DETERMINANTS OF FINANCIAL BEHAVIOURS AMONG UNDERGRADUATES: EMPIRICAL EVIDENCE FROM VIETNAM45478

VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS DETERMINANTS OF FINANCIAL BEHAVIOURS AMONG UNDERGRADUATES: EMPIRICAL EVIDENCE FROM VIETNAM Oanh Nguyen Thi Kim, Linh Nguyen Phuong VNU International School, Vietnam National University ABSTRACT This study examines the relationships between financial behaviors and its determinants among Vietnamese undergraduates, namely, subjective financial literacy, materialism and parental influence, impulsive consumption and financial self-efficacy By analyzing a sample of 253 students from universities located in Hanoi, Vietnam, the study finds that students who receive more parental influence are more likely to have more planed financial behaviors such as budgeting and saving than their counterparts Although students who self-perceived as having better financial literacy not display better financial behaviors than the others, this relationship is mediated by financial self-efficacy and impulsive consumption Also, students who are more materialistic are not likely to behave differently toward budgeting and saving, but this relationship becomes statistically significant through a mediating effect of impulsive consumption This finding provides students, parents, lecturers and researchers, whoever has interest on personal financial behaviors field with empirical evidence that can be taken into the process of personal financial management Keywords: financial behaviors, subjective financial literacy, impulsive consumption, materialism, financial self-efficacy, parental influence INTRODUCTION Financial behaviors are important to individuals for achieving better life quality since these behaviors might shape people’s financial well-being (Van Raaij 2014) Financial behaviors are results of various factors, both psychological, sociological and cultural factors (Fishbein and Ajzen 1980, Tang and Baker 2016, Van Raaij 2014, Akben-Selcuk 2015) The study investigates factors that might influence financial behaviors of university students who are going to prepare their independent lives after graduation Specifically, our main concern is a mechanism among financial behaviors and their determinants including subjective financial literacy, impulsive consumption, materialism, financial self-efficacy and parental influence 325 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Partial Least Square-Structural Equation Modeling (PLS-SEM) with support of SmartPLS 3.2.8 is adopted to analyze the quantitative data obtained from 253 university students Smart-PLS performs sequential analysis via the measurement model and structure model The former assesses reliability and validity of constructs’ measures while later tests hypotheses of the study The paper is organized in five sections Section presents an introduction followed by literature review and hypothesis development in section Research method and data analysis are in section before a presentation of findings, discussions and implications of the findings Finally, section draws conclusions, addresses limitations of the study LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 2.1 Financial behaviors and its determinants 2.1.1 Financial behaviors Financial behaviors is defined as any human behaviors that is relevant to money management such as spending, borrowing, saving, and investing money (Xiao 2008) The Financial Management Behavior Scale proposed by Dew and Xiao (2011) consists of 15 items assessing four domains of financial management behaviors which were consumption, cash management, savings and investment, and credit management Akben-Selcuk (2015)’s research on 1539 college students in Turkey focuses on three financial behaviors, namely, paying bills on time, having a budget in place and saving for the future The credit and debts domain are eliminated in the study due to the fact that Vietnamese students have litter use of credit comparing with other countries The average percentage of people using credit in Vietnam is 4.12 percent in 2017, ranks 100th of the global World Bank (WB 2019a, b) 2.1.2 Determinants of financial behaviors Subjective financial literacy Financial literacy refers to “knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life” (OECD 2014) Following by the definition of OECD, this study defines subjective financial knowledge as an individual’s perception about one’s own financial knowledge and beliefs in one’s skills and confidence of applying the knowledge into behaviors in order to give the effective financial decisions Prior empirical studies separated financial literacy into objective and subjective financial literacy and suggest that both have effects on financial behaviors (Tang and Baker 2016, Xiao et al 2011) Sylwester (2018) found that that subjective knowledge usually impacts spending and saving behavior whereas objective knowledge tends to have effects on investing behavior such as purchase of shares or bonds Impulsive consumption Impulsive consumption refers to a consumer’s tendency to buy spontaneously, 326 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS unreflectively, immediately and kinetically (Rook and Fisher 1995) Impulsive buyers have no pre-shopping objective, no intention to purchase the specific product category or to fulfill a specific need (Beatty and Ferrell 1998) The impulse buyers have no pre-shopping objectives or set a specific goal to buy a certain product or visit a certain store They fell desire for the products by being aware of the products and this desire are generated by internal moods and external stimuli (Ãœnsalan 2016, Beatty and Ferrell 1998) Materialism Belk (1984) defined materialism as “the importance a consumer attaches to worldly possessions” Richins (2004) describes materialism as “The importance ascribed to the ownership and acquisition of material goods in achieving major life goals and desired states” Richins and Dawson (1992) proposed that materialism was an important value that might drive behavior and decisions of an individual People with high materialism usually organize possessions as center of their life Moreover, materialistic people place more value on material possessions than people who were less materialistic (Richins and Dawson 1992) Financial self-efficacy According to Bandura (1997) “perceived self-efficacy refers to beliefs in one’s capabilities to organize and execute the courses of action required to produce given attainments” Self-efficacy is one’s beliefs about his or her abilities of organizing and accomplishing a process of action deem necessary to achieve a desired result Self-efficacy has been widely studied to understand human behaviors such as health behaviors or physical activity (Lown et al 2015) In this study, financial self-efficacy refers to students’ perception on their abilities to manage their finance and to solve financial crisis toward better financial behaviors Parental influence Among various socializing agents, parents are likely to have significant impacts on students’ financial behaviors Parental influence refers to interactions between parents and their children on financial matters (Alekam et al 2018) Parents’ education background affects children saving behaviors (Salikin et al 2012) Parents can influence their children behaviors through teachings and practicing behaviors in real life situations (Bucciol and Veronesi 2014) Children who regularly observe the behavior of their parents are likely to practice those observed behaviors in their lives (Norvilitis and MacLean 2010) Also, children who regularly interact with their parents in financial matters tend to practice the learning outcomes as adults (Alekam et al 2018) 2.2 Theoretical background on the determinants affecting financial behaviors 2.2.1 Theory of Planned Behavior Rooted in the theory of reasoned actions, the theory of planned behaviors highlight 327 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 impacts of perceived behavioral control on of behavior change processes (Jemmott and Jemmott 1991) Perceived behavioral control refers to perceived ease or difficulty of performing the behaviors People behaviors are influenced by the intention to perform the behavior which are driven from subjective norms, attitudes, and perceived control over opportunities, resources, and skills necessary to perform behaviors (Ajzen 1991) This theory have been applied in understand personal financial behaviors (e.g Xiao et al 2011) 2.2.2 Social cognitive theory According to social Cognitive Theory, a person must believe in his or her capability to perform the behavior and must value the outcomes or consequences that he or she believes will occur as a result of performing a specific behavior or action, such as having immediate benefits or pursuing long-term benefits Self-efficacy was believed to be the single most important characteristic that determines an individual’s behavior changes due to the fact that every sing action of an individual have been driven by his or her self-perception and confidence (Ozmete and Hira 2011) 2.2.3 Theoretical model of impulsive buying behavior Dittmar, Beattie, and Friese (1996) proposed that, among different strategies, people tend to make use of material possessions to compensate discrepancies between their actual self-state (what people see themselves) and their ideal self-state (what people want to be), which would lead them to the buying impulsiveness, so that the quality and magnitude of those discrepancies are related to the extent of impulsive consumption Therefore, it can drive them into higher level of spending associate with higher of debts and lower level of savings 2.3 Hypothesis development and conceptual framework 2.3.1 Direct relationships between financial behaviors and their determinants The relationship between financial literacy and financial behaviors have been investigating in prior literature, yet findings are contradictory For Jorgensen and Savla (2010), the higher level of financial knowledge, the better financial attitude and behaviors of young adult Conducting a research on 1539 college students in Turkey, Akben-Selcuk (2015) found that students who are more financially literate are more likely to display positive financial behaviors However, Jones (2006) examined the credit using of 216 first year students and concluded that students with litter credit knowledge was not significant related to their debt levels Similarly, Hadar, Sood, and Fox (2013), demonstrated that an individual with high level of objective financial knowledge might not necessarily have a positive self-cognizance of his/her knowledge, and consequently might not take a right financial moves A reason for the contradiction of the findings might lie in separation between objective financial literacy and subjective financial literacy The former refers to what an individual knows about finance while the latter refers to and what he or she believes he/she knows about finance (Tang and Baker 2016) Xiao et al (2014) found that subjective financial knowledge does more to prevent risky credit behaviors 328 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS than objective financial knowledge among 2098 first-year students in U.S, Allgood and Walstad (2013) also found that perceived financial literacy had stronger impact on credit card behavior than actual financial literacy for a sample of more than 28 thousand U.S adults Therefore, the study hypothesizes the relationship between subjective financial literacy and financial behavior: H1: Students who have better subjective financial literacy will display better financial behaviors Allen et al (2007) found that young adults saw money as more problematic when coming from a home where parents frequently had money conflict Moreover, students whose parents had financial problems followed the financial patterns of their parents, repeating their financial difficulties (Clarke et al 2005) Also, Jorgensen and Savla (2010), found that participants who reported learning explicitly about finances from their parents had better financial attitudes and behaviors Parental teaching of finance and positive attitudes towards money were also found to be significant predictors of positive financial behaviors (Akben-Selcuk 2015) In addition, Dangol and Maharjan (2018) explored effects of the parental and peer factors on the saving behavior of 390 young people from Kathmandu Valley Their findings indicated a significant relationship between parental financial teaching and the saving behavior of their children Therefore, the study hypothesizes the relationship between parental influence and financial behavior: H2: Students who receive more parental influence will have better financial behaviors Arofah, Purwaningsih, and Indriayu (2018) conducted a survey of 129 undergraduates of Economic Education, found that there was a negative relationship between materialism and financial behaviors Richins (2011) indicated that what that customer expect from purchasing might shape their purchase d’Iapico-Bien (2018) conducted an online survey assessing the association of saving behavior and aspiration, motivation, financial literacy and materialism with a sample of 230 Australian between the ages of 18-40 year They found that materialism was negatively and significantly associated with saving behaviors Therefore, the relationship between materialism and financial behavior is proposed: H3: Students who have higher level of materialism will display worse financial behaviors 2.3.2 Indirect relationships between financial behaviors and the aforementioned determinants through mediating variables Previous research suggests a strong association between materialism and impulsive buying (Cole and Sherrell 1995) Rook (1987) suggested that consumer impulsivity is a lifestyle trait which can be linked to materialism, hence enforce customer into unhealthy financial decisions Materialism is believed to have negative impacts on financial behavior due to the unplanned buying behaviors combined with the ignorance of long-term consequence (Podoshen and Andrzejewski 2012) Van Raaij (2014) point out that impulsiveness is more likely to cause debts and helps to explain why some people get into financial problems Türk and Erciş (2017) conducted a 329 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 survey of 412 people in Erzurum/Turkey, supported beliefs that materialism had impact on impulsive consumption; that is materialism increases, impulsive buying will increase Nye and Hillyard (2013) concluded from a sample of 267 consumers aged from 18 to 67 that materialism have sustainable indirect impact to financial behavior, mediated through impulsive consumption Hence, the relationship between materialism and financial behavior through impulsive consumption is hypothesized: H4: Impulsive consumption mediates the relationship between materialism and financial behaviors Dittmar, Beattie, and Friese (1996) propose a more comprehensive theoretical model which was based on the symbolic self-completion theory of Gollwitzer, Wicklund, and Hilton (1982) and the self-discrepancy theory of Higgins (1987), to determine impulsive buying behavior That is, among different strategies, people tend to make use of material possessions to compensate discrepancies between their actual selfstate (what people see themselves) and their ideal self-state (what people want to be), which would lead them to the buying impulsiveness Van Raaij (2014) point out that consumer financial behaviors such as impulsive behavior and lack of overview of self-control could explain bad credit behaviors and financial problems such as over-indebted Hence, this study predicts that relationship between impulsive consumption, subjective financial literacy and financial behaviors as below: H5: Impulsive consumption mediates the relationship between subjective financial literacy and financial behaviors Today financial knowledge and skills are not the only element that affect individual financial behaviors Lown (2011) state that “a major factor influencing consumer behavior is having the confidence in one’s ability to deal with a situation without being overwhelmed” By surveying 2013 Australian women, Farrell, Fry, and Risse (2016) found that women with higher financial self-efficacy was more likely to hold investment and savings products, and less likely to hold debt-related products Also, Herawati et al (2018) found a positive effect of financial self-efficacy on financial behavior among 518 respondents However, the same finding was not supported by Ismail et al (2017) who conducted a survey on 30 Malaysian workers Also, Lapp (2010) found that financial self-efficacy is mediated the relationship between perceived financial literacy and financial behaviors among 500 low-income workers participated in EARN’s Individual Development Accounts program That is, higher level of perceived financial literacy would predict higher level of financial self-efficacy, which in turn, would predict a healthier financial behavior, therefore reducing financial problems and stress Hence, the relationship between subjective financial literacy and financial behaviors through financial self-efficacy is hypothesized as follow: H6: Financial self-efficacy mediates the relationship between subjective financial literacy and financial behaviors 2.3.3 Conceptual framework of the study 330 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS Fig Conceptual framework of the study RESEARCH METHODOLOGY 3.1 Sample selection and data collection The questionnaire was distributed to a randomly population of undergraduate students which was through two main ways Online delivery was sent by G-mail and Facebook messenger and paper delivery was sent by researchers and the mentor The purpose of study was clearly stated and the anonimity of respondents was guaranteed ensured After two weeks of distrubition, 253 usable responses was collected 3.2 Measurement Multi-item scale was employed to measure constructs of the study of determinants influence to student’s financial behaviors Except for a measure of subjective financial literacy, other constructs’ measures are rated by five-point Likert scale Subjective financial literacy was measured by one self-rating item adapted from Robb et al (2015) Impulsive consumption was measured by an adapted version of Buying Impulsiveness Scale developed by Rook and Fisher (1995) Financial behavior was measured by three items focusing on budgeting and saving behaviors taken from Financial Management Behavior Scale developed by Dew and Xiao (2011) Materialism was measured by an adapted version from The Material Values Scale (Richins 2004, Richins and Dawson 1992) Financial self-efficacy was measured by an adapted version from the Financial Self-efficacy Scale of Lown (2011) Parental influence was measured by one self-rating item on influence of parents on students’ money management 3.3 Data analysis 3.1.1 Descriptive statistics Table show all the constructs of the study and descriptive statistics of all variables Table Descriptive statistic of variables 331 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Code Mean Standard deviation Min Max Stayed within your budget of spending plan FB1 3.494 0.945 Began or maintained an emergency savings fund FB2 3.296 1.067 Saved money from every resource (paycheck, received from parents and relations, gifts, and so on) FB3 3.352 1.031 Following the scale from to 10, how you rate your SUBLIT 5.632 personal financial literacy? 1.844 10 Variables and items Money management and saving behavior Subjective financial literacy Parental influence How often you discuss financial matters with your parents? PAR 2.589 0.933 My life would be better if I owned certain things I don’t have MAT1 3.138 0.964 I like a lot of luxury in my life MAT2 3.051 0.977 I’d be happier if I could afford to buy more things MAT3 3.458 1.010 It sometimes bothers me quite a bit that I can’t afford to buy all the things I’d like MAT4 3.316 0.940 It is hard to stick to my spending plan when unexpected expenses arise SEF1 2.814 1.251 It is challenging to make progress toward my financial goals SEF2 2.704 1.220 When unexpected expenses occur, I usually have to use credit SEF3 3.352 1.300 When faced with a financial challenge, I have a hard time figuring out a solution SEF4 3.348 1.240 I lack confidence in my ability to manage my finances SEF5 3.059 1.380 “Just it” describes the way I buy things IMP1 2.348 1.015 I often buy things without thinking IMP2 2.19 0.949 “Buy now, think about it later” describes me IMP3 2.281 0.966 I buy things according to how I feel at the moment IMP4 2.905 1.087 Materialism Financial self-efficacy Impulsive consumption behavior 3.1.2 Data analysis with PLS-SEM using Smart-PLS Partial least squares structural equation modeling (PLS-SEM) is used to simultaneously examine relationships between various independent variables and more than one dependent variables by estimating partial model relationships in an iterative sequence of ordinary least squares (OLS) regressions, therefore it is considered a general usefulness research tool in many sectors (Hair et al 2019) This study analyzed data by using Smart-PLS consists of two stages involving which are measurement model and structural model 332 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS 3.2.1 An evaluation of measurement model Measurement model (or outer model) operates the evaluation of relationships between the indicator variables and their corresponding construct, which means that researchers must examine both the reliability (the consistency of a measure) and validity (the accuracy of a measure) of the construct (Hair et al 2019) The first step in measurement the reliability of the construct involves examining the indicator loadings, or outer loadings According to Hulland (1999), reflective indicator loadings are above than 0.5 would be consider as a good measurement of latent construct The second step is assessing internal consistency reliability, most often using the composite reliability (CR), which is calculated by using in Smart-PLS The range between 0.6 and 0.9 is considered to be acceptable and satisfactory while above 0.9 is problematic due to the redundant of items in the construct (Hair et al 2019) An alternative assessment is also commonly used is Cronbach’s alpha According to De Vaus (2002), a greater 0.7 Cronbach’s alpha indicates a measure’s reliability The construct’s validity involves the convergent validity and discriminant validity The convergent validity is the extent to which the construct converges in order to explain the variances of its items and discriminant validity is the extent to which a construct is empirically distinct from other construct in the structural model (Hair et al 2019) Fornell and Larcker (1981) suggested that metric using for the convergent validity evaluation is average variance extracted (AVE) and greater 0.5 is acceptable value of AVE while the greater of AVE square root of each construct than its highest correlation with any other constructs in the model measures the discriminant validity Table Reliability of the constructs and convergent validity among constructs Items Outer loading T-statistics FB1 0.791 22.589 FB2 0.882 47.239 FB3 0.887 46.608 IMP1 0.867 47.052 IMP2 0.847 38.234 IMP3 0.811 28.292 IMP4 0.665 11.653 MAT1 0.831 23.752 MAT2 0.670 10.170 MAT3 0.766 17.237 MAT4 0.625 8.693 PAR 1.000 SEF1 0.823 30.136 SEF2 0.744 21.333 SEF3 0.715 16.629 SEF4 0.722 15.242 SEF5 0.793 23.062 SUBLIT 1.000 CR AVE 0.890 0.730 0.877 0.643 0.816 0.529 1.000 1.000 0.873 0.579 1.000 1.000 333 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Table shows outer loadings of all items used to measure the construct of the study are greater than 0.5 The two lowest item loadings in the model are MAT4 (0.625) and IMP4 and (0.665) T-statistics of all items are greater than 1.96, which denotes significances between the items and the corresponding constructs Finally, composite reliabilities of all items are greater than 0.6 and smaller than 0.9, despite of those constructs have one variable, indicates the internal consistency of the items and its corresponding constructs and ensures the redundant does not appear In additional, the AVE of all constructs in the model is greater than 0.5 indicates that the constructs are able to explain the variances of its items in the model, which approves the convergent validity among constructs The discriminant validity of the constructs is demonstrated: square root of AVE of each construct (in bold) is greater than its highest correlation with any other constructs (See Table 3), demonstrates that distinct among constructs does not exist Table Discriminant validity among constructs FB IMP MAT PAR SEF FB 0.854 IMP -0.262 0.802 MAT 0.022 0.359 0.727 PAR 0.180 0.015 0.163 1.000 SEF 0.461 -0.284 -0.105 0.033 0.761 SUBLIT 0.164 -0.141 0.072 0.055 0.261 SUBLIT 1.000 3.2.2 Structural model assessment for hypothesis testing The structural model is used to the test the hypotheses of the PLS-SEM model At this stage, the determination coefficient (R2) the main criteria for assessment because it represents the exogenous variable’s combined effect on the endogenous variable(s) (Hair et al 2019) T-statistics are generated and used for assessing the significant level of the measurement model and structural model According to (Hair et al 2019), a greater 1.96 of T-statistics indicates a statistical significance of hypotheses tested (more details in section 4.1) Multicollinearity need to be detected before testing formulated hypotheses As Table 4.16 is shown, VIFs of the exogenous variables are lower than 3, which demonstrate there is no appearance of multicollinearity problems.in the model Table Collinearity statistics (VIF) of exogenous variables 334 Variables FB IMP 1.253 MAT 1.201 PAR 1.032 SEF 1.153 SUBLIT 1.101 IMP SEF 1.005 1.005 1.000 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS FINDINGS AND DISCUSSIONS 4.1 Findings The results of data analysis regarding relationships between financial behaviors and their determinants, both direct and indirect, are shown in Table 4.17 First, the hypothesis on a positive relationship between subjective financial literacy and financial behaviours is rejected (β = 0.015) because the data analysis shows the lower-than-1.96 of T-statistic (T-statistic = 0.265) Similarly, the hypothesis H3 on a negative relationship between materialism and financial behaviours is rejected (β=0.105) Finally, the data analysis confirms the hypothesis H2 signifying that students who perceived more parental influence tend to have better financial behavior, budgeting and funds saving for instance (β = 0.152, p FB H1 0.015 PAR -> FB H2 0.152** MAT -> FB H3 0.105 MAT -> IMP -> FB H4 -0.068** SUBLIT -> IMP -> FB H5 0.031** H6 0.107*** R2 R2 adjusted 0.269 0.254 Mediating effects of impulsive consumption Mediating effects of financial self-efficacy SUBLIT -> SEF -> FB Total effects on financial behaviors SUBLIT -> FB MAT -> FB 0.153** 0.037 All hypotheses are two tailed tests; * p < 0.1; ** p < 0.05; *** p < 0.01 Regarding the mediating effect of impulsive consumption stated in the hypothesis 4, the study finds that a negative influence materialism on financial behaviours are mediated by impulsive consumption (β = -0.062) and the relationship is statistically significant (p < 0.05) As such, the hypothesis is supported The result brings a deeper view on effects of materialism on financial behaviours That is, the direct relationship between two of those may not appear but the indirect relationship though impulsive consumption does appear The buying impulsiveness existing among materialistic consumers therefore emphasis to be a driven factor that will lead customers into some unplanned financial choices without considering future consequences, while materialistic ones without impulsiveness habit will not have to face to However, the total effect making up from direct and indirect effects of materialism on financial behaviours is not statistically significant (β = 0.037, p> 0.1) The hypothesis H5 and H6 predicts that impulsive consumption and financial self- 335 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 efficacy meditate on the relationship between subjective financial literacy and financial behaviours respectively The findings show a statistical significance for mediating effects of impulsive consumption on the relationship between subjective financial literacy and financial behaviours (β = 0.031, p > 0.05), which supports hypothesis In addition, the mediating effects of financial self-efficacy on the relationship between subjective financial literacy and financial behaviour is evidenced (β = 0.107, p