Abstract
This study aims to examine the influence of behavioral and demographic factors on indebtedness by constructing a model using specific determinants. The exploratory method is used through the partial least square (SmartPLS) technique, by surveying 320 respondents in Kuala Lumpur, Malaysia. A self-administered questionnaire was administered to respondents, addressing both demographic and behavioral factors. The results confirmed four of the eight hypotheses stated. Among the determinants, risk perception had a highly significant relationship with both materialism and emotion, while indebtedness had a relationship with emotion and materialism. The findings also indicated that significant differences exist between indebtedness and behavioral factors on the basis of gender, marital status, age, income, and dependence on credit cards and loans. The results may assist various economic players to design better models for credit offerings and address the credit problem in the long term.
Highlights
Credit availability is helpful in ensuring household economic well-being
Considering the behavioral factors that quicken the propensity rate toward indebtedness as a given, rather than verifying it, may amount to overstretching assumptions and a policy response flaw (Ottaviani and Vandone 2011). This becomes pertinent when considering that prior studies in behavioral finance found mixed results in establishing a relationship between demographic variables and indebtedness, and that behavioral and psychological factors may significantly influence the propensity toward indebtedness
This study considers four determinants highlighted in the literature as the factors influencing indebtedness: financial literacy, risk perception, materialism, and emotion
Summary
Credit availability is helpful in ensuring household economic well-being. In Malaysia, after the late-1990s Southeast Asian financial crisis, credit was apparently available (Yusoff et al 2000). The reports indicated a trend that suggests that the number of bankruptcy cases is more from the economically active age group of 35–44 years, males, and Malays (Loke 2016). This presents a disturbing trend for the Malaysian government, which has taken several steps to control the credit problem. Considering the behavioral factors that quicken the propensity rate toward indebtedness as a given, rather than verifying it, may amount to overstretching assumptions and a policy response flaw (Ottaviani and Vandone 2011) This becomes pertinent when considering that prior studies in behavioral finance found mixed results in establishing a relationship between demographic variables and indebtedness, and that behavioral and psychological factors may significantly influence the propensity toward indebtedness
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