THE INFLUENCE OF SOCIO-DEMOGRAPHIC AND FINANCIAL KNOWLEDGE FACTORS ON FINANCIAL MANAGEMENT PRACTICES OF MALAYSIANS

Abstract

Using the pilot survey data on "Measuring financial literacy" in 2010 from OECD (International Network for Financial Education, INFE), this paper aims to investigate the influence of sociodemographic and financial knowledge factors on four selected financial management practices of Malaysians. The four types of financial management practices are: whether the individual plans a budget, lives within their means, is prepared for income shock and owns an insurance policy. These four financial management practices are used to measure individuals' overall financial management behaviour. The measurement of financial management behaviour is divided into three levels depending on the type of financial management practices carried out by individuals. Ordered probit is used to determine socio-economic factors that are significant in explaining the varying differences in the financial management behaviours among Malaysians. The paper also identifies the financial knowledge gaps and investigates the levels of financial knowledge of Malaysians. While the majority of Malaysians show an average level of financial knowledge and plan their budget, many are financially unprepared for income shock and unexpected circumstances. The findings show that ethnicity, income, gender, regularity of income, education, age and financial knowledge have significant effect on individuals’ financial management behaviour. The findings have implications for regulators, financial educators and consumer groups in their efforts to enhance individuals’ financial management behaviour. Keywords: Emergency Saving; Financial Capability; Financial Knowledge; Living within One's Means; Personal Finance.