); objective or subjective alike. Only Disney and Gathergood (2011), McCarthy (2011), and Chotewattanakul et al. (2019 opt for a mixed approach that combines both types of measures. In addition, 17% of the studies use measures based on debt, while the remaining 83% opt for measures related to consumption and/or saving capacity. ...
... The underlying arguments were that financial knowledge enhances the individuals' "ability to act" and, consequently, they make healthy financial decisions (Johnson and Sherraden, 2007). However, the studies relating financial literacy with desirable financial behaviours yield inconclusive results (Disney and Gathergood, 2011;Loke, 2017). In fact, literature has recently acknowledged that a high level of financial literacy, per se, does not necessarily lead to a healthy financial behaviour (Fernandes et al., 2014); i.e. this behaviour also depends on the opportunities of individuals to apply their financial knowledge (Sherraden, 2013). ...
Purpose
The present study examines the potential relationship between financial capability and household financial vulnerability for a sample of Spanish individuals.
Design/methodology/approach
The methodology combines a literature review deepening on the two concepts addressed in this paper – financial vulnerability and financial capability – and an empirical analysis. Based on a sample of 7,811 Spanish individuals taken from the Survey of Financial Competences , different probit regression models are used to test the relationship of key independent variables (namely, financial literacy, financial inclusion, and financial capability) with household financial vulnerability.
Findings
Empirical evidence points to the existence of a negative relationship between financial capability and household financial vulnerability. Besides, the variable on financial capability demonstrates, per se , a greater explanatory power than its two components (i.e. objective financial literacy and financial inclusion) separately, particularly in the case of financial literacy.
Originality/value
This paper contributes to the research on household finances along three main dimensions. Firstly, it enhances the research on financial capability by analysing how it relates to consumers' financial vulnerability; an association barely explored by the extant literature. Secondly, it gets closer to the multifaceted concept of financial vulnerability through a wide set of objective and subjective proxy variables. And thirdly, the empirical evidence found leads to proposing some recommendations aimed at improving households' financial capability.
... It is defined as the ability to make simple, everyday decisions regarding debt contracts (Lusardi and Tufano, 2015). Initial studies revealed a low level of debt literacy in the population: many consumers do not understand how credit cards work and others do not comprehend interest compounding (Disney and Gathergood, 2011;Lusardi and Tufano, 2015;van Ooijen and van Rooij, 2016;Cwynar et al., 2018a). This has an adverse effect on financial behavior and outcomes. ...
... The literature on the impact of financial literacy on credit choices and debt management behavior is more extensive. Several studies revealed that more financially literate consumers are more likely to be holders of secured debt, mostly mortgages (Disney and Gathergood, 2011;Brown and Graf, 2013;Feng et al., 2019;Bialowolski et al., 2020). Bialowolski et al. (2020) provides arguments that mortgage borrowing can be considered healthy financial behavior. ...
... At the same time, the correlation between financial literacy and the likelihood of holding unsecured (i.e., riskier and more costly) debt is absent (Feng et al., 2019) or negative (Brown and Graf, 2013). Higher financial literacy scores are associated with higher debt loads in both conditional (Feng et al., 2019) and unconditional comparisons (Disney and Gathergood, 2011). However, despite having larger debt balances, borrowers with higher financial literacy incur lower debt costs (Disney and Gathergood, 2011). ...
Borrowing behavior may be more resistant to formal educational treatments than other financial behaviors. In order to study the process and results of infographics-based debt education, we used eye tracking technology (SMI RED 500 Hz) to monitor the oculomotor behavior of 108 participants (68 females) aged 18 to 60 who were shown 4 infographics. The study used an experimental design with repeated measures and an internal comparison group. We also used scales of debt literacy and a set of information literacy scales: numerical, graph, and linguistic. The results confirm that short-term infographics-based debt education can improve debt literacy significantly. The difference in processing the educational contents that were not known to participants before the educational session suggests that participants with better information literacy make more considerable debt literacy progress. Specifically, we found that numerical literacy is a significant mediator of debt education results, depending on the initial level of debt literacy; this relation is moderated by the focus of visual attention on negatives of debt. We found no significant relationship between debt literacy education results and those of graph and linguistic literacy.
... Significantly, risk perception can be influenced by many factors, including the level of financial knowledge, previous financial experience, and the person's personality. Risk perception can also vary depending on the person's financial context and personal financial situation [11] Materialism positively affects indebtedness (H3+): Less materialistic people may be more concerned about financial security and long-term stability. They may be more likely to save money and avoid excessive debt, even if it means not acquiring desired material possessions immediately. ...
... A structured questionnaire was used, divided into two sections. The first section addressed the profiles of the interviewees, while the second section explored the determinants (behavioral factors) based on the following references: financial literacy, using the [11] scale; materialism, using the scale of [4]; perception of risk and indebtedness, based on the scale of [10] and [12]; and, finally, emotion, using the scale of [13], all translated into Portuguese. ...
High levels of consumer indebtedness have been a concern in recent years, as they have contributed to rising household indebtedness and put pressure on the country’s financial stability. The general objective of this study was to present actions to reduce the individual’s indebtedness. To achieve this objective, exploratory and explanatory research was carried out. First, there was a review of the literature to find variables and/or models that explain indebtedness, and in a second part, with a quantitative character via structural equations, a questionnaire was applied to a sample of 114 individuals from the Federal District. The variables that most influenced were financial literacy (21.1%), materialism (5.45), and risk perception (3.4%). Among the actions to improve indebtedness are to make the individual literate, explain the risks associated with short-term investments and promises of immediate gain, and the consequences of materialism, which can help minimize indebtedness.
... Significantly, risk perception can be influenced by many factors, including the level of financial knowledge, previous financial experience, and the person's personality. Risk perception can also vary depending on the person's financial context and personal financial situation [11] Materialism positively affects indebtedness (H3+): Less materialistic people may be more concerned about financial security and long-term stability. They may be more likely to save money and avoid excessive debt, even if it means not acquiring desired material possessions immediately. ...
... A structured questionnaire was used, divided into two sections. The first section addressed the profiles of the interviewees, while the second section explored the determinants (behavioral factors) based on the following references: financial literacy, using the [11] scale; materialism, using the scale of [4]; perception of risk and indebtedness, based on the scale of [10] and [12]; and, finally, emotion, using the scale of [13], all translated into Portuguese. ...
This study aims to understand what actions should be taken to improve consumer satisfaction. The methodology adopted was an explanatory quantitative approach using structural equations via variance (PLS-SEM). The study began with validating the data collection instrument by franchisees of the chain and applying a questionnaire adapted to a group of consumers. The dimensions evaluated included Safety, Tangibility, Credibility, Responsiveness, and Empathy, with questions organized into nine dimensions. The total sample of respondents was 149. The results indicated that the quality of service is a crucial determinant of customer satisfaction, explaining 36.14% of the variation in satisfaction. Service quality plays a crucial role in customer satisfaction, highlighting the importance of restaurant owners and managers prioritizing the fundamental dimensions of service quality, particularly responsiveness and reliability, as well as service recovery strategies. Another significant factor was customers’ perception of a reasonable price, which acts as a variable to enhance the impact of quality (i.e., quality of food, service, and physical environment) on their overall satisfaction.
... Meanwhile, financial illiteracy is a crucial predictor of wealth inequality (Jappelli & Padula, 2013;Lusardi et al., 2017). In addition, Disney and Gathergood (2011) indicate that financially literate people have higher household income levels. These studies provide many meaningful insights into poverty reduction and the income and wealth of individuals and households. ...
... Research on the impacts of financial literacy on wealth accumulation in Chile (Behrman et al., 2012), The Netherlands (Van Rooij et al., 2012) and Japan (Sekita et al., 2022) all support a consistent result: financial literacy significantly and positively contributes to the wealth accumulation. Conversely, financial illiteracy is positively correlated with wealth disparity (Jappelli & Padula, 2013;Lusardi et al., 2017) and negatively correlated with income (Disney & Gathergood, 2011Gathergood, 2012). ...
The World Bank assessed that meeting the goal of eradicating extreme poverty by 2030 appears to be challenging (or even impossible) for the world. This observation requires an urgent need for policymakers to explore potent instruments to combat poverty globally. Numerous studies have examined various determinants of poverty. However, financial literacy—a relatively new concept—remains underexplored, especially on a global scale. As such, this study is conducted to assess whether financial literacy can reduce the likelihood of falling into poverty using a unique dataset of 113 countries. We find that financial literacy has a significant and negative association with the likelihood of falling into poverty. Beyond association, the causal analysis shows that financial literacy exerts a negative effect on poverty. Our findings remain largely unchanged across different sub-samples based on socio-demographic factors, regions and country income levels, and robustness analyses.
... There is a larger number of papers within the latter category. However, there are only a few references that have used both measures, which are based on indebtedness and on saving and consumption capacity (e.g., Anderloni et al., 2012;Disney & Gathergood, 2011;Yusof et al., 2015). The second classification criterion refers to CFV measures, which can be classified as either objective or subjective: the former are factors external to individuals that may be reported by them or obtained from an outside source (e.g., credit history or financial assets); the latter are factors internal to individuals that cannot be assessed independently of them (O'Connor et al., 2019). ...
... By doing it like this, they have understood CFV as a debt or savings/consumption issue, which may be objective or subjective. In contrast, other papers have utilized one measure calculated from several items (e.g., the debt-to-income ratio or net disposable income after debt payment and living expenses) or several CFV measures each based on a single item (Disney & Gathergood, 2011;McCarthy, 2011). Following these paths, the studies have often given a fragmented view of CFV. ...
Research on consumer financial vulnerability (CFV) was especially encouraged in the aftermath of the 2007–2008 financial crisis, becoming a phenomenon of global interest to academics and policy makers. This paper reviews the existing academic literature on CFV with the aim of mapping out four research fields (i.e., the concept, the measures, the methods, and the drivers of this phenomenon) and providing a roadmap for a future research agenda for this field. To this end, we review the last two decades of academic research on households’ financial vulnerability, thereby presenting a hybrid literature review. Evidence from a comprehensive analysis of 98 academic papers suggests that this is still an emerging and highly fragmented field and, therefore, a comprehensive future research agenda is offered, including concrete suggestions for research designs and measurements. The proposal of a homogeneous definition of financial vulnerability, the consideration of measures that include subjective aspects of the phenomenon, the use of qualitative methods, and the development of more detailed theoretical and empirical research on the drivers of CFV, are among the authors’ recommendations for future research.
... Although the motives for saving may differ among individuals (Lee and Hanna, 2015), the findings suggest that avoiding debt acquisition motivates students to save. These findings are consistent with other studies on student debt tolerance and saving behaviour (Gathergood, 2012;Gathergood and Disney, 2011;Harrison et al., 2015;Syahrom et al., 2017). ...
... 3. Financial literacy is often measured along three main dimensionsfinancial attitude, financial behaviour, and financial knowledge. (2014), the study adapted: (1) Gathergood and Disney (2011) construct to measure financial literacy and indicators of the propensity toward indebtedness; (2) Furnham (1999) measurement scale of savings behaviour. See Table 2 for full details of the measurement constructs of the variables. ...
Purpose
This study investigates how students' propensity towards indebtedness affects their savings behaviour. Additionally, the study examines the moderating role of financial literacy in the relationship between propensity towards indebtedness and savings behaviour.
Design/methodology/approach
Questionnaires were administered to undergraduate students from the University of Ghana Business School. A total of 370 valid responses were used in the empirical analysis. The hypothesised relationships were tested using partial least square – structural equation modelling.
Findings
The structural model results suggest that students' propensity towards indebtedness is negatively related to their savings behaviour. Further, the results demonstrate that financial literacy moderates the negative association between students' propensity towards debt and savings behaviour.
Originality/value
This study highlights students' propensity towards indebtedness and how it impacts their savings behaviour.
... This means they understand basic business mathematics on compound interest rate. However, this performance was worse compared with 85.1% scored in a similar question in a study by Disney and Gathergood [8]. The responses in Table 5 relate to a query which tested the respondent's understanding of the relationship among installment amount, tenure of a loan and interest expense. ...
... Table 9 indicates that only a dismal 11 % correctly answered this question. Unfortunately, this performance was worse compared with that from previous studies by Lusardi and Tufano [19], Disney and Gathergood [8] and van Ooijen and van Rooij 26] where the scores were 35% , 45.7% and 48.3% respectively on the same question. Responses in Table 10 relate to the question which tested the respondent's understanding of time value of money, and also APR. ...
... As to financial literacy on credit behaviour? Low financial literacy was found to lead to higher cost of credit products (Chatterjee, 2013;Disney and Gathergood, 2011) and over-indebtedness (Sevim, 2012). This, undoubtedly, leads to unhappiness and to stop this occurring Meng et al. (2019) argues that increasing in financial literacy decreases high-cost credit behaviour. ...
... Although, this cause and effect statement is contentious because a direct correlation of the affects of financial literacy and financial behaviour is less certain with Willis (2011) holding the opinion that increasing financial education provision does not achieve effective outcomes. Although Willis does appear to be in the minority as most literature argues that financial literacy and finance education measures are effective (Chatterjee, 2013;Disney and Gathergood, 2011;Lusardi and Mitchell, 2014;Sevim, 2012). ...
... The results of one study [20] provide convincing evidence that the lack of self-control and a low level of financial literacy are positively correlated with defaults on consumer loans and self-reports of excessive debt burden. Therefore, self-control is more significant in statistical terms and implies stronger economic effects in all specifications [34]. ...
... • H2 reveals that poor self-control leads to overspending and unnecessary purchases, thus leaving no room for servicing one's loans. This result supports the idea that lack of self-control and a low level of financial literacy are positively correlated with defaults on consumer loans and self-reports of excessive debt burden [34]. • As reflected in H3, a conscientious person has better financial control, holds savings, and ensures timely debt servicing. ...
This paper determined the predefining factors of loan repayment behavior based on psychological and behavioral economics theories. The purpose of this research is to identify whether an individual’s credit risk can be predicted based on psychometric tests measuring areas of psychological factors such as effective economic decision-making, self-control, conscientiousness, selflessness and a giving attitude, neuroticism, and attitude toward money. In addition, we compared the psychological indicators to the financial indicators, and different age and gender groups, to assess whether the former can predict loan default prospects. This research covered the psychometric test results, financial information, and loan default information of 1118 borrowers from loan-issuing applications on mobile phones. We validated the questionnaire using confirmatory factor analysis (CFA) and achieved an overall Cronbach’s alpha reliability coefficient greater than 0.90 (α = 0.937). We applied the empirical data to construct prediction models using logistic regression. Logistic regression was employed to estimate the parameters of a logistic model. The outcome indicates that positive results from the psychometric testing of effective financial decision-making, self-control, conscientiousness, selflessness and a giving attitude, and attitude toward money enable individuals’ debt access possibilities. On the other hand, one of the variables—neuroticism—was determined to be insignificant. Finally, the model only used psychological variables proven to have significant default predictability, and psychological variables and psychometric credit scoring offer the best prediction capacities.
... Chen and Volpe (1998) conclude that the education system does not prepare US students for the financial market, increasing the likelihood of taking on excessive debt. Disney and Gathergood (2011) conclude that less financially literate families tend to assume a higher level of indebtedness. ...
... This means that financial behavior is relevant to curb a person's getting into debt in order to acquire goods and services. Chen and Volpe (1998) and Disney and Gathergood (2011) confirm this result. ...
Purpose – The purpose of this paper is to analyze the influence of behavioral factors on the propensity for indebtedness of university students.Design/methodology/approach – The study investigated a random sample of 319 students from a private university in São Paulo. Using the Modeling of Structural Equations, the behavioral factors were measured. For the data analysis, descriptive statistics and median difference tests (Mann-Whitney U test) and independence tests (Chi-square test) were performed.Findings – The findings indicate that: a) the behavior factor presents the strongest effect on the propensity to debt; b) the degree of indebtedness is influenced by sociodemographic variables (gender, race, marital status, occupation and income); c) the levels of risk perception, materialism and propensity for indebtedness are the same for indebted and non-indebted groups; d) the levels of financial behavior and rationality differ between indebted and non-indebted groups. Research limitations/implications – The data collection was carried out in a metropolitan region where the cohort surveyed has specific characteristics that make it difficult to generalize the results.Practical implications – These results may be useful in assisting: a) school leaders in the design of educational programs; b) the financial system in the development of financial strategies and products.Social implications – Educational policy makers can take action to improve the most vulnerable groups.Originality/value – The main theoretical contribution of this work was made by the integrated analysis of four different constructs on the propensity for indebtedness of university students: materialism, rationality, financial behavior and risk perception.
... While there is considerably less research on debt literacy as compared to financial literacy, recent studies have shown an interest in the topic (Cwynar et al., 2019;Gathergood and Disney, 2011). Connecting debt literacy and debt behaviour, Galariotis and Monne (2023) find that in France, debt literacy predicts both more expensive loan prices and how often people borrow, while van Ooijen and van Rooij (2016) show that debt literacy affects mortgage decisionsalthough it seems that highly literate people tend to have riskier mortgages. ...
Consumer culture is promoting immediate gratification, and the rise of digital financial services is increasing the risk of indebtedness while debt reduces well-being and affects mental health. The authors assess the effects of consumer information provision, debt literacy, chronic debt and attitudes toward debt on the intent to purchase on credit.
An online survey including an experiment with a credit offer vignette was conducted in a representative sample of Estonia (n = 1204). Treatment conditions depicted either the total cost and duration of the credit agreement or the annual percentage rate.
Receiving modified information resulted in a 26 to 30 percentage points decrease in propensity to purchase on credit. Purchasing on credit was associated with attitudes towards credit and chronic debt, but not with debt literacy.
The findings reveal large effects of information provision and highlight the limited effects of debt literacy on credit decisions. Limitations may emerge from differences in financial regulation across countries.
The authors' results highlight the importance of applying behavioural insights in consumer credit information provision, both in the financial sector and policy. Testing the messages allows having evidence-based solutions that promote responsible purchasing on credit.
The findings call for changes in credit information provision requirements. Their effect is significantly larger compared to the literature, emphasizing the role of credit information provision in less regulated online markets.
... Ill-being perception was measured using a 5-point Likert scale (1-very unlikely and 5-very likely) and comprised seven items. These seven items were developed by Vieira et al. (2016) based on Disney and Gathergood's (2011) studies. The more "likely" answers and "very likely" responses were obtained, the larger the feeling of ill-being on this scale. ...
Compulsive buying is a relatively modern stereotypical disorder that interferes with our daily lives and causes serious mental and financial problems. Most studies provided information on an impulsive characteristic that causes compulsive buying and addiction, whereas a lack of studies was found on the controlling aspect of compulsive buying behavior. Using negative emotion can be the first approach for examining the relationship between self-control and propensity for compulsive purchases. The current study examined the direct influence of self-control on compulsive buying behavior (CBB) as well as the role of ill-being perception as a mediator in the relationship between self-control and CBB. An online survey was conducted to collect relevant data. A total of 639 buyers, both males and females of various ages, completed questionnaires. Correlation and mediation analysis revealed that self-control positively affected compulsive buying whereas ill-being perception negatively influences the CBB. Further, Ill-being perception had a mediating effect on self-control and CBB. The results further showed that to avoid the negative effects of compulsive buying behavior, buyers should be trained to improve self-control by inducing negative emotions related to CBB.
... Financial literacy is a crucial determinant of household over-indebtedness in both developed and developing economies (Widjaja et al., 2020). It refers to the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investment (Lusardi & Mitchelli, 2007;Disney, & Gathergood, 2011;Rieger, 2020). Further, financial literacy denotes the set of information that helps people manage their income, expenses, monetary loans, savings, and investments in both the short and long term (Rahman et al., 2020). ...
Household over-indebtedness is a significant issue in many parts of the world and has extremely detrimental socioeconomic effects. Separate studies have found that macroeconomic, demographic, and behavioral factors account for the majority of the variance in household over-indebtedness; however, behavioral components have received less attention. The purpose of this study is to review the behavioral factors that affect household over-indebtedness. To identify relevant empirical studies on household over-indebtedness, databases such as Scopus, Web of Science, Emerging Sources Citation Index, and Social Sciences Citation Index were reviewed. During this search, 267 articles were initially screened, but the PRISMA framework (Preferred Reporting Items for Systematic reviews and Meta-Analyses) was applied to select the most appropriate, well-cited, and recent 52 articles. The most significant behavioral factors of household over-indebtedness are financial literacy, risk perception, materialism, and emotions. This review reveals that behavioral factors have not been well established in many developing economies whereas the empirical findings in developed countries are consistent with behavioral theories. Further, this paper discloses that interaction of macroeconomic, demographic, and behavioral determinants on household over-indebtedness still needs further study. According to Keynes' general theory, individual financial decisions are influenced by macroeconomic circumstances. Moreover, Ando and Modigliani's life cycle hypothesis contends that demographic factors significantly influence individuals' financial behavior. Our suggested conceptual model contains macroeconomic and demographic factors as mediators and moderators, BEHAVIORAL FACTORS AFFECTING HOUSEHOLD OVER-INDEBTEDNESS: A SYSTEMATIC REVIEW 85 respectively, between behavioral factors and household over-indebtedness. Once this model is tested, the findings may greatly aid governments, central banks, financial institutions, bank managers, credit officers, and other policymakers in their quest to discover answers to the problem of household over-indebtedness.
... • Valor de la deuda. En la literatura, el valor de la deuda se define como el saldo en hipotecas, créditos de consumo y tarjetas de crédito (Gathergood y Disney, 2011). En otros casos, el balance de la deuda se define como el balance promedio de cada tarjeta de crédito únicamente (Díaz Rodríguez et al. 2019). ...
Este informe analiza la condición del endeudamiento del sector privado en Centroamérica, México, Panamá y República Dominicana. En concreto, se estudia su desempeño reciente; el sobreendeudamiento de los hogares; el efecto de la política monetaria y regulatoria para apoyar la disponibilidad de crédito durante la crisis del COVID-19; el vínculo entre el nivel de endeudamiento y la morosidad y la creación de empleo formal; la relación del sobreendeudamiento con la salud, y cómo la economía del comportamiento puede contribuir a mejores condiciones de endeudamiento de hogares y pequeñas empresas, entre otros.
... Disney and Gathergood (Disney & Gathergood, 2013;Gathergood & Disney, 2011) found that financial ignorance goes hand in hand with the usage of more expensive credit. More financially literate individuals also tend to have higher probability of saving (Strömbäck et al., 2017) and savings have been already proven to play a protective role against high interest rate on acquired debt (Bialowolski et al., 2020a). ...
The article presents empirical evidence for a significant role of stated credit purpose for the level of interest rates paid by the end users of non‐mortgage credit (households). Data for the analysis was drawn from two waves of the Household Finance and Consumption Survey. The results of median regression show that, with the exception of credit for consolidation of other debts, remaining credit purposes were associated with lower interest rates compared to the interest rates of credit for car purchases. Especially low interest rates were evidenced for educational debt. Quantile regression analysis has shown that households which, given their socioeconomic background, experienced the highest interest rate costs, paid additional premiums if their debt was related to consolidation of previous debts or consumption. In the case of households paying relatively low premiums, consolidation of other debts and consumption motives were associated with lower interest rates than loans devoted to car purchase.
... In particular, respondents attributed the lack of understanding in the actual cost of repayment credit commitment at the point of credit application as one of the primary drivers to over-indebtedness. Lusardi and Tufano (2009) found that those with lower levels of debt literacy tend to find their debts levels distressing while Disney and Gathergood (2011) found that financially illiterate households are more likely to report credit arrears or have difficulty paying their debts. Norvilitis et al. (2006) found that financial knowledge is a critical predictor of debt and this is consistent with Lea et al. (1995) who found that individuals who are in debt tend to rate their money management skills poorly compared to non-debtors. ...
... Poor financial knowledge has a positive relationship with the level of indebtedness and difficulty repaying loans [45][46][47][48][49]. Individuals with a good level of indebtedness knowledge can avoid the imposition of delay charges on credit cards, have a high net worth, access to planned savings for emergencies and retirement, and a lower debt-to-overall income ratio [50,51]. ...
Financial fragility is an important issue in the well-being of individuals. Previous studies have shown that many young people are vulnerable to financial fragility. To add value to previous findings, the issue of financial fragility was focused on single youths in the middle-income group (M40) in urban areas. The objective of the study was to determine the factors influencing the financial fragility of single youth (M40) in urban areas. A quantitative approach using a survey method was applied. The study’s sample consisted of 25–34-year-old single urban youths. Questionnaires were used as research instruments and were distributed online. A total of 374 samples were analyzed using multilevel regression. The results of the analysis show that spending knowledge, financial behavior, saving behavior, and financial shock are the determining factors of financial fragility among M40 single youth in urban areas.
... Similarly, there are no agreements on the type of instruments that would need to be applied to model the FL of Malaysian B40 households. Over the years, numerous studies around the world have examined FL levels in many contexts, such as among retirees in the Netherlands (Van Rooij, Lusardi, & Alessie, 2011), university students in Ghana (Ansong & Gyensare, 2012), as well as families in the United Kingdom (Richard & John, 2011) and Japan (Sekita, 2011). ...
Financial literacy (FL) helps individuals make more assertive and efficient financial decisions. However, there is limited knowledge regarding the dimensions of FL as pertaining to low-income or Bottom 40% (B40) households in Malaysia. Therefore, the present study examined the reliability and validity of the B40 financial literacy measurement scale. A self-administered survey questionnaire was employed. The sample consisted of 100 respondents randomly selected from B40 households in Johor, Malaysia. The analysis was carried out through Exploratory Factor Analysis (EFA) via IBM-SPSS version 22.0 software. To measure the FL constructs, the study initially developed 59 items; however, six items were deleted as the factor loading was below the 0.50 cut-off point, while 53 items were retained as their factor loading was more than 0.50. Because the study validates the dimension that leads to improved FL, the findings are particularly beneficial to Malaysian B40 households who have been identified as the most vulnerable group; the findings will help action to be taken to improve the FL levels of B40 households.
... Thus, there study reported that credit cards users did not take seriously credit cards for many reason (Murugiah, 2016), or unnecessary things (Abdullah et al., 2019. Nonetheless, credit cards users experience the consequences of ignorance end up pay higher transaction fees, high debts and incur higher interest rate as research conducted by (Gathergood & Disney, 2011;Lusardi & Tufano, 2015;Klapper & Lusardi, 2020). ...
This research investigates the debt management literacy among credit card users. Based on thematic analysis through semi-structured interviews with debt management experts, particularly in credit cards, this research sheds light on the positive and negative to the causal of debt management literacy, including awareness and experiences. Meanwhile, the negative causal is ignorance and economy. These themes depict that credit cards users are prone to develop knowledge in debt management for several causes. Taken together, the research findings highlight the importance of understanding the nature of debt management, which has received relatively little attention to date.
... Why does financial literacy matter? Financial literacy is important because financially illiterate people (1) incur higher financial costs and assume higher debts (Lusardi and Tufano 2015), (2) are exposed to exploitation by devious financial service providers (Lusardi and Mitchell 2011), (3) are less likely to seek investment advice and as a result more likely to make investment mistakes (Von Gaudecker 2015) and (4) are more likely to report credit arrears or experience difficulty paying their debts (Disney and Gathergood 2011). ...
Efforts are being exerted in many developing countries to promote financial inclusion by increasing individuals’ access to financial products and services. However, literature suggests that increasing the supply of financial products and services per se may not help in expanding financial inclusion unless concerted efforts are exerted in enhancing financial literacy. This is because financially literate individuals are more likely to appreciate the value of financial services and hence take up financial products. This paper reports the link between financial literacy and inclusion using data from a demand side financial inclusion survey conducted in Kenya and Tanzania in 2016 covering a total of 6029 individuals. Results from our instrumental variable regression analysis confirmed that financial literacy is a strong driver of financial inclusion. This implies that efforts to promote financial inclusion need to be accompanied with financial literacy campaigns in both countries.
... In particular, respondents attributed the lack of understanding in the actual cost of repayment credit commitment at the point of credit application as one of the primary drivers to over-indebtedness. Lusardi and Tufano (2009) found that those with lower levels of debt literacy tend to find their debts levels distressing while Disney and Gathergood (2011) found that financially illiterate households are more likely to report credit arrears or have difficulty paying their debts. Norvilitis et al. (2006) found that financial knowledge is a critical predictor of debt and this is consistent with Lea et al. (1995) who found that individuals who are in debt tend to rate their money management skills poorly compared to non-debtors. ...
... However, there are no consensuses in academia on what instruments should be used to model the financial literacy of B40 households in Malaysia. Recently, there have been many studies conducted around the globe about financial literacy such as studies done to examine families from the United Kingdom (Disney & Gathergood, 2011) and Sekita (2012) in Japan, financial literacy among university students in Ghana (Ansong & Gyensare, 2012), and retired people in the Netherlands (Van Rooij et al., 2011). ...
The purpose of this paper is to describe a systematic approach to measure content validity using a Content Validity Index (I-CVI) established by evidence and best practices on financial literacy among B40 households (low-income group) in Malaysia. Content validity represents the extent of a measured construct and is considered important to support the validity of research tools like questionnaires and consists of five sources of evidence specifically content, reaction process, internal structure, relationships with other variables, and consequences. Thus, B40 household financial literacy consisting of financial knowledge, financial behaviour, and financial attitudes were tested and analysed using the I-CVI.This study involved five economics education expert panels in Malaysia and the choice of the scale was made based on the best adaptation considerations and the collected data were analysed using I-CVI.I-CVI determined the content validity of each item where I-CVI value of 0.6 to 1 indicated very high content validity and is suitable to measure the construct while I-CVI value less than 0.6 were dropped. Based on the findings, the financial literacy constructs consisting of financial knowledge, financial behaviour, and financial validity had high content validity to measure the level of financial literacy of B40 households.The calculation of I-CVI in this study is done using empirical data from the expert scores and it is recommended that researchers use Exploratory Factor Analysis (EFA) to ensure the validity and reliability of the instruments.
Purpose
This study contributes to the literature on the inclusivity of microfinance, by examining non-participation in Kudumbashree , a welfare-oriented microfinance initiative in Kerala, India, through the lens of social exclusion.
Study Design
The study integrates both quantitative and qualitative data. A survey was conducted among 678 rural poor households in Kerala, supplemented by in-depth interviews and focus group discussions.
Findings
Despite the programme’s provision of financial and non-financial benefits, women from the most marginalised backgrounds encounter certain barriers in participating in Kudumbashree , leading to passive/implicit exclusion. The observed positive association between participants’ debt attitudes and their likelihood of continued engagement in the programme, highlights the role of financial incentives in enhancing retention rates of welfare initiatives.
Contributions
This paper offers several policy insights for improving the inclusivity of microfinance programmes. Conceptually, it highlights the paradox that policies designed to combat social exclusion may unintentionally reinforce it. The paper argues that institutional exclusion in social protection schemes—where participation is voluntary and conditional—can manifest implicitly through the interplay of three factors: design-stage conditions, their operational-stage enforcement, and individual-level limitations in meeting them.
Implications
To enhance participation in welfare-oriented microfinance programmes, targeted awareness sessions fostering group solidarity and team cohesion are recommended.
With the development of society, the number of female-headed households is on the rise. Based on the data from the China Household Finance Survey (CHFS) in 2019, this paper establishes a Tobit model to study the influence of female-headed households on household debt risk. Results indicate that female-headed households can substantially reduce household debt risk, and this conclusion still holds after overcoming endogeneity issues. Further tests on the mediating effect reveal that risk aversion and housing property holding have partial mediating effects and masking effects, respectively, in the path of female-headed households affecting household debt risk. In addition, the heterogeneity analysis indicates that the influence of female-headed households on household debt risk is more significant in third-tier cities, as well as in families without children, families without elderly members, and families with more than two elderly members. The conclusions of this paper provide a reference for the relevant policy measures to reduce household debt risk and promote gender equality.
RESUMO A pesquisa realizada teve por objetivo relacionar as diferentes percepções do dinheiro e a propensão ao endividamento dos discentes da graduação em ciências contábeis numa instituição federal. Este estudo se caracteriza como uma pesquisa descritiva de abordagem quantitativa operacionalizada por meio de uma survey com corte transversal aplicada a 172 alunos de uma instituição federal. O questionário foi aplicado nos meses de março e abril de 2021, com base na Escala do Significado do Dinheiro e de Propensão ao Endividamento. Os dados foram analisados mediante testes estatísticos univariados, bem como o teste de Shapiro-Wilk, testes não-paramétricos e regressão linear múltipla. O significado do dinheiro não se mostrou significativo em relação à propensão ao endividamento. As variáveis demográficas e econômicas relacionadas a gênero, financiamento/empréstimo em atraso e atraso no pagamento do cartão de crédito apresentaram relação com a propensão ao endividamento. O significado do dinheiro concernente a estabilidade e progresso obtiveram as maiores médias enquanto o fator sofrimento obteve a menor média. Em relação ao endividamento, os discentes evidenciaram saber da importância do cuidado com suasfinanças, o que reforça a premissa de que quanto maior o nível de conhecimento, menor o nível de endividamento.
This study investigated the behavioural and cognitive predictors of consumer credit usage to develop a behavioural credit risk assessment procedure for a factoring company. Participants completed surveys measuring personality traits, self-esteem, material and monetary values, compulsive and impulsive buying tendencies, self-control, and impulsiveness. Financial surveys also assessed financial literacy and knowledge of financial concepts. The results indicated that extraversion, conscientiousness, emotional stability, and experiential self-control were significant predictors of consumer credit usage. These findings suggest that a finance company can use these personality traits and financial characteristics to develop a more accurate and effective credit risk assessment procedure, such as psychometric tests.
Identificado como fonte de problemas emocionais e de saúde, o endividamento é um fenômeno que acomete mais de 60% da população cearense. O objetivo principal do trabalho foi identificar o impacto da Alfabetização Econômica, Atitudes em Relação ao Endividamento, Atitudes em Relação ao Consumo e características sociodemográficas sobre o endividamento individual a partir de uma amostra com 924 adultos no estado do Ceará. Foram realizadas Análises Fatoriais Exploratórias e, após, uma regressão logística, que determinou o impacto dos conhecimentos, comportamentos econômicos e traços sociodemográficos no endividamento pessoal. Os resultados mostraram que a alfabetização econômica não exerce influência no endividamento pessoal, assim como o comportamento racional de consumo, as atitudes austeras em relação ao endividamento, o gênero e o nível socioeconômico. Já as atitudes impulsivas e compulsivas de compra e o hedonismo em relação ao endividamento impactam positivamente nas dívidas dos indivíduos. Entre as características sociodemográficas, verificou-se que indivíduos mais velhos e aqueles que residem com o cônjuge estão mais propensos ao endividamento. Políticas públicas de enfrentamento ao endividamento devem buscar mudanças nas atitudes dos indivíduos mais do que apenas o repasse de informações sobre economia e finanças pessoais.
The importance of a financially secure population in a nation has been emphasised worldwide numerous times regardless of the economic conditions of individual countries. Financially literate individuals have proven to be much empowered, independent, and demonstrated higher financial wellbeing. While the importance is obvious, scholars have wide-ranging views in defining and conceptualising financial literacy, which made empirical studies surrounding financial literacy generating contradicting results. Building on the Theory of Planned Behaviour, the current paper proposes a conceptual model to fulfil the paucity of a sound model to understand how financial literacy is formed in an individual. Deriving insights from previous studies, the proposed conceptual model perceives financial literacy as a process consisting of knowledge dimension and application dimension. Two paths were proposed considering the direct and indirect relationships between financial knowledge and financial behaviour, i.e., through attitude and personality of an individual. Standing as an applied behavioural model anchoring on the Theory of Planned Behaviour, the proposed conceptual model explains how financial literacy is formed within an individual. Future researchers are invited to use the conceptual model by adding context-specific variables since the proposed model only provides a general view on the phenomena supporting the argument that decisions are primarily made at an individual level where individual choices and circumstances influence decisions.
Studies reveal that the financial well-being of employees has a direct bearing on their productivity and overall well-being. The wellness initiatives organized by the information technology (IT) companies operating in India have also started focusing on the contributing aspects of financial well-being. In this context, the article explores the determinants of financial well-being of IT professionals in India. The article utilizes confirmatory factor analysis (CFA) for the analysis. The study employs a survey questionnaire covering financial literacy, financial behavior, and financial fragility. It also attempts to recognize the influence of gender and job roles (technical or managerial) in ascertaining financial well-being. The sample data used in the study include 237 professionals employed in the IT sector. The study uses partial least squared structured equation modelling (PLS-SEM) to understand the connection between the determining factors. The results indicate that financial well-being is positively influenced by financial literacy and financial behavior while financial fragility has a substantial negative impact. The financial literacy and financial fragility are significantly different between technical and managerial roles. Gender appears to have a sizeable impact on the financial behavior and financial fragility levels—women employees performed better in both the factors. Interestingly, financial literacy levels of the two genders are not significantly different. The results show that there is a need to focus on literacy, behavior, and fragility in financial wellness programs organized by the IT industry. Further, the study recommends offering tailored financial wellness training modules created based on the job levels and gender instead of following “one program, fits all” standardized approach.
Background: A shift in the retirement planning and pensions landscape has created an enormous responsibility for individuals to plan for their retirement provision actively. Very few South Africans reach the average retirement age of 65 years with sufficient funds to sustain themselves during their retirement.
Purpose/objective: Using secondary data from the 2011 South African Social Attitudes Survey (SASAS), this study aims to examine the influence financial literacy has on the retirement planning of South Africans. The secondary aim of the study was to investigate the financial literacy and retirement planning behaviour of certain demographic groups: gender, age, race, education, and income levels.
Design/methodology: Binomial logistic regression is used to establish if financial literacy influences planning for retirement.
Findings: The results show that financial literacy significantly influences retirement planning. Furthermore, only 24% of South Africans actively plan for retirement and financial literacy was particularly low among women, less educated individuals and Black African people.
Research limitations: Firstly, the study relies on self-reported measures. Secondly, the binomial logistic regression analysis only indicates the likelihood of an individual planning for retirement based on their financial literacy score.
Originality/value: This study contributes to retirement planning literature as it is one of the few studies that explore retirement planning and financial literacy in the context of a developing country using a geographic, nationally representative sample.
A educação financeira é uma ferramenta que auxilia os indivíduos em tomadas de decisões mais assertivas e eficientes no contexto monetário de suas vidas, diante dessa importância tem-se como objetivo principal deste trabalho investigar o nível de educação financeira dos habitantes do Rio Grande do Sul e identificar se existem diferenças nos níveis de educação segundo as variáveis socioeconômicas e demográficas. Para isso realizou-se uma pesquisa com 1.067 indivíduos e a análise dos dados foi através da estatística descritiva e multivariada. Os principais resultados revelam maiores níveis de educação financeira entre os homens, solteiros, que não possuem dependentes, estudantes e/ou bolsistas, com um maior nível de escolaridade, tanto seu, quanto dos seus pais, com maiores faixas de renda própria e familiar e residentes na região centro ocidental rio-grandense. Todavia, o nível de educação financeira na amostra de rio-grandenses avaliada atingiu patamares preocupantes, ao acertaram 67% das questões de educação básica e 62,34% das questões de educação avançada, revelando um nível médio de educação financeira, porém muito próximo ao nível baixo (abaixo de 60%). Esses resultados geram uma conscientização sobre a necessidade de novos investimentos por parte do governo ou de instituições privadas em programas de educação financeira, voltados principalmente aos grupos que se mostraram com menor conhecimento
This study examined the relationship between debt experiences and indebtedness of formal sector employees in Kenya. Positivism paradigm was used in this study. The study adopted a cross sectional and correlational descriptive research design. The study targeted about 2.4 million employees in the formal sector. Three stage sampling was done, first, cluster sampling and then, stratified sampling and finally random sampling. The study used primary data collected by use of self-administered questionnaires. A pilot test of the questionnaire was conducted on 40 respondents to check its validity and reliability. Using Cockran 1977 formula, 384 questionnaires were circulated. Of the returned 337, 292 questionnaires were considered usable. Cronbach’s alpha for likert type items was found reliable (over 0.7). Data analysis used IBM SPSS statistics 21 for descriptive and correlation analysis. Further, OLS Multiple regression models were used to examine the relationship between debt experiences and indebtedness. The findings reveal that debt experiences have a significant effect on indebtedness. The study recommends increased use of debt advice and counselling by formal sector employees in Kenya.
Resumen El objetivo de la investigación es determinar el nivel de fragilidad financiera de los hogares gallegos, así como analizar si sus características sociodemográficas, económicas y conductuales se asocian con esta problemática, desde una perspectiva comparada con respecto al resto de comunidades autónomas. Partiendo de los datos de la primera edición de la Encuesta de Competencias Financieras (ECF), se observa que, comparado con España, un menor porcentaje de la población gallega presenta situaciones de fragilidad financiera media o alta. Además, los ingresos del hogar y la capacitación financiera del individuo son factores amortiguadores de la fragilidad financiera (FF), tanto en Galicia como en el resto de España. También, un mayor nivel educativo reduce la probabilidad de experimentar un alto nivel de FF autopercibida individual, mientras que la relación contraria se experimenta cuando se habita en un hogar con menores a cargo. Estos resultados, similares en ambas submuestras, no ocultan diferencias destacables. En comparación con España, el impacto de la capacitación financiera resulta menos relevante en Galicia, mientras que la inclusión financiera se relaciona positivamente con la FF.
This study examined the relationship between debt experiences and indebtedness of formal sector employees in Kenya. Positivism paradigm was used in this study. The study adopted a cross sectional and correlational descriptive research design. The study targeted about 2.4 million employees in the formal sector. Three stage sampling was done, first, cluster sampling and then, stratified sampling and finally random sampling. The study used primary data collected by use of self-administered questionnaires. A pilot test of the questionnaire was conducted on 40 respondents to check its validity and reliability. 384 questionnaires were circulated. Of the returned 337, 292 questionnaires were considered usable. Cronbach’s alpha for likert type items was found reliable (over 0.7). Data analysis used IBM SPSS statistics 21 for descriptive and correlation analysis. Further, OLS Multiple regression models were used to examine the relationship between debt experiences and indebtedness. The findings reveal that debt experiences have a significant effect on indebtedness.
This study objectifies to construct a model of propensity towards indebtedness through the application of psychological factors from 172 respondents in Malaysia. A questionnaire which consist of 57 questions was administered. The questionnaire addressed four psychological factors (emotion, risk perception, myopia and overconfidence). The finding indicated negative emotion, high risk perception, myopic, and overconfidence consumers results to high propensity to indebtedness. By using the Structural Equation Modelling (SEM), all two hypotheses are confirmed with two new ones inserted. Thus, since propensity to indebtedness are often detrimental to consumers’ insolvency, it is appropriate for interested parties to invest time and effort to diagnose the influence psychological factors have on the propensity to indebtedness, hence, this model will prove valuable. This conceptual model provides an insightful foundation for the analysis of multidimensionality of psychological factors on the propensity to indebtedness.
Background: A shift in the retirement planning and pensions landscape has created an enormous responsibility for individuals to plan for their retirement provision actively. Very few South Africans reach the average retirement age of 65 years with sufficient funds to sustain themselves during their retirement. Purpose/objective: Using secondary data from the 2011 South African Social Attitudes Survey (SASAS), this study aims to examine the influence financial literacy has on the retirement planning of South Africans. The secondary aim of the study was to investigate the financial literacy and retirement planning behaviour of certain demographic groups: gender, age, race, education, and income levels. Design/methodology: Binomial logistic regression is used to establish if financial literacy influences planning for retirement. Findings: The results show that financial literacy significantly influences retirement planning. Furthermore, only 24% of South Africans actively plan for retirement and financial literacy was particularly low among women, less educated individuals and Black African people. Research limitations: Firstly, the study relies on self-reported measures. Secondly, the binomial logistic regression analysis only indicates the likelihood of an individual planning for retirement based on their financial literacy score. Originality/value: This study contributes to retirement planning literature as it is one of the few studies that explore retirement planning and financial literacy in the context of a developing country using a geographic, nationally representative sample.
A shift in the retirement planning and pensions landscape has created an enormous responsibility for individuals to plan for their retirement provision actively. Very few South Africans reach the average retirement age of 65 years with sufficient funds to sustain themselves during their retirement. Using secondary data from the 2011 South African Social Attitudes Survey (SASAS), this study aims to examine the influence financial literacy has on the retirement planning of South Africans. The secondary aim of the study was to investigate the financial literacy and retirement planning behaviour of certain demographic groups: gender, age, race, education, and income levels. Binomial logistic regression is used to establish if financial literacy influences planning for retirement. The results show that financial literacy significantly influences retirement planning. Furthermore, only 24% of South Africans actively plan for retirement and financial literacy was particularly low among women, less educated individuals and Black African people. The research limitations identified were firstly, the study relies on self-reported measures and secondly, the binomial logistic regression analysis only indicates the likelihood of an individual planning for retirement based on their financial literacy score. This study contributes to retirement planning literature as it is one of the few studies that explore retirement planning and financial literacy in the context of a developing country using a geographic, nationally representative sample.
La educación financiera se ha convertido mundialmente en una prioridad para las instituciones públicas organismos como la Organización para la Cooperación y el Desarrollo Económicos (OCDE), El Banco Mundial, el G-20, el Banco Interamericano de Desarrollo (BID) y El Centro de Estudios Monetarios Latinoamericanos (CEMLA) han tomado la iniciativa en este tema y desarrollada diversidad de foros, investigaciones, publicaciones y programas con la finalidad de que la educación financiera se convierta en un tema relevante para los gobiernos de los países (Marshall, 2014).El presente artículo presenta un análisis del nivel de conocimiento y factores que influyen en el uso de créditos y tarjetas de crédito de los trabajadores de una empresa del sector industrial de la ciudad de Navojoa, Sonora a través de la aplicación de una encuesta que consta de 22 preguntas las cuales están divididas en tres categorías: información personal (sociodemográficas), conocimientos generales sobre finanzas y uso de créditos y tarjetas de crédito este se aplicó a través de un cuestionario de Google Forms a los empleados del área de producción de la empresa bajo estudio excluyendo a supervisores, jefes y gerentes. Entre los resultados más interesantes se comprobó la hipótesis planteada que a mayor nivel de educación financiera el nivel de endeudamiento es menor por lo tanto se concluye con la importancia y el valor que tienen las instituciones financieras de ofrecer productos y servicios, pero también de orientar y educar sobre el uso adecuado de los mismos.
This paper aims at presenting a systematic review of the literature based on the state of the art of research on financial well-being. We systematized a research protocol based on the works developed by Tranfield, Denyer, and Smart (2003), Kitchenham (2004), and Zupic and Čater (2015), to contribute to scientific knowledge about financial well-being, consistent with the methodological rigor required in RSL, which resulted in the composition of the research corpus. We search on the Scopus and Web of Science databases. The analysis includes all international publications between 1960 and 2018, comprising a total of 78 articles. Our results show that the financial well-being (demographic and socioeconomic variables, such as sex, ethnicity, age, income, education, and marital status), in addition to behavioral factors (attitude towards debt and financial literacy), may be indicative of theoretical gaps. We also evidenced that researchers have expended efforts on research involving the decision-making process in finance as a factor influenced by the satisfaction of people's lives.
Purpose
The study attempts to understand the factors impacting the financial wellbeing of IT employees in India using confirmatory factor analysis (CFA). It utilizes well-established survey instruments to assess the impact of financial literacy, financial behaviour and financial stress on financial wellbeing. The study also attempts to understand the role of demographic factors (age, gender, monthly income, job category and work experience) in determining financial wellbeing through multigroup analysis.
Design/methodology/approach
Structured equation modelling (SEM) is used to study the link between the determinants. The study also attempts to understand the role of demographic factors (age, gender, monthly income, job category and work experience) in determining financial wellbeing through multigroup analysis. Data used for the analysis covers 237 employees working in the IT sector.
Findings
While financial literacy and financial behaviour have a significant positive impact on financial wellbeing, financial stress has a significant negative impact. Financial behaviour and financial stress were found to have a mediating role in the relationship between financial literacy and financial wellbeing. The demographic variables significantly moderate the relationship between the factors leading to financial wellbeing.
Originality/value
The results show the need for financial wellbeing programs to focus on enhancing financial knowledge and improving financial planning. Further, it suggests offering customized financial wellbeing programs based on the employee's demographic characteristics rather than following a “one program, fits all” approach.
Visto os altos índices de endividamento, desconhecimento e atitudes inadequadas remetem a necessidade de ampliar as discussões sobre educação financeira. O presente estudo tem o objetivo de analisar o conhecimento e atitudes financeiras na ótica dos estudantes do ensino médio quanto a sua educação financeira. Foram coletadas 616 respostas por meio de um questionário aplicado aos alunos do ensino médio de escolas públicas e privadas situadas no interior dos estados de Mato Grosso do Sul e São Paulo. Utilizou-se o Excel e software SPSS para o tratamento estatístico dos dados coletados. Na análise dos dados adotou-se a média para os resultados descritivos e no intuito de identificar diferenças entre os aspectos individuais, demográficos e de socialização sobre a educação financeira, foram aplicados os testes de Kruskal-Wallis e qui-quadrado. Os achados revelam que os estudantes: priorizam gastar mais com itens de menor relevância (presentes, computador, eletrônicos, livros e celular), costumam conversar com familiares assuntos relacionados a estudos e carreiras, mas tendem a achar menos importante os gastos com estudos. Os resultados também apontam que a variável ‘como decido o que fazer com meu dinheiro’ é significativa em relação ao gênero, período de estudo, estado civil e ganhos financeiros. Os achados sugerem que há ausência de uma formação curricular. Diante disso, é importante o parecer do Conselho Nacional de Educação, homologado pelo MEC, que diz que as escolas devem estar adaptadas, já em 2020, para a implementação do ensino sobre finanças. De acordo com as determinações da Base Nacional Comum Curricular (2018).
The research was conducted with the aim of analyzing the influence of emotions, materialism, financial literacy, risk perception and financial experience on propensity to indebtedness. Primary data was obtained through distributing 100 questionnaires to Kredit Plus Kendari customers then processed with the SPSS 25.0 software application. The results of the research that have been done state that there is an effect of emotion, financial literacy and experience on propensity to indebtedness which has a negative significant effect, the effect of materialism on propensity to indebtedness has a positive significant effect, while the risk perception of propensity to indebtedness has no significant effect.
Introdução:
A redução de escalas visa a redução da quantidade de itens, mantendo-se suas qualidades psicométricas. O presente estudo teve como objetivo a redução da versão brasileira da escala de compra por impulso de Rook e Fisher.
Método:
Participaram do estudo 1173 brasileiros, sendo 868 mulheres e 305 homens com a média de idade de 24.8 anos e desvio-padrão de 12.7. Todos os participantes foram contatados via redes sociais ou e-mail. A pesquisa foi dividida em três estudos.
Resultados:
No primeiro estudo, a estrutura unifatorial do instrumento foi corroborada, uma vez que a análise paralela sugeriu a retenção de um fator e os índices de ajuste foram acima de .95. Foram selecionados quatro itens para comporem a versão reduzida. O segundo estudo analisou a estrutura interna e as cargas fatoriais da escala reduzida por meio da análise fatorial exploratória e da análise fatorial confirmatória. Os resultados da análise fatorial exploratória foram semelhantes aos do estudo 1 e a análise fatorial confirmatória também apresentou índices de ajuste acima de .90. No terceiro estudo foram realizadas correlações para verificar o grau de diferença das correlações entre a escala reduzida e a original. Foram obtidas evidências de validade preditiva com as escalas de materialismo, consumo de status e propensão ao endividamento. Ainda, realizou-se uma análise fatorial confirmatória multigrupo que verificou a invariância do instrumento entre homens e mulheres.
Conclusão:
Conclui-se que a escala reduzida de compra por impulso, 4-CI, é considerada adequada para a mensuração desse construto.
This study aims to determine the effect of emotion, materialism, risk perception, and financial literacy on the propensity toward indebtedness of the millennial generation in Surabaya. The researcher uses a online questionnaire distributed via Google Form to 110 millennials in Surabaya. The collected data is processed using Partial Least Square (PLS). This study indicates that emotion, materialism, and perceptions have a significant effect on indebtedness propensity.
Following Becker (1957) we ask whether competition will eliminate the effects of behavioral biases. We study the case of shrouded product attributes, such as main- tenance costs, expensive add-ons, and hidden fees. In standard competitive models with costless advertising all firms choose to reveal all product information. We show that information revelation breaks down when some naive consumers do not anticipate shrouded attributes. Firms will not compete by publicly undercutting their competi- tors' add-on prices if (i) add-ons have close substitutes that are only exploited by sophisticated consumers, or (ii) many consumers drop out of the market altogether when the add-on market is made salient. We show that informational shrouding flour- ishes even in highly competitive markets, even in markets with costless advertising and
We analyze a national sample of Americans with respect to their debt literacy, financial experiences, and their judgments about the extent of their indebtedness. Debt literacy is measured by questions testing knowledge of fundamental concepts related to debt and by selfassessed financial knowledge. Financial experiences are the participants' reported experiences with traditional borrowing, alternative borrowing, and investing activities. Overindebtedness is a self-reported measure. Overall, we find that debt literacy is low: only about one-third of the population seems to comprehend interest compounding or the workings of credit cards. Even after controlling for demographics, we find a strong relationship between debt literacy and both financial experiences and debt loads. Specifically, individuals with lower levels of debt literacy tend to transact in high-cost manners, incurring higher fees and using high-cost borrowing. In applying our results to credit cards, we estimate that as much as one-third of the charges and fees paid by less knowledgeable individuals can be attributed to ignorance. The less knowledgeable also report that their debt loads are excessive or that they are unable to judge their debt position.
Borrowing on credit cards at high interest rates might appear irrational. However, even low transactions costs can make credit cards attractive relative to bank loans. Credit cards also provide liquidity services by allowing consumers to avoid some of the opportunity costs of holding money. The effect of alternative interest rates on the demand for card debits can explain why credit card interest rates only partially reflect changes in the cost of funds. Credit card interest rates that are inflexible relative to the cost of funds are not inconsistent with a competitive equilibrium that yields zero profits for the marginal entrant. Copyright 1995 by University of Chicago Press.
We estimate the causal effect of mandatory participation in the military service on the involvement in criminal activities. We exploit the random assignment of young men to military service in Argentina through a draft lottery to identify this causal effect. Using a unique set of administrative data that includes draft eligibility, participation in the military service, and criminal records, we find that participation in the military service increases the likelihood of developing a criminal record in adulthood. The effects are not only significant for the cohorts that performed military service during war times, but also for those that provided service at peace times. We also find that military service has detrimental effects on future performance in the labor market.
The authors investigate why 75 percent of U.S. households do not hold stocks despite the equity premium and predictions of expected-utility models. The question is relevant for privatization, asset pricing, and tax progressivity issues. They show that risk aversion per se, heterogeneity of beliefs, habit persistence, time nonseparability, and quantity constraints on borrowing do not account for the phenomenon. A wedge between borrowing and lending rates, and minimum-investment requirements are plausible but empirically weak factors. More promising explanations are inertia and departures from expected-utility maximization. There is also qualified support for nondiversifiable income risk as a contributing factor. Copyright 1995 by Royal Economic Society.
In a national field experiment, the same questionnaires were administered simultaneously by RDD telephone interviewing, by the Internet with a probability sample, and by the Internet with a nonprobability sample of people who volunteered to do surveys for money. The probability samples were more representative of the nation than the nonprobability sample in terms of demographics and electoral participation, even after weighting. The nonprobability sample was biased toward being highly engaged in and knowledgeable about the survey's topic (politics). The telephone data manifested more random measurement error, more survey satisficing, and more social desirability response bias than did the Internet data, and the probability Internet sample manifested more random error and satisficing than did the volunteer Internet sample. Practice at completing surveys increased reporting accuracy among the probability Internet sample, and deciding only to do surveys on topics of personal interest enhanced reporting accuracy in the nonprobability Internet sample. Thus, the nonprobability Internet method yielded the most accurate self-reports from the most biased sample, while the probability Internet sample manifested the optimal combination of sample composition accuracy and self-report accuracy. These results suggest that Internet data collection from a probability sample yields more accurate results than do telephone interviewing and Internet data collection from nonprobability samples.
Consumer installment lenders prefer to market “low monthly payments” and shroud interest rates. Why not voluntarily disclose rates? We show that when an interest rate is not disclosed, most consumers substantially underestimate it using information on the monthly payment, loan principal and maturity. This “fuzzy math” or “payment/interest bias” helps explain why lenders shroud rates and thereby violate the Truth-in-Lending Act (TILA) even under the threat of fines and litigation. So does TILA have any teeth? We identify within-household interactions between policy-induced variation in the strength of TILA enforcement across lenders and time, payment/interest bias, and interest rates on actual loans. More biased households pay roughly 400 basis points more than less-biased households, but only on loans from lenders facing relatively weak TILA enforcement. The results link a cognitive bias to firm strategy and market outcomes, show that mandated disclosure can attenuate those links, and highlight the importance of enforcement costs.
This paper studies the identi…cation of price elasticities in an environment where agents face optimization frictions such as adjustment costs or inattention. I show that even when one is uncertain about how such frictions enter the agent's decision problem, one can obtain simple bounds on the price elasticity of interest. Agents are permitted to deviate arbitrarily from the optimal choice as long as the utility cost of doing so lies below an exogenously speci…ed threshold. I derive analytical bounds on price elasticities that are a function of the observed response to a price change, the degree of optimization frictions, and the size of the price change. I apply these bounds to the literature on labor supply and taxation, allowing for optimization frictions of up to 1% of consumption. Permitting such small frictions can reconcile several disparate …ndings in this literature. Pooling elasticity estimates from several studies yields approximate bounds on the taxable income elasticity of (0:47; 0:54).
We present an intertemporal consumption model of consumer investment in financial literacy. Consumers benefit from such investment because their stock of financial literacy allows them to increase the returns on their wealth. Since literacy depreciates over time and has a cost in terms of current consumption, the model determines an optimal investment in literacy. The model shows that financial literacy and wealth are determined jointly, and are positively correlated over the life cycle. Empirically, the model leads to an instrumental variables approach, in which the initial stock of financial literacy (as measured by math performance in school) is used as an instrument for the current stock of literacy. Using microeconomic and aggregate data, we find a strong effect of financial literacy on wealth accumulation and national saving, and also show that ordinary least squares estimates understate the impact of financial literacy on saving.
This article examines the extent to which cognitive abilities relate to differences in trajectories for key economic outcomes as individuals move towards and through their retirement. We look at whether differences in baseline numeracy (measured in the English Longitudinal Study of Ageing in 2002) and broader cognitive ability predict the subsequent trajectories of outcomes such as wealth, retirement income and key dimensions of retirement expectations. Those with lower numeracy are shown to have different wealth trajectories both pre and post-retirement than their more numerate counterparts, but the distributions of retirement expectations and net replacement rates are similar across numeracy groups.
We compare wealth holdings across two cohorts of the Health and Retirement Study: the early Baby Boomers in 2004, and individuals in the same age group in 1992. Levels and patterns of total net worth have changed relatively little over time, though Boomers rely more on housing equity than their predecessors. Most important, planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non-planners. Instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth.
In this paper, we studied the association of cognitive traits and in particular numeracy of both spouses on financial outcomes of the family. We found significant effects, particularly for numeracy for financial and non-financial respondents alike, but much larger effects for the financial decision maker in the family. We also examined who makes these financial decisions in the family and why. Once again, cognitive traits such as numeracy were an important component of that decision with larger effects of numeracy for husbands compared to wives.
Economics Many consumers make poor financial choices and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 either has dementia or a medical diagnosis of “cognitive impairment without dementia.” We study lifecycle patterns in financial mistakes using a proprietary database that measures ten different types of credit behavior. Financial mistakes include suboptimal use of credit card balance transfer offers, misestimation of the value of one’s house, and excess interest rate and fee payments. In a cross-section of prime borrowers, middle-aged adults make fewer financial mistakes than younger and older adults. We conclude that financial mistakes follow a U-shaped pattern, with the cost-minimizing performance occurring around age 53. We analyze regulatory regimes that may help individuals avoid making financial mistakes. Some of these regimes are designed to address the particular challenges faced by older adults, but much of our discussion is relevant for all vulnerable populations. We discuss disclosure, nudges, financial driving licenses, advanced directives, fiduciaries, asset safe harbors, ex-post and ex-ante regulatory oversight. Finally, we pose seven questions for future research on cognitive limitations and associated policy responses.
Exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively. We show that exponential growth bias can explain two stylized facts in household finance: the tendency to underestimate an interest rate given other loan terms, and the tendency to underestimate a future value given other investment terms. Bias matters empirically: More-biased households borrow more, save less, favor shorter maturities, and use and benefit more from financial advice, conditional on a rich set of household characteristics. There is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication. Copyright (c) 2009 the American Finance Association.
Many studies show that most people are not financially literate and are unfamiliar with even the most basic economic concepts. However, the evidence on the determinants of economic literacy is scant. This paper uses international panel data on 55 countries, merging indicators of economic literacy with a large set of macroeconomic and institutional variables. Results show that there is substantial heterogeneity of financial and economic competence across countries, and that human capital indicators (PISA test scores and college attendance) are positively correlated with economic literacy. Furthermore, inhabitants of countries with more generous social security systems are generally less literate, lending support to the hypothesis that the incentives to acquire economic literacy are related to the amount of resources available for private accumulation.
We examine the effect of household financial indebtedness on psychological well-being using a large household survey of families with children in Britain. Existing studies that find a link between debt and depression tend to utilise small and highly selective samples of people and only self-reported measures of financial stress, responses to which are likely to correlate with subjective measures of health. From additional household data, we can construct a variety of 'objective' quantitative measures of financial stress in order to validate self-reported measures. We show that, although there is a positive association between subjective measures of financial well-being and psychological well-being, individuals differ in their psychological response to objective household financial situations. We also examine how the potential simultaneity of financial and psychological health might be handled.
This study uses data from the module on planning and financial literacy devised for the Health and Retirement Study in 2004. It finds that women display much lower levels of literacy than respondents in the total sample. Lack of literacy has implications for planning: women who are less financially literate are less likely to plan for retirement and be successful planners. These findings have important implications for policy and for programs aimed at fostering financial security. Because financial illiteracy is widespread among women, a one-time financial education seminar is unlikely to sufficiently influence planning and saving decisions. Similarly, education programs targeted specifically at women may be better suited to addressing large differences in preferences, savings needs, and financial knowledge.
Investment in financial literacy and saving decisions', CSEF Working Paper No. 272, Centre for Studies in Economics and Finance
- T Jappelli
- M Padula
Jappelli, T. and Padula, M. (2011) 'Investment in financial literacy and saving decisions',
CSEF Working Paper No. 272, Centre for Studies in Economics and Finance,
University of Naples Frederico II.
Drivers of Over-indebtedness, Report to the UK Department for Business, Enterprise and Regulatory Reform
- R Disney
- S Bridges
- J Gathergood
Disney, R., Bridges, S. and Gathergood, J. (2008) Drivers of Over-indebtedness, Report to
the UK Department for Business, Enterprise and Regulatory Reform, October.
Available at: http://www.berr.gov.uk/files/file49248.pdf