Demographic Variables on Behavioral Factors and Over-Indebtedness: Insights from a Developing Nation

Abstract

Household over-indebtedness is a pressing global concern with severe socioeconomic consequences. While existing research highlights macroeconomic, demographic, and behavioral factors as key drivers of over-indebtedness, behavioral aspects have received comparatively less attention. This study aims to scrutinize the impact of behavioral factors on over-indebtedness while examining how demographic factors moderate this relationship. Utilizing a positivist research philosophy and deductive approach, the study develops a novel conceptual model incorporating four behavioral and five demographic factors as causes of over-indebtedness. Data collection was conducted through a structured questionnaire utilizing a survey research approach, employing a stratified random sample that accurately represents the broader public population, specifically individuals with at least one loan acquired from the banking sector. Quantitative data collected in 2023, through a cross-sectional approach, was analyzed using structural equation modeling in SPSS AMOS 23. Findings reveal that financial literacy, risk perception, and emotions negatively correlate with over-indebtedness, while materialism demonstrates a less significant yet positive association. Additionally, demographic factors such as age, gender, income, and education moderate the relationship between behavioral factors and over-indebtedness. Religion, however, does not alter this relationship. These findings align with empirical evidence and are supported by projection bias theory and behavioral life cycle theory. The insights from this study offer valuable implications for financial institutions in devising credit risk management policies. Moreover, governments and central banks can leverage these findings when formulating macroeconomic policies of loan facilities.