Propensity toward indebtedness: evidence from Malaysia

Abstract

Purpose The purpose of this paper is to develop a model for studying the propensity towards indebtedness in Malaysia using behavioural factors. Design/methodology/approach A self-administered questionnaire was distributed among Malaysians who work in Klang Valley, Kuala Lumpur. The questionnaire contained several demographic variables and four behavioural factors: financial literacy, risk perception, materialism and emotions. A total of 201 completed questionnaires were received and the data were tested using structural equation modelling with partial least squares. Findings This study found that emotion and materialism are statistically significant for a propensity towards indebtedness, while financial literacy and risk perceptions are insignificant for a propensity towards indebtedness. Originality/value The results of this study would be useful in helping design better models for credit offerings and addressing credit problems in the long run.

Determinants of Indebtedness: Influence of Behavioral and Demographic Factors

“…Behavioral determinants (e.g., financial literacy, risk perception, materialism, and emotion) may influence the propensity towards indebtedness (Azma et al 2019;Muñoz-Murillo et al 2020). The first crucial determinant of this study is financial literacy, which seeks to improve the capacity of persons to understand financial problems.…”

“…The first crucial determinant of this study is financial literacy, which seeks to improve the capacity of persons to understand financial problems. Financial literacy has a greater positive impact on financial outcomes in the long term (Azma et al 2019). It is an important determinant of whether an individual has sufficient savings for future consumption.…”

“…According to Flores and Vieira (2014), Darriet et al (2020), and Katona (1975) there are three reasons to explain why people spend more than they earn: (i) low-income people cannot cover essential expenses; (ii) high-income people with a strong desire to spend; and (iii) lack of desire to save income. Katona (1975) discussed the origin of the credit problem, and Azma et al (2019) highlighted psychological and behavioral factors. Following this view, Eberhardt et al (2019) and Vitt (2004) identified that consumers' financial decisions may reflect their psychological and social values.…”

“…Chaplin et al (2019) highlighted the several strategic factors that assist reducing materialism in younger consumers. People with high levels of materialism are characterized as spenders (Azma et al 2019), while those with low levels are savers because immaterialized people will invest in stocks, bonds, and mutual funds (Chatterjee et al 2019;Stock and Watson 2003). Santos and Fernandes (2011) observed that people associate excessive materialism with a search for status.…”

“…This study considers four determinants highlighted in the literature as the factors influencing indebtedness: financial literacy, risk perception, materialism, and emotion. The major reasons of rising indebtedness are low income, high income, and reluctance to save (Azma et al 2019). The low-income group justified spending more than they earn because they are unable to cover their basic expenses with their income.…”