UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Nguyen Thi Ngoc Mien FACTORS AFFECTING PERSONAL FINANCIAL MANAGEMENT BEHAVIORS ID: 22120056 MASTER OF BUSINESS (Honours) SUPERVISOR: DR TRAN PHUONG THAO Ho Chi Minh City – Year 2014 DECLARATION I hereby declare that this thesis, to the best of my knowledge and belief, is my own work and effort and that is has not been submitted, either in part or whole, anywhere for any award Information and ideas taken from other sources as cited as such This work has not been published Signature: Nguyen Thi Ngoc Mien ACKNOWLEDGEMENT At the first of my thesis, I would like to thank all those people who made this thesis possible and an unforgettable experience for my studying Foremost, I would like to express my sincere gratitude to my supervisor, Dr Tran Phuong Thao Her great knowledge and experience, patience and encouragement helped me overcome any obstacles that I faced with when completing my thesis Her guidance helped me all the time of researching and writing of this thesis Besides my supervisor, I would also like to thank the ISB research committee for their encouragement, insightful comments in my study Last but not the least, I would like to thank my parents who appreciated my efforts and always provided cheerful encouragement during the period of this study Ho Chi Minh City, March 3, 2015 TABLE OF CONTENTS ABSTRACT CHAPTER INTRODUCTION 1.1 Background .1 1.2 Statement of the problem 1.3 Research Objective and Research Questions 1.4 Scope of the research 1.5 Significant of the research 1.6 Structure of the thesis CHAPTER LITERATURE REVIEW AND HYPOTHESES 2.1 Theoretical Foundation .7 2.2 Personal Financial Management Behaviors 10 2.3 Financial Attitude and Personal Financial Management Behaviors .11 2.4 Financial Knowledge and Personal Financial Management Behaviors 12 2.5 Financial Knowledge, Financial Attitudes and Personal Financial Management Behavior 14 2.6 External Locus of Control and Personal Financial Management Behavior 14 2.7 Financial Knowledge, Locus of Control and Personal Financial Management Behavior 16 2.8 Conceptual model 16 2.9 Chapter summary 17 CHAPTER RESEARCH METHOD .18 3.1 Research procedure 18 3.2 Measurement scale 19 3.3 Draft questionnaire 22 3.4 Sampling 22 3.5 Data Analysis method .23 3.6 Pilot test result 27 3.6.1 Cronbach alpha 27 3.6.2 EFA for financial attitude scale 29 3.7 Chapter summary 31 CHAPTER RESEARCH RESULTS 33 4.1 Data statistical analysis 33 4.2 EFA result for financial attitude variable .34 4.3 Cronbach’s alpha coefficient of reliability test .35 4.4 Exploratory Factor Analysis (EFA) results for all measures 37 4.5 Confirmatory factor analysis (CFA) .39 4.5.1 Financial Behavior 39 4.5.2 Financial Attitude .40 4.5.3 Saturated model 41 4.6 The structural model 44 4.7 The multiple group analysis to test the moderating effects 47 4.8 Chapter summary 49 CHAPTER CONCLUSIONS AND IMPLICATIONS 50 5.1 Key findings of the thesis .50 5.2 Implications .52 5.3 Limitations of study and future research 53 REFERENCE APPENDIX LIST OF FIGURE Figure2.1 The financial management conceptual framework Figure2.2 Conceptual model 17 Figure3.1 Research Process 18 Figure4.1 CFA for financial behavior 40 Figure4.2 CFA for financial attitude 41 Figure4.3 The saturated model 43 Figure4.4 The structural model result 45 LIST OF TABLE Table3.1 Measurement Scale 20 Table3.2 Cronbach’s alpha result of pilot test 28 Table3.3 EFA results of the pilot test for the financial attitude variable 30 Table3.4 EFA results of the pilot test for all variables 31 Table4.1 Data statistics 33 Table4.2 EFA for financial attitude variable 35 Table4.3 Cronbach’s alpha coefficients 36 Table4.4 EFA for all variables 38 Table4.5 Relationship between constructs 42 Table4.6 Result of hypothesis testing 46 Table4.7 Regression analysis of financial behavior as a function of knowledge and locus of control 46 Table4.8 The different between variance and partial invariant model 48 Table4.9 Estimating for direct and moderating effects of knowledge 48 ABSTRACT The objective of the thesis is to determine the relationship between personal financial attitude and financial management behavior, financial knowledge and financial management behavior, locus of control and financial management behavior of the youth in Vietnam Specifically, the research model was developed from family resource management model (Deacon and Firebaugh, 1988) and the theory of planned behavior (Ajzen, 1991) To examine research model, the thesis employs a survey approach by distributing questionnaire for respondents from 19 to 30 in Ho Chi Minh City Sample size of this research is 307 respondents Cronbach’s alpha, exploratory factor analysis and confirmatory factor analysis were used to test measurement scale The structural equation modeling (SEM) is then used for measuring the relationships The SPSS, AMOS software packages are used The findings indicated that, all of three factors have direct effects on financial management behavior, in which they explained 62.1% of the variance of financial management behavior of respondents Besides, this study also tests two addition hypotheses about the indirect effect of knowledge on financial management behavior through locus of control and the moderation of financial knowledge on the relationship between financial attitude and financial management behavior However, both of them were not supported This may be not accuracy because self assessment financial knowledge scale Future researches are encouraged to improve the financial knowledge scale to get better and accurate results Despite of some limitations, this study also has some significations for parents, financial education institutions or government agency Discussion and implications of the findings are delineated at the end of the study CHAPTER INTRODUCTION 1.1 Background Ability to manage finance of an individual has become an important problem nowadays Hilgert and Hogarth (2003) state that the financial systems of the 21st Century have been growing with speed, sophistication and becoming more complex The increased complexity of the economy, financial markets, and availability of different financial products make financial decisions of each individual more difficult People nowadays are immersing in different aspects of their financial state (Imbrahim and Alqaydi, 2013) The poor financial management include excessively high debt levels, low saving rates, being targets of investment fraud, being delinquent on credit cards and bankruptcy contribute to the financial burden of each individual (Kim, 2000; Jorgensen and Savla, 2010) Failure in managing an individual’s finance can lead serious long-term consequences not only for that person but also for enterprise, society For example, Garman et al (1996) found that employees were stressed about their poor financial behaviors that influenced negative on the job performance When someone does not plan their personal financial very well, they will face difficulties in developing their lives such as delaying marriage or not getting married at all, postponing having children or remaining childless, divorcing and remarrying at a higher rate, changing jobs more often (Ismail et al., 2011) The question of how to improve population-wide financial capability is of increasing concern to policymakers (Dolan et al., 2012) Financial management is simply “the ways and means of managing money” (MacMenamin, 1999) In the literature, there are several factors influencing personal financial behavior (Hira, Fanlsow, and Vogelsang, 1992; Hitzsimmons and Leach, 1994; Muske and Winter, 2001; Rha, Montalto and Hanna, 2006; Worthy, 2010) Among these studies, two critical factors which may have significant impact on behavior are knowledge and attitude (Eagly and Chaiken, 1993) In particular, much research has been conducted on the relationship between financial knowledge and financial management Grable et al (2009), for example, state it is important for those who make financial decision to use a reliable base of knowledge In addition, individuals with financial knowledge make better decisions than those without such knowledge For example, high school seniors with higher financial literacy scores were less likely bounce a check and more likely to balance their checkbooks than others (Mandell and Klein, 2009) Hilgert and Hogarth (2003) show that: Consumers who know the full range of mortgage interest rates and terms in the marketplace understand how their credit risk profile and personal situation fit with those rates and terms, and consequently, be able to determine which mortgage is best for them make it difficult for Successful personal financial management does not only depend on financial knowledge, but also financial attitude (Joo and Grable, 2004; Kim et al., 2003) Evidence suggests that attitudes precede the development of personal financial management (Roberts and Jones, 2001; Border et al., 2008) In addition, from many psychological literatures, it has long been assumed that increases in knowledge are associated with greater influence of attitudes on behavior Indeed, Kallgren and Wood (1986) find that attitudes based on high level of knowledge were more predictive of behavior than were attitudes based on low level of knowledge Several researchers have discussed impacts of locus of control on personal financial management behavior recently Perry and Morris (2005), for instance, believe that a person’s locus of control has an important role to play in shaping financial management behavior, with those exhibiting an internal locus of control being more financially responsible Joo et al (2003) find that locus of control, among other factors, has a significant relationship with college students’ attitude toward credit with those with higher external locus of control have more positive attitudes toward credit People who not take ownership for their behaviors exhibit poor financial planning behaviors (Busseri, Lefcourt and Kerton, 1998; Gathergood, 2012) In summary, managing personal financial as a subject has been concerned by many researchers Based on existing findings, this study attempts to explore the relationship among financial attitudes, financial knowledge, and locus of control ... .7 2.2 Personal Financial Management Behaviors 10 2.3 Financial Attitude and Personal Financial Management Behaviors .11 2.4 Financial Knowledge and Personal Financial Management Behaviors. .. relationship between financial attitudes and personal financial management behavior 2.4 Financial Knowledge and Personal Financial Management Behaviors The term financial knowledge, also called financial. .. relationship between personal financial attitude and financial management behavior, financial knowledge and financial management behavior, locus of control and financial management behavior of