money management research paper

ORIGINAL RESEARCH article

Financial management behavior among young adults: the role of need for cognitive closure in a three-wave moderated mediation model.

• 1 Department of Social and Organizational Psychology, Universidad Nacional de Educación a Distancia, Madrid, Spain
• 2 Department of Business Economics and Accounting, Universidad Nacional de Educación a Distancia, Madrid, Spain
• 3 Department of Psychology, University of Bologna, Bologna, Italy

This three-wave study aims to explore whether the impact of investment literacy on the financial management behavior is mediated by investment advice use and moderated by the need for cognitive closure. A total number of 272 financially independent adults, under 40 years, completed questionnaires at three different times with 3-month intervals. The results reveal that employees with more investment advice use and characterized by high need for cognitive closure show a higher level of financial management behavior, in relation to both the urgency (seizing) of getting knowledge and the permanence (freezing) of such knowledge. The present study contributes to better understand how and when investment literacy drives well-informed and responsible financial behavior. According to these results, interventions to improve financial behavior should focus on the combination of investment advice use and metacognitive strategies used by individuals to make financial decisions.

Introduction

Why are some people more efficient in their financial behaviors than others? Financial management is a complex set of behaviors and decisions that can change as a function of the importance and difficulty of implementing the behavior, as well as of people’s capabilities, skills, and opportunities to perform such behaviors. The undesirable short-, mid-, and long-term consequences of inadequate financial management behavior not only affect individuals, but also their household, and ultimately could produce a wide range of unwanted events on the entire society ( Fenton et al., 2016 ). For instance, inadequate financial behaviors can lead to temporary or chronic debts, inability to pay utility bills or filing for bankruptcy and such behaviors result from economic factors together with psychological ones.

Financial literacy has been defined as “the ability and confidence to use one’s own financial knowledge to make financial decisions” ( Huston, 2010 , p. 307). This concept not only concerns individual investors but also professional ones working in companies that manage money. It is in fact important not only to establish a long-term financial plan but also to know, and to have, financial alternatives in which to invest money or to save it. Financial planning is a very important knowledge and skill considering that individuals live longer and have to save for their old age, when they are no longer working.

Recent studies investigated the impact of financial literacy on various financial behaviors, like loans, mortgages, or retirement planning. The fact that financial literacy is rather low, even across well developed countries, is a critical factor toward well-informed financial decision making and behaviors. Hence, financial behavior management is a topic of interest to economists, social workers and policy makers as well.

However, a large-scale analysis of recent data indicated that financial education interventions explain only 0.1% of the variance in financial behaviors. In contrast, financial literacy has a stronger effect on financial behavior when the former is measured rather than manipulated ( Fernandes et al., 2014 ). However, Fernandes et al. (2014) study shows also that financial literacy has less impact on financial behavior when psychological and social variables, often omitted in previous research, are considered. Therefore, this study aims to fill this gap by taking a psychosocial approach and including cognitive, motivational and social factors in the relationship between financial literacy and financial behavior.

Huston (2010) distinguishes two concepts often considered as synonymous: financial literacy and financial knowledge. A successful measure of financial literacy should allow to identify which outcomes are most impacted by a lack of financial knowledge and skill, and, consequently, allow educators to provide knowledge achieve a desired outcome ( Huston, 2010 ).

In addition, as most of the studies have used samples of students, that is, adolescents or people who are still in their early youth, and not yet financially independent, in this study, we will analyze the financial management behavior of young adults who have their own economic income. Economic independence is in fact a key indicator of transition to adulthood ( Lee and Mortimer, 2009 ).

Based on Huston (2010) theoretical model, this work aims to explore predictors, mediators, and moderators of financial management behavior when people have independent economic resources to save for the future. Specifically, in the present study, we argue that it is necessary to consider the mediating role of investment advice use in the relation between investment literacy and financial management behavior among young adults. As Huston (2010 , p. 307) stated, “financial literacy is a component of human capital that can be used in financial activities” to increase behaviors that enhance financial wellbeing. Hence, financial knowledge would be translated in behaviors by using available resources “directly related to successfully navigating personal finances” ( Huston, 2010 , p. 307), as professional investment advisory services. In addition, we propose that need for cognitive closure (hereafter, NCC), an individual dispositional characteristic, moderates the relations between investment advice use and financial management behavior. The moderated mediation analysis that includes both processes will allow us to better understand the variables that facilitate or hinder young adults’ financial management behavior.

In summary, this study makes three main theoretical and methodological contributions. First, we investigate if the strong direct relationship between financial literacy and financial behaviors is valid when considering two psycho-social variables that consider conditions and types of individuals showing the financial behaviors. Second, we consider younger adulthood, which is a period of individuals’ life-cycle in which many important financial choices start to be made, like buying commodities, a house or setting up a family ( Webley et al., 2002 ). Three, considering what reported by Fernandes et al. (2014) , we investigate if the consistent association between financial literacy and financial behavior observed in many cross-sectional studies is observed also when such independent and dependent variables are measured in different moments.

Financial Management Behavior

Financial management behavior is the acquisition, allocation, and use of financial resources oriented toward some goal. Empirical evidence supports that, if families achieve effective financial management, both their economic well-being and their financial satisfaction improve at the long term ( Consumer Financial Protection Bureau, 2015 ). However, financial management behavior is complex and difficult to implement. The supervision of money and expenditure, which includes frugal and careful spending of money, is a useful protection against risky financial practices.

Moreover, financial management behavior may vary between younger and older people. Although the repeated experience and practice of financial activities influence people’s skills to manage their finances, empirical evidence seems to support that young people practice fewer basic financial tasks, such as budgeting or regularly planning their long-term savings ( Jorgensen and Savla, 2010 ). Because of this evidence, it is of interest to analyze the antecedents of young adults’ financial management behavior.

Investment Literacy

Investment literacy implies, firstly, an accumulation of knowledge about personal concepts and financial products, obtained by means of education or direct experience. Secondly, it includes a series of abilities and self-confidence to effectively apply the knowledge to the management of one’s own finances. Different empirical works have shown the consistent relations between the specific financial knowledge, the probability of saving, the effectiveness of investment strategies, and saving behaviors in general ( Jorgensen and Savla, 2010 ). Hence, considering we measured our variables at three points in time, we propose that:

Hypothesis 1: Investment literacy at time 1 (hereafter T1) will be positively related to financial management behavior at time 3 (hereafter T3).

Investment Advice Use

The use of financial consultants has been proposed as a useful support to financial decisions and as a substitute of financial knowledge and capacity for individuals and family with lower resources. However, Collins (2012) shows that financial literacy, and search and use of professional advice, are not only distinct and complementary processes, but also positively related, because results show that individuals with higher incomes, better educated and with more financial literacy are the most likely to search and use financial advice. Individuals that are less knowledgeable tend to overestimate their abilities and are unable to recognize their limited financial competences ( Kruger and Dunning, 1999 ). However, other studies show that the use of financial consultants seems to have a direct influence in guiding individuals and families toward more profitable investments ( Joo and Grable, 2004 ). In the light of this evidence, we argue that individuals financially competent, aware of the complexities of the economic field, may search for, understand and then implement the advices provided by financial consultants and, consequently, show good financial management behaviors. Accordingly, we propose that:

Hypothesis 2: Investment advice use at time 2 (hereafter T2) will mediate the relationship between investment literacy at T1 and financial management behavior at T3.

Need for Cognitive Closure

Although some empirical studies have addressed the influence of personality on earning and saving, most of them have focused on psychological biases, self-control problems, procrastination ( Rahimi et al., 2016 ), future time perspective and risk tolerance ( Pak and Mahmood, 2015 ). However, other studies have called attention to the influence of relatively stable individual differences in information processing and complex decision making, such as the NCC ( Webster and Kruglanski, 1994 ).

Need for cognitive closure refers to the individual necessity of arriving to a clear and definitive opinion, or answer to a problem, and particularly any opinion or answer rather than experiencing confusion, ambiguity or inconsistency ( Webster and Kruglanski, 1994 ). Empirical research reports significant differences between people with high and low NCC; such differences concern the amount of information they can process, the intensity of that information, the rules employed in decision-making processes, and the self-confidence on the decisions that they reached ( De Dreu et al., 1999 ; Szumowska and Kossowska, 2017 ). Due to this characteristic, people with low NCC are more available to consider complex information that is difficult to process, such as financial information. They are also concerned about the loss of information and more oriented toward the accuracy of the response than to the speed with which it is reached. As a consequence, these people tend to consider more information and decide more slowly, to be more open minded and more creative. In contrast, people with high NCC are more likely to focus on information they can process easily, to reject the more complex or even incomplete one ( Livi et al., 2015 ), and less likely to consider new evidence and update their investments when changes in market uncertainty appear ( Disatnik and Steinhart, 2015 ).

Need for cognitive closure has been described as characterized by two different tendencies: the tendency of the urgency to achieve knowledge ( Seizing ) and the tendency to retain permanently that knowledge ( Freezing ) ( Roets et al., 2006 ). People with high NCC have a pressing desire to achieve closure and to retain it permanently. Thus, these people tend to limit the quantity of information to be processed in order to facilitate decision-making and then to retain and perpetuate the information on which they have based this judgment.

This pattern of information processing has been shown in a broad array of situations related to information processing and decision-making ( Dolinski et al., 2016 ), such as consumer purchasing choices, attitudes about complex technological products, suppliers’ purchasing decisions to manage business supply chains, or helping behavior, among others. Due to the fact that financial management behavior includes processing of complex information and the anticipation of needs with a high degree of uncertainty, we argue that individuals with high NCC will consider a limited amount of information provided by the financial consultant, and particularly information that solve their immediate needs; will revise or modify such information with some reluctance, and all this will result in a less efficient financial management behavior. In contrast, we expect that low NCC remain open to information provided by the consultant and, through the elaboration, integration and revision of such information, they will be more consistent and efficient in the management of their financial behavior. Accordingly, in the present study, we propose that:

Hypothesis 3: The relationship between investment literacy at T1 and financial management behavior at T3, mediated by investment advice use at T2, will be moderated by both NCC dimensions (seizing and freezing) at T1. Specifically, we expect the relationship between investment advice use (T2) and financial management behavior (T3) to be weaker for individuals with high levels of both NCC dimensions (T1) than for individuals with low levels of both NCC dimensions (T1).

Materials and Methods

Ethics statement.

The Institutional Ethics Committee of the first and second authors’ university (National Distance Education University, UNED) approved this research on May 4th, 2016.

Participants and Procedure

This study, with a three-wave design, was carried out with a sample of young, non-student, Spanish adults, who completed the questionnaires at three different moments (T1, T2, and T3), with an interval of 3 months between each one. Following Taris and Kompier (2016) suggestions, and due to the limited longitudinal studies available on these factors, the real time lag between these factors is unknown; considering literature and the processes under examination, we retain the 3 months as an appropriate period to explore such relations. Also, because the time-lag design contributes to control and counteract the common method variance ( Podsakoff et al., 2003 ). The T1 measurement was carried out in January–February. Participation in the study was voluntarily, and potential participants were informed about the anonymity, and all subjects gave their informed consent for inclusion before they participated in the study. The only inclusion criteria in the study were being younger than 40 years of age and having a paid job (being full time or part time active workers). A total 500 people were invited to participate at T1, but we only obtained 390 responses (78% response rate), and 304 responses at T2. At T3, the sample was reduced to 272 respondents, who are included in this study. The mean age of the participants at T1 was 26.3 years ( SD = 4.9), and at T3 mean age was 26.8 years. Men made up 40.4% of the sample. Average job seniority was 9.9 years ( SD = 6.6). In terms of educational level, 57% of the sample had received a university or similar level of education, 29% finished the Secondary School, and 11% had received only basic education. Professionally, 63.2% of participants were employees, 22.8% were middle managers, and full-time workers accounted for 91.9% of the sample, and the rest were employed part-time.

Instruments

Financial management behavior was assessed with the Financial Practices Scale ( Loibl et al., 2006 ), consisting of seven items that measure the probability of the participants’ adopting positive practices of financial management behaviors. The Likert-type response scale ranged from 1 ( unlikely ) to 5 ( very likely ). Examples of some items are: “Pay your bills on time every month”; “Start saving for emergencies”; “Develop a written plan for expenses”; “Have more organized records of payments.” The authors recommend adding the scores to create a global measure of financial management behavior. Reliability was α = 0.78 in the present study.

Investment literacy was appraised with the Financial Knowledge Scale , of Joo and Grable (2004) . This 10-item scale was designed to assess investors’ financial literacy. Higher scores indicate more knowledge. The original dichotomic response scale was transformed into a Likert-type response scale ranging between 1 ( strongly disagree ) and 5 ( strongly agree ). Examples of some items are: “Both employee and employer contribute to Social Security”; “Over a 20-year period, one is more likely to win than to lose money in the stock market”; “Interest paid on a credit card is deducted from taxes” (reversed score). Reliability was α = 0.81 in the present study.

Investment advice use was assessed using the Investment Advice Use Scale of Li et al. (2002) which contains eight items. The original four-point response scale, which ranges between 1 ( strongly disagree ) and 4 ( strongly agree ), was adapted to a five-point Likert-type format, with an intermediate rating for indifference ( neither disagree nor agree ). Examples of items are: “I prefer to consult with a specialist when I take financial decisions”; “I would be willing to pay for the advice of a financial expert”; “I feel qualified to make my own investment decisions without advisors” (reversed score). Reliability was α = 0.77 in the present study.

Need for cognitive closure was assessed with the Need for Cognitive Closure Scale , in its translated version ( Mannetti et al., 2002 ), adapted to Spanish by Ramelli (2011) . This scale has two factors: Seizing (predisposition to seek an immediate response when faced with uncertainty) and Freezing (predisposition to retain closure and avoid considering new information that might question it). The scale has 14 items that are rated with scores ranging between 1 ( strongly disagree ) and 5 ( strongly agree ). Reliability of the Spanish version was adequate, both in the original study (with α = 0.78; Ramelli, 2011 ), and in the present study (with α = 0.78). Examples of seizing (urgency) items are: “In case of uncertainty, I prefer to decide immediately, whatever it may be”; “When I have several potentially valid alternatives, I decide in favor of one quickly and without hesitation”; “After finding the solution to a problem, I think it is a waste of time to take other possible solutions into account.” Item examples of the freezing (permanence) dimension are: “I feel very uncomfortable when things are not in their proper place”; “I feel uncomfortable when I do not get a fast answer to a problem I face.” The NCC scale was subjected to Confirmatory Factor Analysis with Amos 24.0. The generalized least squares procedure was used. This two-factor CFA fitted the data reasonably well (χ 2 = 139.199, p < 0.000; df = 71, CMIN/df = 1.96; GFI = 0.93; AGFI = 0.90, RMSEA = 0.06).

All the factor loadings for the items exceed the 0.40 and both factor correlated as expected (0.72). Some covariances among error have been allowed due to the similarity of the item content, but in any case, between items included under the same factor. Factor loadings, and the Spanish formulation of items, are displayed in Table 1 .

TABLE 1. Need of Cognitive Closure Scale ( Ramelli, 2011 ) and factor loadings.

Analytic Strategy

In order to test the study hypotheses, we performed a linear regression analysis. Before testing the hypothesized moderated mediation model, the indirect and moderating effects were first tested separately with the PROCESS macros for SPSS 24 ( Hayes, 2013 ). With bootstrap procedures of 5,000 samples at a 95% confidence level, the confidence intervals that do not contain 0 indicate that the indirect effect is significant. We did not include any control variables in the following analyses.

Descriptive statistics and Pearson correlations between the study variables are provided in Table 2 . Investment literacy was positively and significantly associated both with investment advice use ( r = 0.19) and with financial management behavior ( r = 0.31), whereas investment advice use and financial management behavior showed the strongest correlation ( r = 0.41). The relation between freezing and financial management behavior reached statistical significance ( r = 0.16). NCC dimensions showed a positive relationship with each other ( r = 0.44).

TABLE 2. Descriptive statistics and correlation matrix.

Table 3 shows the results obtained when testing the first hypothesis. The linear regression analysis shows the total effect ( b = 0.17, p < 0.000) of investment literacy on financial management behavior [ R 2 = 0.22, F (2,269) = 37.54, p < 0.001].

TABLE 3. Regression results of testing the mediation of investment advice use (T2) in the relationships between investment literacy (T1) and financial management behavior (T3) (hypotheses 1 and 2).

Regarding the mediation of investment advice use in the relationship between investment literacy and financial management behavior, a significant and positive association between investment literacy and investment advice use ( b = 0.20, p < 0.000) was observed. Furthermore, a statistically significant direct effect of investment literacy on financial management behavior ( b = 0.16, p < 0.001) was found, as well as a statistical significant effect of investment advice use on financial management behavior ( b = 0.23, p < 0.001). Hence, there is a significant indirect effect of investment literacy on financial management behavior through investment advice use ( b = 0.05). Finally, we tested the significance of this mediation effect through the bootstrapping procedure, which showed that the confidence interval for the indirect effect does not contain zero [0.01, 0.09], supporting the significance of the mediation effect. These results provide reasonable confirmation of hypothesis 2.

Finally, we tested hypothesis 3 following the procedures recommended by Hayes (2013) , as shown in Table 4 .

TABLE 4. Results of testing the moderation of NCC (T1) on the investment advice use (T2) – financial management behavior relationship (T3) (hypothesis 3).

Firstly, Table 4 shows a negative direct effect between NCC – seizing and financial behavior ( b = -0.32, p < 0.05), which suggests that the higher the tendency to seek an immediate solution to solve an uncertainty, the lower the management of financial behavior. Secondly, upon testing hypothesis 3 regarding the moderating effect of seizing on the relationship between investment literacy and financial management behavior, mediated by investment advice use, we found a statistically significant positive interaction effect ( b = 0.12, p < 0.01). Thirdly, regarding the moderating effect of freezing on the relationship between investment literacy and financial management behavior, mediated by investment advice use, we also found a statistically significant positive interaction effect ( b = 0.12, p < 0.01). The index of moderated mediation for the seizing dimension was 0.024 ( SE = 0.013), while the 95% confidence interval with bootstrapping of 5,000 samples did not contain zero (Boot CI [0.003, 0.059]), and for the freezing dimension, the index was 0.023 ( SE = 0.013, Boot CI [0.002, 0.059]).

Hence, the data support hypothesis 3. The indirect conditional effects of investment literacy on financial management behaviors at the two levels of the moderators are displayed in Table 5 , where the effect of investment literacy on financial management behavior was strong at the high level of NCC (seizing and freezing), and it was correspondingly weak when NCC was low. The two effects are statistically significant although in the opposite direction that was expected.

TABLE 5. Results of testing moderated mediation of NCC dimensions in the relationship between investment literacy (T1) and financial management behavior (T3).

Figures 1 , 2 depict the moderation effect of both NCC dimensions. What they show is not consistent with our expectations: individuals reporting higher investment advice use also showed a greater level of financial management behavior if they were characterized by high NCC-seizing at T1 (see Figure 1 ).

FIGURE 1. Moderation of NCC-Seizing (T1) on the investment advice use (T2) – financial management behavior (T3) relationship.

FIGURE 2. Moderation of NCC-Freezing (T1) on the investment advice use (T2) – financial management behavior (T3) relationship.

Also, contrary to our expectations, respondents reporting higher investment advice use at T2 showed a greater level of financial management behavior at T3 if they were characterized by high NCC freezing at T1 (see Figure 2 ).

Taken together, this result implies that investment advice use (T2) mediates more strongly the relationship between investment literacy (T1) and financial management behavior (T3) for young adults characterized by moderate to high levels of NCC (T1) than in adults with lower levels of NCC (T1). These results are depicted in Figure 3 .

FIGURE 3. Results of the moderated mediation analysis. NCC, need for cognitive closure; [95% CI]; ∗ p < 0.05, ∗∗ p < 0.01, ∗∗∗ p < 0.001. Values in italics: correspond to the Freezing dimension.

The present work supports the hypothesis that investment literacy may affect subsequent financial management behavior in young, financially independent, adults. These findings corroborate the key assumption of a long research tradition that links financial literacy with the improvement of financial management behavior. In addition, the present investigation suggests that efficacious financial management should not be conceived as only a mere consequence of knowledge and confidence to use it, but rather as the outcome of the joint influence of cognitive aspects and social influences that affect individuals. In fact, in the present work, the impact of investment literacy on financial management behavior is explained by the use of investment advices provided, in a social communication exchange, by a financially expert advisor. Therefore, the present study has focused on facets predominantly studied in current economic psychology ( Webley et al., 2002 ).

Following the growing number of works suggesting that personality traits affect financial behavior beyond the influence of people’s knowledge and external factors ( Norvilitis et al., 2006 ; Warmoth et al., 2016 ), this work shows that NCC plays a moderating role in the relation between investment literacy and financial management behavior, mediated by investment advice use. Thus, our evidence shows how the personal tendencies of seizing and freezing influence predictors of financial management behavior. On this regard, results show a two side picture. From one side, as we expected, seizing is negatively related to financial behavior; which suggests that individuals with higher tendency to reach quickly a knowledge, a solution to some financial problem, the lower the rate of financial practices. On the other side, contrary to our expectations, individuals that look for financial advice and with high NCC, both for seizing a solution and for freezing it, probably accept quickly the suggestion from the advisor and start to implement it consistently and repeatedly, thus improving their financial performance, in comparison to individuals with lower NCC that may take longer to implement the advice provided by the financial advisor.

This work presents a new viewpoint of how to improve financial behavior among youth and, therefore, can contribute to increasing the efficacy of early interventions to develop responsible financial behavior ( Gariepy et al., 2017 ). Firstly, confirming previous studies (e.g., Calcagno and Monticone, 2011; Collins, 2012 ), it seems that to benefit of financial advice it is, at least, useful (if not, necessary), to have a good level of financial literacy. Thus, educational, social and political systems should consider how to create opportunities for young adolescents to experience and practice financial competences. Secondly, in this same line, intervention strategies should be oriented toward increasing the coherence between knowledge, expert advice, and financial management behaviors to practice the specific behaviors of saving and investment during young adulthood. Translating this into concrete practices, early assessment of people’s tendencies of Seizing and Freezing could help to recognize these early propensities and their potential bias in the processing of financial information. For example, special attention should be paid during adolescence to these psychological traits to help people develop strategies that compensate these tendencies and reduce their potential negative impact on processes of making complex decisions which may require more time for the analysis and processing of more complex information ( Gerlach, 2017 ). Following these recommendations, parents and educators can develop training programs specifically designed to offset those biases.

Thirdly, while the relationship between investment advice use and financial management behavior is not questionable, the present findings indicate that the quality and quantity of the effects are influenced by employees’ NCC tendencies. According to the present findings, financial advisors might rely upon a complementary tool to increase the efficacy of their interventions. In particular, by monitoring the level of NCC of investors, they may provide some customized services. This would support the idea that not all the products or services fit all the customers, but rather that professionals should fine tune their work in relation to investors’ need to remain open or to close and fix the financial suggestions that are provided. If high NCC individuals might be efficient in implementing easily and quickly the advices provided to them, it is also necessary to remind them of the need to continue to search regularly the advices, to update, and modify financial choices that might become outdated and no more matching the financial situation of the market. In comparison, they must present much wider and more complex financial solutions to low NCC investors, to satisfy their need for extended information processing and thus, facilitate their passage to the actual and concrete financial behavior.

This study presents some limitations that should be considered. Firstly, even though we have considered some cognitive, social, and personality variables in accordance with Huston (2010) model, many other variables could have been considered and should be considered in future research. When referring to long-term economic planning, young workers’ expectations about occupational security, career development, promotion, and progress might also influence their financial management behavior ( Ekici and Koydemir, 2016 ).

Secondly, in this study we measured financial management behavior by tapping participants’ perceptions of their behavior; future studies should include real daily behaviors (e.g., checking one’s bank account, making a monthly budget, controlling credit card expenditures), for example, using research procedures like day reconstruction methods or experience sampling.

Thirdly, in this study we used a 3 months’ lag time between each wave and the following. This lag time allowed anyway to detect a significant relationship between financial literacy and use of financial advice, and between this latter and financial behavior. However, time between waves might be extended to investigate how long is the effect of financial literacy on investment advice, and especially how long such advices may affect financial performance. Fourthly, another limitation is that investment literacy was included only at a first point in time, precluding the possibility of establishing the reverse causation between behavior and knowledge. A research design including the same three variables in each wave, will allow to investigate if, for instance, it is an underperforming financial situation to stimulate the search of financial advices.

Fifthly, in this study, we did not deal with attitudes toward financial professionals, such as customers’ trust and anxiety when consulting them ( Grable et al., 2015 ). In future studies, one might directly ask participants what they think and feel about their financial advisors and incorporate this information as a moderating variable.

Finally, financial literacy studies in general showed another limitation that is due to the well-known association between lower literacy with poor health, low income, and other undesirable outcomes but, as with the present findings on financial management behavior, there is not enough evidence to support any causal direction ( Ma, 2016 ). To date, little is known about the causes and correlates of wrong financial decisions during the life course ( Budowski et al., 2016 ). This kind of knowledge needs to be improved, despite the difficulty of obtaining information from the participants regarding their wealth, financial literacy, and consumer behaviors, and this study does not escape to similar challenges and gaps in data ( Manske et al., 2016 ).

However, this investigation can provide some suggestions to guide future research. First, although we did not examine the impact of gender on financial literacy and financial behavior, it seems that gender differences are related to the quality of financial decisions, even though women’s levels of financial literacy and economic income have improved regarding past decades ( Heilman and Kusev, 2017 ). Therefore, investigating the relationship between gender and NCC could help educators in general, and financial advisors, to design intervention strategies to help women to achieve efficacious financial management ( Rudzinska-Wojciechowska, 2017 ).

Second, research seems to indicate that NCC and risk intolerance are associated. Specifically, risk intolerance is a widely studied variable in the financial setting, but the antecedents of intolerance of risk and ambiguity are still unclear. Therefore, a possible link with NCC could be analyzed, as has been shown in an experimental study ( Vermeir and van Kenhove, 2005 ).

Third, research indicates that executive functions such as impulse control, attention regulation or mental flexibility could be linked to NCC ( Dolinski et al., 2016 ) and to performance in complex tasks and financial well-being. However, recent studies related to the executive functions show that they develop throughout adolescence. Accordingly, early intervention with youth could contribute to improving these cognitive functions, with their consequent influence on NCC and subsequent benefit for the management of complex behaviors, like finances ( Barnhoorn et al., 2016 ; Urquijo et al., 2016 ).

Lastly, NCC and its correlates of ambiguity intolerance and risk aversion have always been analyzed from an individual perspective. However, recent works propose the possible influence of social comparison in decision making in general and, specifically, in risk-taking behavior ( Wang et al., 2016 ). In this sense, it would be interesting to analyze in future works the influence of the social gains of decisions and their possible interaction with the decision-makers’ NCC.

Financial literacy and decision making should be further explored to better understand how health and well-being are influenced by them during the life course. This research could help societies and policy makers to reduce the considerable economic and public health challenge that posed fast population aging, associated with low financial knowledge and overconfident decision making ( Khan et al., 2016 ). Ultimately, such data will guide interventions to improve literacy and promote independence, wealth, health, and well-being among people from young adulthood to old age.

Author Contributions

GT, MH-S, and SZ designed the research, analyzed the data, and wrote and revised the manuscript. GT collected the data.

Conflict of Interest Statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

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Keywords : financial management behavior, investment literacy, investment advice use, need for cognitive closure, retirement, retirement planning

Citation: Topa G, Hernández-Solís M and Zappalà S (2018) Financial Management Behavior Among Young Adults: The Role of Need for Cognitive Closure in a Three-Wave Moderated Mediation Model. Front. Psychol. 9:2419. doi: 10.3389/fpsyg.2018.02419

Received: 26 July 2018; Accepted: 16 November 2018; Published: 30 November 2018.

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Copyright © 2018 Topa, Hernández-Solís and Zappalà. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Gabriela Topa, [email protected]

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

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You don’t have to be rich to save money: On the relationship between objective versus subjective financial situation and having savings

Dominika maison.

1 Faculty of Psychology, University of Warsaw, Warsaw, Poland

Marta Marchlewska

2 Institute of Psychology, Polish Academy of Sciences, Warsaw, Poland

Katarzyna Sekścińska

Joanna rudzinska-wojciechowska.

3 Wroclaw Faculty of Psychology, SWPS University of Social Sciences and Humanities, Wroclaw, Poland

Filip Łozowski

Associated data.

The data underlying this study have been uploaded to the Open Science Framework and are accessible using the following doi: 10.17605/OSF.IO/H7RK4 .

Saving is an important financial behavior that provides an individual with psychological security and boosts his/her overall sense of well-being. For this reason, scientists and practitioners have attempted to understand why some people save when others do not. One of the most common explanations for this phenomenon is that those individuals who earn more should be more willing to save their money. In line with this logic, people who have more money should be more likely to have savings. Considering the results of prior research, we expected objective financial situation (income) to be positively linked to having savings (i.e., propensity to have savings and the exact amount of savings). At the same time, however, we assumed that subjective financial situation (perception) should also be positively related to these variables. To test our assumptions, we conducted a nationwide representative survey ( N = 1048) among Polish respondents, asking them about their objective and subjective financial situation. The results of a regression analysis showed that objective financial situation was indeed significantly positively related to having savings. However, subjective financial situation was also positively correlated with having savings (even when we controlled for objective financial situation and demographic variables). We discuss the implications of the links between objective versus subjective financial situations and having savings.

Introduction

Even though there is no doubt that saving is an adaptive behavior, many people do not save at all. According to financial analyses, citizens in many European countries do not have sufficient savings to live a comfortable life without having to worry about fulfilling their basic needs. For example, a study conducted in 13 European countries (total sample size N = 13 936) by the ING Group (one of the world’s leading banking/financial companies) showed that 29% of Europeans declared that they had no savings, whereas 36% declared that the amount of their savings is equal to the amount of their living costs for three months [ 1 ]. The situation seems even more dramatic in the US, where according to a 2017 GoBankingRates survey, 57% of Americans have less than $1,000 in their savings accounts, and 39% have no savings at all [ 2 ]. This act of financial irresponsibility encourages economists and social scientists to search for individual predictors of saving behavior and ways to increase people’s willingness to save money.

The fact that some people have more while others have less in savings is most often explained by the amount of money people earn or have at their disposal [ 3 – 4 ]. For example, Davis and Schumm [ 5 ] investigated the relationship between saving behavior and household income and identified an income threshold below which respondents saved almost nothing. The positive relationship (r = .50) between annual family income and the amount of savings was only found among families that earned more than a certain amount. Other researchers state that income is the most important factor in determining saving behavior [ 6 – 7 ]. On the other hand, poor or low-income individuals are also able to save some money [ 8 – 12 ]. Moreover, a wealth of research has shown that the ability to put money aside is not only influenced by economic factors [ 13 – 15 ] but also by a range of psychological variables (see [ 16 ] for an overview). Considerable attention has been paid to the motives behind human decisions to start saving money [ 3 , 17 – 21 ], as well as individual variables, such as risk aversion, locus of control or optimism [ 22 – 23 ]. Some studies also emphasize a positive relationship between time horizon and saving [ 24 – 26 ] and others stress the role of situational factors that might significantly impact a decision about whether to put money aside, for example, fear of death [ 27 ], feeling connected with one’s future self [ 28 ], feeling powerful [ 29 ], or feeling stressed [ 30 ]. Thus, the underpinnings of having savings may be much more complex than presented through most economic analyses and dependent on many other factors in addition to income. We propose that one of those factors might be a subjective financial situation, i.e., its perception.

Subjective versus objective measures

Psychological literature stresses that in many life areas subjective assessment of a given situation is not always directly linked to objective facts. For example, research on life-satisfaction shows that it is only slightly related to one’s objective situation (i.e., income, health, family situation) especially when basic life needs are satisfied [ 31 – 32 ]. The literature also shows that, in some cases, the perception of a given situation has a stronger influence on decisions and behavior than objective facts. For example, the perception of body weight is more closely linked to internalizing and externalizing problem behavior, as well as social and thought problems, than an objective measure of body mass [ 33 ]. Underweight or overweight adolescents who consider themselves to be in a good shape have no more problems than those with a normal BMI. On the other hand, the perception of being ‘too thin’ and particularly ‘too heavy’ is a stronger predictor of problematic behaviors than actual weight, both among male and female adolescents. Another example was provided in the study conducted by Miron-Shatz Hanoch Doniger,Omer, and Ozanne [ 34 ], which showed that the willingness to pay for BRCA1/2 genetic testing (a positive test result is a substantial risk factor for breast and ovarian cancer) is affected by subjective but not objective numeracy (an ability to understand and manipulate numbers).

Similar patterns of results are also observed for variables reflecting one’s financial situation. In many cases, perception of financial situation or status had stronger predictive value for different behaviors than their objective measures. Firstly, subjective social status, understood as an individual perception of one’s own position in the social hierarchy [ 35 ], was shown to be a better predictor of need for utilization of health services than the ‘hard data’ [ 36 ]. Compared with objective indicators, subjective social status was more consistently and strongly related to psychological functioning and health related factors [ 37 ]. Moreover, subjective social status predicted health, even after accounting for traditional indicators of socioeconomic status, such as education, income, and occupation [ 38 – 40 ]. Secondly, perception of income inequality was demonstrated to be a more consistent predictor of morbidity and mortality than absolute income [ 41 – 42 ]. Finally, research on the relationship between one’s financial situation and life satisfaction showed a weaker correlation between life satisfaction and wealth (between .12 and .15 depending on the study) and a stronger correlation between life satisfaction and subjective financial situation (between .51 and .53 depending on the study) [ 43 ].

In the context of the abovementioned research results, a question emerges about the causal direction between well-being and financial behaviours. For many years researchers assumed that the better people’s lives are, the more their needs are satisfied, and the happier they should feel [ 44 ]. However, recently, researchers have begun to consider if this dependency may be based on a different direction–perception causing better life performance [ 45 – 46 ]. This so-called top-down approach (instead of bottom-up) assumes that happier people are not only more satisfied with specific aspects of their life but also perform better in different life areas [ 47 – 48 ]. In a longitudinal study, students who were more satisfied with life in their first year of university, turned out to have higher incomes than their less happy colleagues 19 years later [ 49 ]. In another study conducted by Lyubomirsky and colleagues [ 45 ], the direction of the relationship from happiness towards success (and not the other way around) was demonstrated in various areas of life and using various methodologies (cross-sectional, longitudinal, and experimental).

The abovementioned studies clearly demonstrate that one’s perception of a given situation should be taken into account next to objective indicators. Therefore, it is worth investigating whether incorporating one’s subjective financial situation next to objective measures would allow us to understand financial decisions better than analysing the objective measures alone. Moreover, those studies demonstrated that in many life areas a causal relation does not move from facts to perception but the other way around, from perception to performance, that is, from the subjective to objective level.

Subjective financial situation

It is widely acknowledged that objective indicators of economic wealth might not always accurately reflect how people subjectively experience their financial situation [ 50 – 53 ]. Two people holding the same amount of wealth might perceive it differently, as their needs, aspirations, expectations or past experiences may be different [ 52 , 54 – 59 ]. Moreover, subjective economic well-being might be affected by the level of assets and debt [ 60 ]. Two people with equivalent net worth but composed of different levels of assets and debt might perceive their financial situation as different in terms of their wealth. Specifically, people with a positive net worth feel wealthier when they have a lower level of debt and consequently fewer assets. On the other hand, people with a negative net worth feel wealthier when they have more assets despite having greater debt.

The subjective financial situation has been referred to as, among many other terms, perceived economic well-being [ 61 ], financial satisfaction [ 52 ], financial well-being [ 62 ], and economic strain [ 63 ]. Although the positive relationship between objective and subjective measures of one’s wealth is well established, its strength varies among studies, with correlation coefficients between the two ranging from values near .25 [ 64 – 66 ] to .50 [ 55 , 67 – 68 ], with some even being nonsignificant [ 69 ]. Moreover, there are also people whose salaries are relatively high but who perceive their financial situation as bad and, in contrast, there are individuals who perceive their financial situation as extremely good even though it is objectively bad [ 51 , 53 , 70 – 73 ]. Some researchers term the latter case a satisfaction paradox [ 72 , 74 ], which corresponds not only to financial satisfaction but also to general well-being. In a nationwide representative survey conducted in Poland [ 71 ], both objective and subjective measures of financial situation were introduced. The results showed that in some cases (among some people), there were significant inconsistencies between subjective and objective financial situations. Further analysis showed that this phenomenon involved two types of individuals: financial pessimists and financial optimists [ 71 ]. Financial optimists were those who had the lowest income but perceived their financial situation as good. Financial pessimists were those whose income was two times higher than the optimists’ salary but perceived their financial situation as bad. Comparisons of these two groups of people showed that financial pessimists were generally more prone to complain about their financial situation, feeling that there were many things they could not afford, and having more financial problems (e.g., debts) than the optimists.

The lack of a strong relationship between objective and subjective financial situation suggests that there may be certain individual difference variables that contribute to the process of evaluating one’s financial well-being. For example, it has been shown that one’s attitudes toward money might affect the perception of one’s financial situation [ 54 , 75 ]. The process of social comparisons, especially regarding how people perceive their income in comparison to others, also plays an important role in the perception of own finances [ 76 ].

It has also been demonstrated that financial satisfaction is linked to a whole array of financial behaviors and characteristics of the consumer. Xiao, Chen, & Chen [ 77 ] examined the relationships between financial satisfaction and consumer financial capability (i.e., perceived financial capability, financial knowledge, and financial behavior) and demonstrated that financial satisfaction was positively associated with perceived financial capability, desirable financial behaviors and subjective financial knowledge. Additionally, financial satisfaction decreased risky financial behaviors. In another study [ 78 ], the association between financial satisfaction and the propensity to plan for long-term goals was examined and it was demonstrated that financial satisfaction, after controlling for socio-economic and other financial capability factors, made unique contributions to the propensity to plan for long-term goals. Moreover, financial satisfaction was also demonstrated to be positively associated with preparing a household financial budget [ 60 , 79 ].

The subjective financial situation impacts various domains of life. It is believed to be a subconstruct of general well-being [ 52 ] and was recently shown to influence investment decisions. A study conducted by Sekścińska, Rudzińska-Wojciechowska and Maison [ 80 ] revealed that male participants who perceived their financial situation as good (vs. bad) were more prone to invest. At the same time, their objective financial situation did not affect the propensity to invest.

Taking into account the abovementioned role of subjective financial situation in different areas of life decisions, we assumed that in regard to explaining having savings, subjective financial situation should be at least as important as objective financial situation or, in some cases, even more important. To test this assumption, we conducted a study using a large, heterogeneous sample. Participants’ objective (income) and subjective (perception of) financial situation were measured. Bearing in mind that there are people who do save regularly, but their amount of savings is low due to their low income, we decided to include two measures of having savings: whether one has savings or not and the amount of savings. In other words, we introduced two measures of having savings to differentiate between: (1) the amount of savings, which is a traditional indicator of saving practices, and (2) the propensity to have savings–(i.e., whether one has savings or not) which can be understood as a skill or a tendency to save. We predicted that both objective and subjective financial situations should be positively related to one’s propensity to have savings and the amount of money saved.

Based on the research reviewed above, which indicates that the objective measures may not accurately reflect how people experience their financial situation, we formulated the following hypotheses:

H1. Objective financial situation would be positively related to the propensity to have savings (dichotomous variable) and the amount of savings.

H2. Subjective financial situation would be positively related to the propensity to have savings (dichotomous variable) and the amount of savings even when controlled for the variance shared with objective financial situation and demographic variables.

H3. The effects of objective financial situation on the amount of savings, which is strictly related to the specific amount of money, should be stronger than the effects of subjective financial situation.

H4. The effects of subjective financial situation on the propensity to have savings, which is largely related to the mere intention to save money, should be stronger than the effects of objective financial situation.

Participants and procedure

The study was conducted via an internet research panel on a nation-wide sample. The participants were randomly selected from the panel users, and demographic structure of the sample was controlled in order to make it compatible with the structure of the Polish population. The quotas were selected based on the distribution of gender, age, education and size of town in the population of Poles. The sample consisted of 1048 respondents (550 women) between the ages of 18 and 69 ( M age = 42.96, SD = 14.82). Several measures and scales were presented to participants, including measures of subjective and objective financial situations, questions about propensity to have savings, amount of money saved and demographics (e.g., gender, age).

All participants provided their informed consent to take part in the research after reading detailed information about the study. Participants were asked to click on a link to the study if they agreed to take part in the research. Otherwise, they did not participate in the study. All participants of the panel are rewarded for their participation in every study with points, which can be exchanged for rewards of their choice. Each participant received exactly the same amount of points as for his/her participation in the study.

Two aspects of financial situation were measured. The first one was objective financial situation–reflected by the amount of monthly income of the household–and the second one was subjective financial situation measured in two ways, as a general evaluation of financial situation and as an assessment of household purchasing power.

The objective financial situation

The objective financial situation (variable: objective FS ) was measured using one question: “Please indicate the average monthly net income of your household”. To avoid numerous missing values in the database, the answers to the question were given on a 7-point scale from 1 = less than 1000 PLN to 7 = more than 10 , 000 PLN .

The subjective financial situation

The subjective financial situation was measured with two questions. In the question about general subjective financial situation (variable: subjective FS–general ), participants were asked to assess their material situation on a 7-point scale (1 = very bad to 7 = very good ). In the question about the subjective household’s purchasing power (variable: subjective FS–household purchasing power ), the participants were asked to indicate which out of five statements best describes their household financial situation, ranging from 1 = We do not have enough money for the most urgent needs to 5 = We have enough money , we do not have to save even for bigger expenses .

Having savings was measured by two different variables: in the traditional way, as an amount of savings held by the respondent, and as a propensity to have savings understood as having any savings, regardless of the amount of savings.

Amount of savings

Amount of savings was measured as declared amount of savings the person has. Respondents indicated amount of savings using 10 intervals: from 1 = no savings to 10 = more than 100 , 000 PLN (2 = less than 500 PLN; 3 = 501–1000 PLN; 4 = 1001–5000 PLN; 5 = 5001–10 000 PLN; 6 = 10 001–20 000 PLN; 7 = 20 001–30 000 PLN; 8 = 30 000–50 000 PLN; 9–50 001–100 000 PLN; 10-more than 100 000 PLN).

Propensity to have savings

Propensity to have savings was measured with one question: Do you have any savings ? The answer was coded as 1 = Yes or 0 = No.

Choosing these measures of objective and subjective financial situation, we were conscious of their limitations, especially that they might not exactly capture the same phenomenon. Objective financial situation referred only to income, but by asking a question about subjective financial situation we didn’t have control over what respondents could have in mind when answering this question (they might only consider income or also other things, e.g., properties). Nevertheless, we chose this form of question in order to entrench their simplicity.

Zero-order correlations

Zero-order correlations between variables and scale properties are presented in Table 1 . We found significant positive relationships between objective financial situation and (1) propensity to have savings and (2) amount of savings, which is in line with previous research linking objective financial situation (e.g., income) to saving [ 3 – 4 ]. Both indicators of subjective financial situation were also positively related to propensity to have savings and amount of savings. Objective financial situation was significantly positively related to both indicators of subjective financial situation (general and purchasing power).

Regression analyses

We performed a stepwise multiple regression analysis to investigate the relationships between financial situation measures (objective vs. subjective) and having savings (amount of savings or propensity to have savings). Moreover, we decided to test interaction effects between objective and subjective measures of financial situations on having savings, and thus, financial situation variables were mean-centered prior to the analyses. In both analyses, we also controlled for basic demographics (age and gender).

Saving: Amount of savings as an outcome variable

First, we conducted a hierarchical multiple regression analysis to test the hypothesis that subjective financial situation (general and subjective household purchasing power) would be more strongly related to the amount of savings than objective financial situation ( Table 2 ).

In Step 1, we introduced objective financial situation and demographics (gender, age). We found significant positive effects of age and objective financial situation on amount of savings.

In Step 2, we introduced variables coding subjective financial situation: general and purchasing power, and found their positive effects on amount of savings. After introducing subjective financial situation variables, we still found a significant (albeit weaker) effect of objective financial situation and a significant effect of age.

In Step 3, we introduced two two-way interactions between objective financial situation and (a) subjective financial situation: general and (b) subjective financial situation: perception of household purchasing power. We found significant positive effects of subjective financial situation (general and perception of household purchasing power) on amount of savings. We also found a significant positive effect of age. However, we found no significant effect of objective financial situation on amount of savings and a marginally significant interaction between objective financial situation and subjective financial situation: general. Simple slope analysis indicated that among people low in subjective financial situation (general), the effect of objective financial situation was positive but not significant, B = 0.11, SE = 0.10, p = .21 and was positive and significant among people high in subjective financial situation (general), B = 0.56, SE = 0.08, p < .001 ( Fig 1 ). Moreover, we also found a similar significant interaction between objective financial situation and subjective financial situation (perception of household purchasing power). Again, simple slope analysis indicated that among people low in subjective financial situation (perception of low purchasing power of the household), the effect of objective financial situation was positive but not significant, B = 0.14, SE = 0.09, p = .11, but was positive and significant among people high in subjective financial situation (perception of high purchasing power of the household), B = 0.57, SE = 0.08, p < .001 ( Fig 2 ).

*** p < .001.

Saving: Propensity to have savings as an outcome variable

Second, we conducted a stepwise logistic binominal regression analysis to investigate the relationships between financial situation measures (objective vs. subjective) and the propensity to have savings. Moreover, we decided to test interaction effects between objective and subjective measures of financial situations on having savings, and thus, financial situation variables were mean-centered prior to the analyses. In both analyses, we also controlled for basic demographics ( Table 3 ).

In Step 1, we introduced objective financial situation and demographics (gender, age). We found a significant positive effect of objective financial situation and no significant effects of age or gender on propensity to have savings.

In Step 2, we introduced variables coding subjective financial situation: general and perception of household purchasing power and found their positive effects on propensity to have savings. After introducing subjective financial situation variables, the effect of objective financial situation on propensity to have savings became only marginally significant.

In Step 3, we introduced two two-way interactions between objective financial situation and (a) subjective financial situation: general and (b) subjective financial situation: perception of household purchasing power; none proved to be significant. However, we still found a significant positive effect of subjective financial situation (general and perception of household purchasing power) on propensity to have savings.

In this research, we investigated the role of objective (i.e., income) and subjective (i.e., perception of) financial situation in having savings. We conducted a study on a nation-wide sample that reflected the demographic structure of the Polish population. The results of the study confirmed our assumptions and showed that both objective and subjective financial situations are important predictors of having savings. However, the positive link between objective financial situation and having savings became weaker (DV: amount of savings) or insignificant (DV: propensity to have savings) when subjective financial situation was accounted for.

In line with previous findings [ 22 , 69 , 81 – 87 ], an objective financial situation was positively linked to the amount of money individuals saved. Even after introducing subjective financial situation, the effect of objective financial situation on the amount of savings was still significant, although slightly weaker. Nevertheless, the interaction between subjective and objective financial situation was also significant: specifically, we found that the objective financial situation was only significantly positively related to the amount of savings among those people who had high scores on subjective financial situation. Thus, the results showed that subjective financial situation is a very important factor related to the amount of money people save. Thus, it is possible that when one earns more money but perceives his/her financial condition as rather weak, he/she would not necessarily be more likely to have savings than those who earn much less.

The same pattern of results was observed irrespective of the method of measuring subjective financial situation, either in general or as perception of household purchasing power. These results shed new light on previous findings, which mainly focused on the positive relationship between the objective financial situation and the amount of savings. Although objective financial situation was significantly positively related to the amount of savings, this was especially the case among participants with high scores on subjective financial situation. Thus, those who have more money at their disposal have more savings, but only as long as their perception of their financial situation is good. These findings can be partly explained by Bandura’s self-efficacy theory [ 88 ] according to which there are people more (vs. less) prone to believe that they have the ability to influence their lives and, thus, achieve their goals. Previous research [ 89 ] showed that self-efficacy is positively related to optimism. Thus, it is possible that individuals high in self-efficacy who believe they have the ability to influence the events of their own lives would also be more prone to be financial optimists and perceive their financial situation as relatively better than those who score low on self-efficacy scales (i.e., financial pessimists). This mechanism can further lead to different financial decisions (also related to having savings). Such positive perceptions of one’s abilities in the financial domain may in fact lead to a better perception of one’s financial situation and, as a result, evoke saving behavior. Still, further empirical investigation is needed to test these assumptions.

We found a similar pattern of results when analyzing whether a participant has any money saved independently of the amount of money saved (propensity to have savings) as a dependent variable. These results show a similar pattern, although they are stronger, and their implications are slightly different. The first step of the analysis showed a positive relationship between objective financial situation and propensity to have savings (similarly to the results when amount of savings was the dependent variable). However, after we introduced subjective financial situation into the equation, we found a significant effect of subjective financial situation on propensity to have savings, whereas the effect of objective financial situation was no longer significant. This result means that subjective financial situation is strongly linked to the propensity to have savings. It also means that whether people have any savings or not might be independent of the amount of money they earn. If someone has very little money at his/her disposal but has a very high propensity to have savings, it is very possible that he or she will have some money put aside. An important consequence of this characteristic is that if someone has the propensity to have savings, and their income rises, his/her savings will also rise. However, if someone has no propensity to have savings, regardless of the amount of money earned or obtained from other sources (e.g., inheritance or a lottery win), he/she will probably have no savings.

Our study clearly demonstrated that objective and subjective financial situation are significantly, though not strongly, related to each other. Thus, it seems crucial to account for not only objective but also subjective financial situation when analyzing financial behaviors. In some cases, for example, propensity to have savings, perceptions can take on an even greater importance than objective measures.

Limitations and further research

Although the present study is based on a large, heterogeneous sample and brought several interesting results, it has some disadvantages and limitations. Firstly, we relied solely on self-reported data. Therefore, the present study has all the limitations that are characteristic for self-report measurements. Secondly, as the study was based on cross-sectional data, no assumptions of causality can be drawn from the results. Although it is probable that subjective financial situation provides bases for financial decisions, it is also possible that a reassuring awareness of having some money put aside in case of a rainy day impacts one’s perception of one’s financial situation. It would then be highly desirable to apply an experimental design in future studies to establish the direction of the described relationship. Moreover, the study was focused on one aspect of saving practices–it investigated whether one has some money put aside for the future and, if so, how much it is. We did not control where the money came from, specifically whether it was actively accumulated or, for example, inherited or won in the lottery. However, regardless of the source of the money, the fact that it is perceived as ‘savings’ means that the consumer is prone to put and keep money aside rather than consume all the available resources. Nevertheless, further studies are needed to investigate how one’s subjective wealth is linked to other saving practices. For example, they could take into account the strategies that consumers use in order to accumulate savings, saving motives or saving horizon.

Finally, one might argue that the subjective and objective measures of participants’ financial situations are not parallel and not focused on similar aspects of one’s wealth, as the objective measure captures only information about participants’ income, whereas subjective assessment also captures information about assets and a relation between income and expenses. It is possible that subjective measures reflect more information than objective ones, as participants take into account large amounts of data when answering a single question about the perception of their finances. Thus, future research would do well to measure objective financial situation in a more developed and precise manner, for example, by asking about different dimensions of this phenomenon (i.e., going beyond income and focusing on a broader aspect of financial assets). Also, when it comes to methodological improvements, some of the variables in our study (e.g., the amount of savings) were measured with the use of an interval scale. Future work would do well to measure similar variables by asking about the exact amount of money (earned or saved).

Despite the acknowledged limitations, the present study opens several avenues for further research. Apart from the directions indicated above, a dynamic nature of individual financial circumstances should be taken into account. Repeated measures of subjective wealth over the course of life will enhance the understanding of determinants of saving decisions. Moreover, there is a need to verify to what extent the perception of finances is related to other financial decisions, such as spending, borrowing, insuring or investing. Finally, when planning further research on the satisfaction paradox , it would be worth considering the results of research [ 71 ] that has shown that there are two types of consumers in relation to their finances: financial pessimists and financial optimists. Future research might investigate the differences in attitudes and saving behaviors of these two groups.

Practical implications

In the context of saving behavior, a very important question is how to increase the amount of savings in society. Many studies based on declarations provide results that are, to some extent, misleading, indicating that saving behavior can be obtained directly by increasing the wealth of a society. However, our study suggests that augmenting saving in society could probably be achieved more indirectly by influencing individuals’ positive perceptions of his/her financial situation. Such an indirect effect can be achieved, for example, by mental training related to perceptions of one’s financial situation. This possibility is an important conclusion for financial counselors who work with people to increase financial well-being.

The results of the described study also have more general implications related to marketing research. In the majority of marketing strategies, target groups for products are usually defined by level of income, assuming that people with a higher income will use more expensive products or prefer more luxurious brands than people with a lower income. The results of our study suggest that subjective financial situation can be at least as important a factor in explaining what people do with their money as objective measures.

Funding Statement

This project was supported by the Faculty of Psychology at the University of Warsaw (BST 181421/2018 awarded to Dominika Maison). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Data Availability

Financial Socialisation and Personal Financial Management Behaviour of Millennials in India: The Role of Attitude Towards Money and Financial Literacy

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Financial management is a complicated collection of behaviours. Given its various precursors, a multi-theoretical view is needed to understand it. The necessity for responsible financial behaviour is urged by a variety of factors, such as the global economic downturn, declining savings, credit reforms, and unprecedented COVID-19. It becomes all the more essential to investigate the antecedents that influence PFMB. Based on the Theory of Planned Behaviour, Theory of Consumer Socialisation, and Social Cognitive Theory, we propose the impact of financial socialisation on PFMB of Indian millennials through the mediation of attitude towards money and moderation of financial literacy. To the best of our knowledge, the literature examining the influence of financial socialisation and attitude towards money on PFMB as a whole is scant. Policymakers and practitioners of consumer finance could make use of this line of research to inform financial educators, counsellors, and consumers to improve the overall financial well-being.

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Goyal, K. (2023). Financial Socialisation and Personal Financial Management Behaviour of Millennials in India: The Role of Attitude Towards Money and Financial Literacy. In: Mishra, P., Sharma, A., Khanra, S., Kundu, S.K., Mishra, S.K. (eds) Digital Economy Post COVID-19 Era. INDAM 2023. Springer Proceedings in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-99-0197-5_21

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Please note you do not have access to teaching notes, exploring undergraduates’ money-management life: insight from an emerging economy.

Young Consumers

ISSN : 1747-3616

Article publication date: 16 July 2019

Issue publication date: 19 August 2019

Undergraduates are expected to be future leaders responsible for business and nations. Given that sound financial decision-making is critical to their success in their careers and lives, it is important to understand the money-management behaviour of undergraduates. In the context of developing countries, the body of knowledge on money-management behaviour is dominated by functional financial literature and there is little research on factors beyond this. This study aims to fill this gap by exploring economic, social and psychological factors that influence money-management behaviour of undergraduates in a developing nation (Sri Lanka) and how undergraduates respond to these influences.

Design/methodology/approach

The study used a qualitative exploratory approach. Data collection was carried out using focus group discussions and individual interviews amongst undergraduates in a leading Sri Lankan state university.

The results indicate that undergraduates adopted both careful and risky money-management approaches. The subthemes, specifically identified under economic, social and psychological factors, revealed how undergraduates responded to each of these factors and the influence of contextual and cultural differences in their money-management behaviour.

Research limitations/implications

Findings of the study revealed the importance of promoting innovative educational strategies to change the dependability mindset of undergraduates and to promote stress-management strategies that will assist them to enhance their personalities and creativity in making financial decisions. Theoretical and practical implications and future research directions are provided.

Originality/value

The literature scores in developing context are limited to exploring the existing pattern and the levels of the functional financial literacy. This study has deepened the authors’ understanding of how the developing context affects undergraduates’ response to the factors relating to their money-management behaviour. The findings from this study will be useful to government, financial institutions, educational institutions, parents and those who have a keen interest in encouraging healthy money-management behaviour in undergraduates.

• Qualitative approach
• Undergraduates
• Beyond financial literacy
• Money-management behaviour

Acknowledgements

The author/authors wish to acknowledge that this paper was made possible by the support and guidance given by the “Australia Awards Fellowships Program for Sri Lanka – 2018,” which was funded by the Department of Foreign Affairs and Trade, Australia, and co-hosted by Monash University, Australia and the University of Sri Jayewardenepura, Sri Lanka.

Sachitra, V. , Wijesinghe, D. and Gunasena, W. (2019), "Exploring undergraduates’ money-management life: insight from an emerging economy", Young Consumers , Vol. 20 No. 3, pp. 167-189. https://doi.org/10.1108/YC-07-2018-00828

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The Impact of Money Attitude on Personal Financial Management Behavior, and Self-Control as Moderation Variables

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Personal financial management behavior is considered as an important activity for individual which has a purpose to achieve financial welfare. This study had two purpose: (1) to test the direct effect of money attitude and self-control on the personal financial management behavior, and (2) to test the moderating effect of self-control on the effect money attitude and personal financial management behavior. The sample of this reasearch were 134 of undergraduate student and 109 of postgraduate student in the Faculty of Economic and Business (FEB) Bengkulu University. This study used Partial Least Square (PLS) program to testy the hypothesis. The following are generated results from this research study. The direct effect of money attitude and self-control have a significantly influence on personal financial management behavior. In addition, self-control has not moderating effect on money attitude and personal financial management behavior of among college students in the Faculty of Economics and Business (FEB) Bengkulu University.

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International Conference on Communication, Management and Humanities (ICCOMAH 2020)

MD NAZRI MD NOR

Finances are one of the main reasons that students drop out of studies. By practicing proper money management techniques, students can feel confident about their ability to manage finances into their adult life, save money and avoid debt down the road. This research was conducted among commerce department students to observe the awareness on managing their personal finance. This helps to raise a better understanding on the personal financial management amongst students in Commerce Department, Polytechnic Ungku Omar. This research includes knowledge of finance, behavioral finance as well as parental socialization of students' awareness of personal financial management. The objective of this research are to study the awareness of personal financial management among students and to identify whether the financial knowledge, financial behavior, and parental socialization are the factor that affect awareness of personal financial management in Commerce Department, Polytechnic Ungku Omar. The data collection method were used are the Pearson Correlation Coefficient Analysis which measures the strength of two variables by measuring it through the division of two variables. Other methods were taken too which is descriptive by distributing questionnaires among commerce department students. The respondents comprised of 300 respondents among commerce department students.

Management and Business Review

Anis Dwiastanti

https://www.ijrrjournal.com/IJRR_Vol.7_Issue.2_Feb2020/Abstract_IJRR0035.html

International Journal of Research & Review (IJRR)

University students are part of the community involvement in the financial usage for daily consumption budget. Consumptive and instant lifestyle frequently makes them spend their money for unnecessary needs. The increased student activities in searching for goods through online shops will certainly escalate the use of phone credit compared to those not online.

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Financial Literacy and Money Management Among Tertiary Institution Students. A Study of Selected Universities in Osun-State, Nigeria

11 Pages Posted: 6 Jul 2017

Oyınlola M. Akinyede

Department of Finance, Redeemers University

Adenike Owolabi

Redeemer's University

Abisola Akinola

Redeemer's University - Department of Financial Studies

Date Written: March 31, 2017

The study was conducted to determine the relationship between financial literacy and money management (spending, savings, investments and budgeting) among tertiary institution students. Tertiary education is the stage where students are at a decisive time in their lives as they move from financial dependence to financial independence. A good money management skill helps in the transfer of funds from a period of surplus to the period of deficit. Necessary sample size of 385 for the infinite population of tertiary institution students was used. The use of factor analysis was used/justified on the ground that the survey questions were largely based on patterns of behaviour and attitudes, with no ostensible right or wrong answers. Results showed positive significant relationship between all measures of money management and financial literacy. The study gives evidence of students knowledge in personal finances and the importance of a good and viable financial literacy programme so as to improve the quality of life of the young adults and their disposition to money. Results of the study are of interest to policymakers concerned with financial well-being and the balance between personal and institutional responsibility. Targeting financial education programmes on young adults that need them most could increase their effectiveness and proper plan for a better tomorrow.

Keywords: Financial Literacy, Money Management, Tertiary Education, Personal Finances

Suggested Citation: Suggested Citation

Oyınlola M. Akinyede (Contact Author)

Department of finance, redeemers university ( email ).

Ede, Osun State Nigeria +2347069328922 (Phone)

Redeemer's University ( email )

Mowe, Ogun State Ogun State Nigeria

Redeemer's University - Department of Financial Studies ( email )

Ede, Osun State Nigeria

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Money Management: Students' Budgeting Behavior

• John Lenard Arcangel

INTRODUCTION

Financial management is a discipline that everyone must have regardless of status. The purpose of this study was to explore how students manage their allowance. This study was made to identify their budgeting behavior and if they use what they have learned through their business finance. Budgeting is a task that everyone must do to be able to check and assess their spending and how they spend their money. Students in their early years have a limited income in the form of their allowances that was why student behavior on budgeting was a critical part to study.

A thematic approach was used to gather data using validated interview questions that were given to the respondents. The thematic approach allowed the researcher to develop a deeper understanding and appreciation to the respondents. The questions are given thematically one t another to see the consistency of the respondent respond. The researcher recorded the interview to be able to store and review the respondent's response as is and follows the record were transcribed, analyzed and interpreted.

The study found students budgeting behavior and factors that affect their spending. Students a lot their allowance on different school expenses specifically on their schoolwork, project, paper works, activities, and handouts. They also give priority particularly on their transportation expenses going to school and home. They consistently mentioned personal expenses that become their least priority expenses even food was last on their priority. It also shows that students that saved money tend to save for future school expenses. They also set goals to save money for them to have more motivation for saving money.

DISCUSSIONS

The study shows students behavior on budgeting and applying the principles of financial management at their personal level knowing their priority and spending their allowance wisely. It also shows their awareness of the value of proper budgeting their allowance from the most important things they need to the least. The study explicit how students used financial management skill in their needs.

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©2017 by Ascendens Asia Pte. Ltd. | NLB Singapore-Registered Publisher.

Exploring undergraduates’ money-management life: insight from an emerging economy

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• Money Economy
• Monetary Economics

Money management in high school students:literature review

• August 2019
• Conference: 3rd International Academic Conference on Humanities and Social Sciences
• This person is not on ResearchGate, or hasn't claimed this research yet.

• Universiteti Alexander Moisu Durres

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