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Federal University of Santa Maria, Avenida Roraima, 1000, prdio 74C, sala 4212, Santa Maria, CEP 97105-900, Brazil
article
info
Article history:
Received 27 January 2014
Received in revised form 7 May 2014
Accepted 15 May 2014
Available online 21 May 2014
JEL classification:
G32
G110
M300
Keywords:
Behavioral finance
Propensity to indebtedness
Behavioral factors
abstract
This study aims to construct a model of propensity toward indebtedness using behavioral
factors from 1046 inhabitants in Santa Maria (RS), Brazil. A questionnaire comprising
90 questions was administered. The questionnaire addressed demographic and cultural
variables and seven behavioral factors: financial literacy, risk perception, risk behavior,
emotion, materialism, indebtedness, and money-related values. Results indicate high risk
perception, conservative risk behavior, and low levels of indebtedness and materialism.
The tests reveal a significant difference in the level of debt according to age, gender,
marital status, education, religion, religious principles, occupation, family income, credit
card, and dependence on credit. In structural equation modeling, eight of the 10 original
hypotheses are confirmed and three new ones inserted. The results also indicate positive
influences from the constructs materialism and risk behavior and negative influences from
the constructs risk perception, emotion, and value of money.
2014 Elsevier B.V. All rights reserved.
1. Introduction
Over the years, financial markets have undergone transformation, and the ease of obtaining credit is growing in
many economies. In Brazil, for instance, economic growth
and inflation stability influence and reflect how people
handle money. The Brazilian reality of the 1980s forced
the population to consume all of their income so as not to
lose purchasing power due to high inflation rates, which
rapidly devalued the currency. However, buying habits
have changed, and in recent years Brazil has experienced
considerable growth in credit supply and an increase in
payment periods, generating expanded consumption.
Consumption is strongly associated with public and private individual behavior, as it is influenced by the sense
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
this study, six behavioral factors highlighted in the literature as influencers of debt are considered: financial literacy, risk perception, risk behavior, emotion, materialism,
and money values. Using these factors, the main objective
is to build a model of personal debt.
2. Theoretical basis
Ferreira (2006) shows that, depending on the level of
debt, individuals may commit a significant portion of their
income. Gathergood (2011) stresses that studies should
examine the factors that influence the increase in debt
and, consequently, that cause individual indebtedness. According to Davies and Lea (1995), the research on aspects that drive indebtedness is highlighted in Katona
(1975). For this author, there are three reasons that explain
why individuals spend more than they earn: (i) low income, such that they cannot even cover essential expenses;
(ii) high income, combined with a strong desire to spend;
and (iii) a lack of desire to save (regardless of income). The
importance of the Katona study lies in its discussion of the
origin of credit problems, evaluating not only economic
factors but also psychological and behavioral ones. Following this perspective, Vitt (2004) notes that consumer financial decisions involve a number of psychological, physical,
and social values, often rooted in emotion.
The relation between demographic factors and debt is
highlighted by Ponchio (2006) and Keese (2010). Ponchio
(2006) finds that women are more favorable to debt than
men, older people are less likely to take on debt, and the
lower the educational level of the individual, the greater
the propensity to take on debt becomes. In analyzing what
debt represents for families and enumerating demographic
aspects such as age, gender, education, and household
situation, Keese (2010) finds that younger people (under
30) tend to perceive their debt burden as significantly
lower, whereas heads of families aged over 45 are more
likely to make bigger charges.
Among the behavioral factors that can influence the
propensity for indebtedness, this work studies value of
money, risk, materialism, financial literacy, and emotion.
The first factor is value of money, i.e., the importance that
people attribute to the possession of money, interpreting
it positively or negatively. According to Moreira (2000),
money can be understood as a unit of value that can be
equated with objects, labor, and human capacity, among
others.
Considering the various perceptions that exist about
money, Moreira (2000), based on the Schwartz Theory of
Values, identifies two broad dimensions for the meaning
of money. There is a positive dimension with sociocultural
development, prestige, utilitarianism, stability, and pleasure as categories. The negative dimension includes social
inequality, domination, detachment, conflict, and worry.
The second factor that may be associated with the
propensity to debt is risk. The word risk derives from
the Old Italian risicare, which means to risk. According
to Bernstein (1996), the concept of risk marks thousands
of years of history because it can be considered a
revolutionary idea that guides decision making in volatile
environments and that overcomes uncertainty.
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 1
Hypotheses and research relations with bibliographic references.
Source: Elaborated by the authors.
Hypotheses/relations
References
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
= B + +
where
= is an m 1 vector of endogenous latent variables;
(1)
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 2
Scales used, variables, and respondent means.
Source: Elaborated by the authors.
Scale
Code
Variable
Mean
Financial literacy
Q18
Q19
3.58
2.79
Q20
Q21
Q22
Q23
Q24
Q25
Q26
Q27
Q28
Q29
Q30
Financial literacy
Q31
Q32
Q33
2.86
2.88
2.17
3.01
3.31
3.25
2.28
3.23
2.80
3.93
3.84
Q34
Q35
Q36
Q37
2.68
2.75
2.48
3.52
3.46
3.52
2.48
Risk perception
Q39
Q40
Q41
Q42
Q43
3.24
3.65
3.87
3.83
3.64
Risk behavior
Q44
Q45
Q46
Q47
Q48
1.51
1.79
1.96
1.73
2.06
Emotions
Q49
Q50
Q51
Q52
Q53
Q54
Q55
Q56
Q57
Q58
Q59
3.53
4.05
3.61
3.73
3.39
1.87
1.67
2.71
2.43
2.83
2.76
Materialism
Q60
Q61
Q62
Q63
Q64
Q65
Q66
Q67
Q68
3.03
2.30
2.89
3.19
3.29
2.14
2.11
2.75
1.78
Indebtedness
Q70
Q71
Q72
Q73
Q74
Q75
Q76
Q77
Q78
4.18
3.90
3.99
2.14
2.73
4.30
2.33
2.54
3.36
Money values
Q82
3.37
(continued on next page)
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 2 (continued)
Scale
Code
Variable
Mean
Q83
Q84
Q85
Q86
Q87
Q88
Q89
Q90
The one who has money also has authority over others.
Money generates suspicion among people.
Spiritual rewards are more important than money.
Money causes distress.
Money builds a better place.
Those who have money are valued socially.
I would invest money in scientific research.
I will be completely realized when I reach the situation I set for myself.
2.24
3.30
3.53
2.95
3.11
3.63
2.96
4.11
Table 3
Validation of constructs.
Source: Elaborated by the authors.
Factor
Financial literacy
Risk perception
Risk behavior
Emotions
Materialism
Indebtedness
Money values
Initial variables
1837
3943
4448
4959
6068
7078
8290
Final variables
3943
4448
Cronbachs alpha
Adjustment index
0.78
GFI = 0.998
CFI = 0.998
NFI = 0.996
NNFI = 0.993
RMR = 0.013
RMSEA = 0.030
0.91
GFI = 0.999
CFI = 1.000
NFI = 0.999
NNFI = 1.000
RMR = 0.007
RMSEA < 0.001
0.70
GFI = 1.000
CFI = 1.000
NFI = 0.998
NNFI = 1.008
RMR = 0.007
RMSEA < 0.001
0.83
GFI = 0.998
CFI = 0.999
NFI = 0.997
NNFI = 0.997
RMR = 0.015
RMSEA = 0.023
0.74
GFI = 0.997
CFI = 0.996
NFI = 0.994
NNFI = 0.988
RMR = 0.013
RMSEA = 0.036
0.64
GFI = 1.000
CFI = 1.000
NFI = 0.999
NNFI = 1.005
RMR = 0.004
RMSEA = 0.000
0.61
GFI = 1.000
CFI = 1.000
NFI = 1.000
NNFI = 1.014
RMR = 0.002
RMSEA < 0.001
the satisfaction of their needs becomes the central task, regardless of the risk incurred.
With respect to the hypothesis regarding the relation
between money values and propensity toward indebtedness, it is observed that people who value possession of
money tend toward a lower propensity of being in debt
because they are predisposed to saving and spending only
what is planned beforehand.
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 4
Equations of the final proposed model.
Source: Elaborated by the authors.
Latent variables
Observed variables
1 DIN
1 MAT
1 = 11 1 + 1
2 CR
2 = 21 1 + 2
3 PR
3 = 31 1 + 32 5 + 3
4 END
4 = 41 1 + 41 1 + 42 2 + 43 3 + 4
5 EMO
5 = 51 1 + 51 1 + 52 4 + 5
Fig. 2. Final results of the proposed model. Note: EMO = emotions; MAT = materialism; END = indebtedness; CR = risk behavior; PR = risk perception;
DIN = money values.
Source: Elaborated by the authors.
S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 5
Standardized coefficients and significance of relations of the final proposed model.
Source: Elaborated by the authors.
Relations between factors
Standardized coefficients
Z score
0.452
0.263
0.229
0.126
0.074
0.172
0.199
0.300
0.231
0.233
0.245
7.978
5.870
4.000
2.528
2.074
3.228
3.475
6.162
5.645
5.333
4.909
**
***
***
***
***
***
**
***
***
***
***
***
***
Significant at 5%.
Significant at 1%.
Table 6
Final fit indexes for the proposed model.
Source: Elaborated by the authors.
Index
Value
Chi square
Degrees of freedom
GFI
CFI
NFI
NNFI
RMR
RMSEA
10
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