Factors affecting personal financial well being of young adults in viet nam

TABLE OF CONTENTS

ACKNOWLEDGEMENT
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
ABSTRACT .................................................................................................................. 1
CHAPTER 1 INTRODUCTION ................................................................................. 2
1.1 Background to the Research............................................................................. 2
1.2 Statement of the Problem ................................................................................. 4
1.3 Research Objective and Research Questions ................................................... 5
1.4 Scope of the Research ...................................................................................... 6
1.5 Significance of the Research ............................................................................ 7
1.6 Thesis Structure ................................................................................................ 7
CHAPTER 2 LITERATURE REVIEW ...................................................................... 9
2.1 Theoretical Framework .................................................................................... 9
2.2 Development of Research Hypotheses .......................................................... 11
2.2.1 Financial well-being ............................................................................. 11
2.2.2 Financial behaviors .............................................................................. 12
2.2.3 Financial literacy .................................................................................. 14
2.2.4 Financial socialization .......................................................................... 17
2.3 Theoretical Model .......................................................................................... 19
2.4 Chapter Summary........................................................................................... 20
CHAPTER 3 RESEARCH METHODOLOGY ........................................................ 21
3.1 Research Design ............................................................................................. 21
3.2 Measurement Scales ....................................................................................... 22
3.3 Draft Questionnaire ........................................................................................ 25
3.4 Pilot Study ...................................................................................................... 26
3.5 Main Study ..................................................................................................... 29

3.5.1 Sampling method ................................................................................. 29
3.5.2 Sample size........................................................................................... 29
3.5.3 Data collection method ........................................................................ 30
3.5.4 Data analysis techniques ...................................................................... 30
3.5.4.1 Cronbach’s alpha ........................................................................ 30
3.5.4.2 Exploratory factor analysis ........................................................ 31
3.5.4.3 Confirmatory factor analysis ...................................................... 31
3.5.4.4 Structural equation model .......................................................... 32
3.6 Chapter Summary .......................................................................................... 32
CHAPTER 4 DATA ANALYSIS AND RESULTS ................................................. 33
4.1 Descriptive Analysis ...................................................................................... 33
4.2 Cronbach’s Alpha .......................................................................................... 34
4.3 Exploratory Factor Analysis (EFA) ............................................................... 36
4.4 Confirmatory Factor Analysis (CFA) ............................................................ 38
4.4.1 Financial behaviors .............................................................................. 39
4.4.2 Saturated model .................................................................................... 40
4.5 Structural Model ............................................................................................ 42
4.6 Discussion of the Results ............................................................................... 45
4.7 Chapter Summary .......................................................................................... 46
CHAPTER 5 CONCLUSIONS ................................................................................. 48
5.1 Conclusions .................................................................................................... 48
5.2 Implications .................................................................................................... 50
5.3 Limitations and Recommendations for Further Research ............................. 52
REFERENCES............................................................................................................ 53
APPENDIX


LIST OF TABLES

Table 3.1 Measurement scale ....................................................................................... 23

Table 3.2 Findings of qualitative research ................................................................... 27
Table 4.1 Gender .......................................................................................................... 34
Table 4.2 Age ............................................................................................................... 34
Table 4.3 Career ........................................................................................................... 34
Table 4.4 Cronbach’s Alpha coefficients ..................................................................... 35
Table 4.5 KMO and Bartlett’s Test .............................................................................. 37
Table 4.6 EFA for all variables .................................................................................... 38
Table 4.7 Relationship between constructs .................................................................. 42
Table 4.8 Result of hypothesis testing ......................................................................... 43


LIST OF FIGURES
Figure 2.1. Deacon and Firebaugh’s Family Resource Management Model (1988) ...... 10
Figure 2.2. Theoretical model ......................................................................................... 19
Figure 3.1. Research design ............................................................................................ 21
Figure 4.1. CFA for financial behavior ........................................................................... 39
Figure 4.2. Saturated model ............................................................................................ 41
Figure 4.3. Structural model result ................................................................................. 44


ABSTRACT

Recognizing the negative influences of low personal financial well-being on
life satisfaction, personal health, and even on their family and their organization, there
have been more and more studies on financial well-being, especially among young
adults who associate with the most financial problems and financial distress. This
research examines the factors affecting personal financial well-being of young adults
in the Vietnamese context; among them are financial behaviors, financial literacy and
financial socialization.
The research model was developed based on the Family Resource Management

System Model developed by Deacon and Firebaugh (1988) and the Social Learning
Theory developed by Bandura (1986). The refined questionnaire through the pilot
study was distributed to target respondents aged 22 to 30 living in Ho Chi Minh City.
The data from 264 valid completed questionnaires then were used to test the
measurement scale by Cronbach’s alpha, exploratory factor analysis and confirmatory
factor analysis before used to test the theoretical model and hypotheses by the
structural equation modeling.
The research indicated that all hypotheses were supported. The direct effect of
financial behaviors; the both direct and indirect effect of financial literacy, where
indirect effect was mediated by financial behaviors; and the indirect effect of financial
socialization with the mediating role of financial behaviors and financial literacy on
financial well-being were all supported in this study. These findings are matching the
previous researches. The recommendation for individuals, family, managers,
education institutions and government agencies are thereby suggested to improve
personal financial well-being of young adults. However, the future research should
consider the limitations of the current study about the data collection method and the
measurement scales to improve the results and findings.

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CHAPTER 1
INTRODUCTION

1.1 Background to the Research
Even in the United States, one of the most advanced countries, three quarters of
the population are stressed about financial problems and a quarter face with intense
ones (CNBC, 2015). This reality was also confirmed in O'Neill, Sorhaindo, Xiao &
Garman (2005) that personal financial issues affect millions of U.S households. These
issues have become the biggest concern because of what they bring about.

Financial distress or low financial well-being has great effect not only on
personal health but also on their family and organization (Prawitz et al., 2006).
Personal finances and health are proved to be interrelated in various ways. Bagwell
(2000), Drentea and Lavrakas (2000), Kim, Garman, and Sorhaindo (2003) found that
people with high financial well-being have better health and less physical impairment
than others (as cited in O'Neill et al., 2005). Experiencing these problems, people tend
to frequently feel disappointed, anxious, and guilty or even encounter difficulty in
sleep. They could not support their hospital fees and conduct periodic health check as
well. Moreover, their loved ones are involved in their problems. Parents might be
angry at their children unreasonably. Couples are easy to intensely argue minor issues
which they are supposed to talk about and give comments for gently. Parrotta and
Johnson (1998) stated that dissatisfaction with one’s financial status could lead them
to their marital conflicts. People who experience financial matters even bring them to
work, which does reduce their job effectiveness. According to Kim and Garman
(2003), financial stress was examined to have positive relationship with absenteeism
and make employees less committed to their organizations. Both of these problems
have been got much attention because they are obviously expensive for the employers.

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Due to these consequences, there have been growing and growing researches
about personal financial well-being, especially among young adults. Young adults or
emerging adults are specified by many researches as the subject attached to the most
financial problems as well as followed by financial distress (summarized in Chan,
Chau & Chan, 2012). People in this period are who have just started experiencing
their independent lives and managing their finances by themselves, therefore also took
more responsibility of their financial status. According to Peterson and Leffert (1995),
young adulthood is highlighted by significant changes in life (as cited in Gutter and
Copur, 2011) and associated with more “risk-taking behaviors related to poor financial

decision making” (Worthy, Jonkman, & Blinn-pike, 2010, p. 161).
Financial distress could discourage students from focusing on their learning,
workers from focusing on their job. Mental health might be affected negatively by this
stress. The relationship inside family becomes strained and tense when both spouses
must always find the ways to solve or be obsessed by their financial problems.
Employers suffer the decreased labor productivity due to the again and again absence
as well as less commitment of their employees. Therefore, understanding financial
well-being and factors influencing it is extremely considerable.
According to the World Happiness Report 2013, the well-being level which
includes financial well-being of Asians is lower than North Americans, Latin
Americans and Western European (Asian Century Institute, 2014). This status makes
financial well-being even more worthy to be studied in Vietnam. Although there are
some researches about financial management, it seems that personal financial wellbeing has been sparsely studied under Vietnamese context. At International School of
Business, University of Economics, Ho Chi Minh City, there was one 2014 thesis
examining factors affecting financial management behaviors. To go further, this thesis
studies in depth the personal financial well-being and factors affecting it including
financial behaviors among Vietnamese young adults.

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1.2 Statement of the Problem
As mentioned, given unexpected impact of financial distress, personal financial
well-being has been interested by many researchers around the world. A variety of
factors have been taken into consideration and determined to have some certain
relationship with this satisfaction. Emerging among these determinants are financial
management behavior, financial literacy, and financial socialization (Chan et al.,
2012; Joo and Grable, 2004; Mohamad, Cook and Gundmunson, 2012; Serido, Shim,
Mishra and Tang, 2010; Taft, Hosein, Mehrizi, and Roshan, 2013).
The first factor which must be relative to financial well-being and must be

examined is financial management behavior. Financial behavior represents item
“throughput” and financial well-being represents item “output” in the Family
Resource Management System Model, which explains how people attain what they
want from available resources. Financial behavior as throughput is the transformation
of the model and has a direct impact on the well-being (Gutter and Coper, 2011).
According to Kinhte Saigon Online (2014), MasterCard revealed that young
Vietnamese (aging from 18 to 29) showed a low level of financial literacy. The survey
is conducted in 16 countries across Asia Pacific, in which Vietnam is placed at 14th
with an overall score of 58. MasterCard recognized the crucial role of financial
literacy in obtaining financial well-being and their Financial Literacy Index is for
evaluating the progress of financial well-being. This index in 2014 expressed that this
progress was still postponed among these countries (MasterCard, 2015). Indeed, there
are a lot of research confirming the positive relationship between financial literacy and
financial well-being such as Taft et al. (2013), Mohamad et al. (2012), Joo and Grable
(2004). However, some studies found the different or contrary conclusions. Mugenda,
Hira and Fanslow (1990) determined a negative instead of positive one; some defined
direct influence while some found indirect one (as cited in Joo and Grable, 2004). All
the above arguments indicate a high interest level of this construct, financial literacy.

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Family is considered as the root of the society (Tuoi Tre, 2015). In addition, in
Vietnam, where the Feudalistic ideology and the Confucianism have been remained
their power, the role and power of this entity are much larger. For most of
Vietnamese, family is extremely important as it is the very first place the socialization
of their children takes place. In the process of individual socialization, the
communication, upbringing and instruction of parents and other members in family,
even the observation of the parents’ actions are the sources which help their children
to attain knowledge, skills, values and form attitudes and behaviors later. All these

contribute to children’s human foundation. It is the same to a specific case, financial
socialization. This socialization has great impact when the knowledge and attitude
formed by it are the first ones which are difficult to change and associated with
children over their lifetime. In a family where parents always spend financial stress,
children could be influenced and find it hard to get their financial satisfaction in the
future (Jorgensen and Savla, 2010). Furthermore, parental financial socialization was
also examined by many researchers for its relationship to financial well-being
(Mohamad et al, 2012; Serido et al., 2010). Being aware of the significance of this
construct in Vietnamese society, the thesis takes it into research. Beside parents, peers,
schools and media are also considered.
In summary, this thesis examines and identifies factors which have impacts on
personal financial well-being among Vietnamese young adults namely financial
socialization, financial literacy and financial behavior so that individuals, family,
organization and society could be fully aware of this area then proceed with
appropriate activities and programs to improve personal financial well-being and
prevent people from harmful effects of financial distress.
1.3 Research Objective and Research Questions
The objective of this thesis is to determine factors affecting personal financial wellbeing of young adults, namely financial socialization, financial literacy and financial
behavior. The proposed questions are as follows:

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1. Is there any relationship between financial behavior and financial well-being
among young adults?
2. Is there any relationship between financial literacy and financial well-being
among young adults?
3. Is there any relationship between financial literacy and financial behavior
among young adults?
4. Is there any relationship between financial socialization and financial behavior

among young adults?
5. Is there any relationship between financial socialization and financial literacy
among young adults?
1.4 Scope of the Research
This study examines the determinants of personal financial well-being in the
context of Ho Chi Minh City, Vietnam. One more important point is that the subject
of the research is young adults.
Also according to Vietnam’s Youth Law no. 53/2005/QH11, young people are
citizens aged between sixteen and thirty years old. However, as clarified in the
background, financial well-being of young adults are much considered since the
people in this period of life seem to face more financial problems when they have just
started to manage their finance completely by themselves. Students in most advanced
countries such as America and Europe must pay for their college therefore they have
managed their finances since very early point of lifetime at about 18 years old or even
earlier when they started their college life. In Vietnam, a little differently from them,
the majority of students still live based on allowances from their family but not work
any job even part-time ones. They also depend on their parents’ decisions but not
manage their finance by themselves. Until graduating at about 22, most of these young
adults have not spent their own experiences on finance management yet. Of course
there must be some of them have, but we cannot ensure whether the respondents

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manage their finances or not, therefore we minimize this uncertainty by removing the
college period we have known.
For these above reasons, the research focuses on the young adults only who are
aged from 22 to 30 living and working in Ho Chi Minh City.
1.5 Significance of the Research
Young adults today are facing with more financial problems than other

generations. Identifying factors influencing individual’s financial well-being could
provide insight on personal finance based on which, we could know what to include in
financial education courses for students and young adults. The young adults
themselves are able to aware of elements affecting their financial satisfaction thence to
their overall life satisfaction so that they recognize what to prepare and practice for
their better life. They must be more active in assessing and solving their financial
problems or facing with their financial challenges as they have defined their factors.
Family might also use the findings of the research to define important predictors of
personal financial well-being; from there, in their possible control, the parents should
support to develop positive factors and minimize negative factors on their children
from their very early age. The business managers could fund or sponsor for financial
courses and programs. The government agencies could rely on the study results to
design appropriate programs and courses, to examine and support publication such as
books, magazines, TV shows, etc. carefully.
1.6 Thesis Structure
The thesis will be structured in five main parts.
Chapter 1 – Introduction discusses the background of the thesis from that the
problem statement, the research objectives are defined.
Chapter 2 – Literature Review takes literature reviews into consideration based on
which the definitions and relationships between the constructs are presented, giving a
firm foundation for the proposed model and hypotheses.

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Chapter 3 – Research Methodology exhibits the methods used to conduct the survey.
How the measurement scales and the questionnaires are established and the statistical
analysis methods used to test the research hypotheses are also shown.
Chapter 4 – Data Analysis and Results shows in details the results from the
mentioned data analysis process and exposes the findings of the research.

Chapter 5 – Conclusions summarizes the research, especially the findings presented
in chapter 4. This chapter also gives recommendations for individuals, family,
government agencies and limitations of the thesis for further research.

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CHAPTER 2
LITERATURE REVIEW

This chapter discusses about Family Resource Management System Model and Social
Learning Theory which are theoretical framework for the conceptual model of the
thesis. Next, the key researches defining the relationship among financial
socialization, financial literacy, financial behavior and financial well-being in general,
of young adults in particular are gradually shown to give an overall view about the
determinants of personal financial well-being. Based on these reviews, the theoretical
model is built and the five hypotheses are addressed.
2.1 Theoretical Framework
The thesis is based on Family Resource Management System Model developed
by Deacon and Firebaugh (1988) and Social Learning Theory contributed by Bandura
(1986).
According to Family Resource Management Theory, the family is considered
as a system consisting of four stages: inputs, throughputs, outputs and feedback
linking back to the inputs; in which, inputs imply demands or resources such as
knowledge, attitude, demographic characteristic, income, employment status;
throughputs imply transformation from input to output such as decision making,
implementing or behaviors and finally, outputs imply outcomes such as met demands
or satisfaction which are the products or results of the decisions or actions taken at
throughputs.
Parrotta and Johnson later (1996) modified the above model and applied on

financial management. The inputs to the system were represented by financial
knowledge and demographic variables such as income and age. The throughputs of
the original model comprised two subsystems: personal and managerial one. The
financial attitudes were discussed and defined as a personal subsystem variable which

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inherently does not exist in the previous model. The managerial subsystem was
defined as a “set of behaviors performed – specifically the planning, implementing,
and evaluating involved – in the areas of cash, credit, investments, insurance, and
retirement and estate planning” (p. 60) or simply, financial management. The output
was subjective outcome, satisfaction with financial status. Accordingly, the model of
Parrotta and Johnson suggested that financial knowledge (input) could both indirectly
affect the financial management through financial attitudes (personal subsystem) and
directly do it (managerial subsystem) and the financial management then affected on
financial satisfaction. They also tested the impact of financial attitudes, financial
knowledge, income and age on financial satisfaction.
Gutter and Copur (2011) relied on this Family Resource Management System
Model to test components of financial well-being on college students. In their study,
inputs were represented by demographic characteristics, financial characteristics,
financial dispositions and financial education. Throughputs of this management
system were financial behaviors measured by budgeting, saving, risky credit card
behaviors and compulsive buying. The final component output was characterized by
financial well-being.

Demands
Values
Attitudes
Knowledge

Personal characteristics
Inputs

Decision making
Implementing
Use of resources
Behaviors
Throughputs

Met demands
Achieve goals
Altered resources
Life satisfaction
Outputs

Feedback
Environment
Figure 2.1. Deacon and Firebaugh’s Family Resource Management Model (1988)

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According to Bandura (1986), social learning theory supposes that individuals
might get the knowledge, attitude and values through socialization agents. This theory
is considered as one of the most influential learning theories. Learning is a cognitive
process taking place in social contexts. The theory explains how people can learn new
things and develop new behaviors through observation of a behavior of other people.
The behavior mentioned might be in 3 different models: a live one with the desired
behavior performed by an actual person, a verbal instruction one by telling or
descriptions of the desired behavior, and a symbolic one with the desired behavior

demonstrated via media sources such as television, radio, internet...
Jorgensen and Savla (2010) applied the outputs and throughputs sections of the
Family Resource Management Model to examine the relationship between financial
knowledge, financial attitudes and financial behaviors of young adults and combined
it with the Social Learning Theory to address the influences of parents on financial
literacy of young adults.
In the current study, financial behavior as throughput is influenced by input or
resources namely financial knowledge. Then it affects the output namely financial
well-being. The social learning theory is also combined to examine the impact of
socialization agents, especially parents, peers, schools and media on young adults’
knowledge and behaviors.
2.2 Development of Research Hypotheses
2.2.1 Financial well-being
Taft et al. (2013) summarized many researches and found financial well-being
had been defined and measured with different attitudes and methods.
Well-being is the individual satisfaction in the following six areas: business,
finance, home, leisure, health and environment (Van Pragg et al. as cited in Taft et al.,
2013). According to O’Neill et al. (2005), financial well-being is a primary predictor
of personal well-being. Some researchers in the older time considered financial wellbeing only as material aspects of their financial status. The later researchers gradually

11


included both material and non-material aspects when talking about this concept.
Financial well-being then has been one’s attitude and perception toward their financial
situation but based on objective aspects and living standards. In general, financial
well-being might be considered under either objective or subjective aspects (Gutter
and Copur, 2011; Taft et al., 2013). From this reason, with different views on financial
well-being among researchers, there are a lot of different measurement scales for this
variable. Objective measures might be measured by quantitative indicators such as net

worth, income, saving level, consumption level, socioeconomic status, etc. while
subjective ones concern personal perception and rating and examine one’s assessment
or feelings of their financial status such as whether they are satisfactory or not,
whether they feel safe or not (Ardelt, Brod et al., George, Van Pragg et al. as cited in
Taft et al., 2013; Gudmunson and Danes, 2011).
Briefly and simply, in this research, financial well-being would be understood
as the satisfaction of people with their financial status, or the degree of security they
feel about the financial situation they are facing. With this thesis, we also only pay
attention to subjective financial well-being of individuals. According to Taft et al.
(2013), compared to objective methods, measuring subjective financial well-being
could bring a more comprehensive appraisal. Also importantly, using the
measurement scale of people’s subjective perception could help more completely
understand financial behavior which is the next variable considered in the model (Taft
et al., 2013).
2.2.2 Financial behaviors
Financial behaviors could be defined as “any human behavior that is relevant to
money management” (Gutter and Copur, 2011, p. 704).
Many researchers found that financial behaviors were positively related to
financial well-being (Barber and Lyons, Joo and Grable, Shim, Xiao, Kim, Garman
and Sorhaindo, Xiao, Sorhaindo and Garman, as cited in Gutter and Copur, 2011;
Godwin, Godwin & Carroll, Joo, Mugenda et al., as cited in Joo and Grable, 2004).

12


Financial management behaviors which were measured by 20 individual items
belonged to an objective attribute group with a substantial contribution among four
attribute groups influencing on perceived financial well-being (Porter and Garman, as
cited in Parrotta and Johnson, 1996). Kim et al. (2003) concluded that improving
financial behavior could reduce financial stressors and increase well-being degree. Joo

and Grable (2004) said that financial behaviors were more important and had greater
impact on financial well-being than income or demographic factors. The researchers
confirmed that positive financial management behaviors, such as paying bills on time,
following monthly budget, comparison before buying high-value items, maintaining
emergency savings, etc., have positive effect on financial satisfaction both directly and
indirectly. Ramli et al. (2012) identified these good financial behaviors were
positively correlated with financial satisfaction and could improve financial wellbeing. Parrotta and Johnson (1996) also summarized that how people managed their
finances was a major factor contributing to their satisfaction with their financial status
and financial management behavior has been examined to have positive impact on
financial satisfaction, people using principles of financial management practices
seemed to achieve higher financial well-being.
Whether measured by individual items or multi-items, financial management
behaviors have been shown by many researchers to be positively correlated with
financial well-being (Godwin, 1994; Hira et al., 1992; Porter and Garman, 1993;
Scannell, 1990; Titus et al., 1989; Walson and Fitzsimmons, 1993; as cited in Parrotta
and Johnson, 1996).
Scannell (1990) examined people keeping their financial records had higher
financial satisfaction (as cited in Parrotta and Johnson, 1996). Rutherford and Fox
(2010) found spending and saving habits influenced financial well-being and financial
well-being could be accomplished with holding minimal debt levels and following the
budget (as cited in McAninch, 2011). Hira et al. (1992) showed that insurance
coverage as a management behavior had the most significant effect on satisfaction

13


with preparation for financial emergencies among nine variables tested (as cited in
Parrotta and Johnson, 1996).
This positive relationship was indicated the same among college students – the
excluded subject of this research (Worthy, Jonkman and Pike, Xiao, Shim, Barber and

Lyons, as cited in Gutter and Copur, 2011).
The association is so common that it could be said that financial behavior is the
foundation of financial well-being. Thus:
H1.

There is a positive relationship between financial behavior and financial wellbeing among young adults.
2.2.3 Financial literacy
Researchers consider the term financial literacy as financial knowledge

(Laborde, Mottner and Whalley, 2014; Taft et al., 2013) or financial capability
(Jorgensen and Savla, 2010; Taylor and Wagland, 2013; Taylor, 2011) and use these
terms interchangeably.
Financial literacy is the ability to understand principles and terms relating to
financial matters. It is also the ability to apply them in their life to manage their
money resulting in more effective decision-making (Jorgensen and Savla, 2010; Taft
et al. 2013; Taylor and Wagland, 2013; Taylor, 2011). For example, they are the
ability to register for credit card, spend money wisely, develop a reasonable
expenditure plan, have saving for emergency, have retirement savings, choose and use
the best possible capital, buy valuable insurance, or even successfully participate in
the stock market, etc. In general, financial literacy is the ability to understand and
make good financial decisions.
As mentioned above about the Family Resource Management System, financial
literacy is the input in the model and obviously affects the output financial well-being
through the throughput financial behaviors. There were lots of evidences showing
financial literacy has a powerful effect on financial well-being (Joo and Grable, 2004;

14


Mohamad et al., 2012; Taft et al., 2013; Vosloo, Fouché and Barnard, 2014). With

high level of financial knowledge and skills, people are in a better position to manage
their credit, plan their budget, perceive financial opportunities and threats then
decrease financial problems and stress as well as improve their satisfaction. Norvilitis
and MacLean (2010) determined that financial literacy is a predictor of financial wellbeing (as cited in Archuleta, Dale, & Spann, 2013). The more knowledge of personal
finances people have, the higher financial well-being and financial management skills
they have (Mohamad et al., 2012). Therefore, it is proposed that:
H2.

There is a positive relationship between financial literacy and financial wellbeing among young adults.
In addition, there were also researches which suggested the positive

relationship between financial literacy and financial behaviors (Ansong and Gyensare,
2012; Grable, Park and Joo, 2009; Koonce, Mimura, Mauldin, Rupured and Jordan,
2008; Mandell and Klein, 2009; Perry and Morris, 2005; Robb and Woodyard, 2011;
Taft et al., 2013). Grable et al. (2009) identified that the most statistically significant
factor linked with financial behavior was financial knowledge. They also summarized
that:
…individuals who are more knowledgeable about personal finance topics and
issues are more likely to exhibit responsible financial behavior, such as saving
and investing (Perry 2008), changing asset allocation compositions when
appropriate

(Morrin

et

al.

2008),

or

more

generally

when

making financial decisions (Hilgert et al., 2003; Howlett, Kees, and Kemp
2008; Lusardi and Mitchell 2007; Mansfield and Pinto 2008). (p. 55)
Financial literacy is one important determinant of financial behavior. Less
financial literacy leads to be more likely to approach higher-interest capital and less
likely to have saving and retirement planning (De Bassa Scheresberg, 2013). Parrotta
and Johnson (1996) also reviewed that there was a positive influence of financial
literacy on financial management behaviors and this influence was stronger with more

15


comprehensive measurements of financial literacy. Mugenda et al. (1990) revealed
that financial literacy was the only variable of ten ones having their influences on
whether people used recommended financial behaviors (as cited in Parrotta and
Johnson, 1996). Titus et al. (1989) found that financial knowledge was the second
largest factor which had a substantial effect on financial management behaviors (as
cited in Parrotta and Johnson, 1996).
In the transition period, young adults begin to face with complicated financial
situations and transactions which require effective management behaviors. Financial
capability is most crucial for them to have proper decisions and get their financial
well-being this time (Kim and Chatterjee, 2013). Hilgert et al. (2003) measured
financial behaviors in four domains (cash, credit, saving, and investment

management) using Financial Practices Index. The result indicated that this index was
higher with higher score on financial literacy (as cited in Mandell and Klein, 2009).
Norvilitis and MacLean (2010) suggested that financial literacy was related to debt
and Robb and Sharpe (2009) found the relationship with level of credit card debt (as
cited in Archuleta et al., 2013). Bhushan and Medury (2014) indicated the positive
correlation between financial literacy with financial planning behavior, on time
payment behavior and responsible investment behavior.
Koonce et al. (2008) gave evidences of both a short-term association and a
long-term one between financial knowledge and financial behavior. People with more
financial experience had higher saving rates. Financial knowledge from completing
personal financial courses had a positive effect on financial behaviors. This judgment
was also confirmed by a lot other researchers such as Bernheim et al. (2001), Danes et
al. (1999), Varcoe et al. (2005) (Koonce et al., 2008). Ramli et al. (2012) once again
proved this relationship, high level of financial knowledge with good financial
behavior in term of saving. Therefore,
H3.

There is a positive relationship between financial literacy and financial
behavior among young adults.

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2.2.4 Financial socialization
According to Jorgensen and Savla (2010), socialization is a process people
learn how to respond to their society through socialization agents. Financial
socialization, more specifically, is how a young one attains and develops values,
knowledge, skills, then forms attitudes and behaviors to competently react in the
marketplace which influences their personal financial practices (Danes, 1994;
Gudmunson and Danes, 2011; Jorgensen and Savla, 2010; Shim et al., 2010). Many

researches proved that individuals shaped their attitudes, knowledge and behaviors
through observation of models frequently contacting with them in their life (Bandura,
Moschis and Churchill, as cited in Jorgensen and Savla, 2010).
As discussed in social learning theory, children could learn and form their
knowledge, attitude and behavior through various socialization agents, by observing
behaviors performed by an actual person, by description of the behavior, and by
observing behavior demonstrated via media. Researchers defined family in general,
and mother and father in particular, as the primary agent for financial socialization and
having the most significant effect among various agents (as cited in Copur and Gutter,
2011). Bandura (1986) stated that parents and those close with children influence on
how children conceive the world the most. This thesis therefore first of all puts
parental socialization under consideration, next pays attention to other agents working
closely with children such as peers, school and media and studies their relationship
with other constructs.
In general, parents “play an important socialization role” in their children’s
knowledge, skills, values and orientation (Serido et al., 2010, p. 455). Children
prepare for their real practices through direct guidance and discussion by their parents
as well as financial behaviors children could observe from them. The financial values
of children and their parents are alike potentially. Parents indirectly and directly teach
their children to behave basing on their values, beliefs and knowledge, which could
shape their children’s attitudes as well as behaviors toward finances (Jorgensen and

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Savla, 2010). Parental socialization was summarized and then proved to influence
financial attitudes and behaviors of young adults (Chowa and Despard, 2014;
Jorgensen and Savla, 2010). When parents were stressed by money and others
financial problems, children tended to bring them into their own life (as cited in
Jorgensen and Savla, 2010). If parents have high credit card debt and have difficulty

in controlling the family budget, they will likely have less credibility when teaching
children by observations (Allen and Oliva, 2001). Parents who pay attention to,
discuss, communicate with their children and set up the certain financial rules for
them to follow could easily nurture and form their children’s behaviors they expect.
People whose parents supervised their spending when they were young tend to have
more responsible financial managing behaviors and be less stressed about their
finance situation (Kim and Chatterjee, 2013). Mohamad et al. (2012) also stated that
people learning finances from their parents improved their ability of money saving
and their financial management skills.
Beside parents, peers are also other key people in young adults’ lives. Peers
become more and more important when children live gradually independently from
their parents (Mohamad et al., 2012). Peer group acceptance and the receipt of
information from peers contribute to people’s attitudes and behaviors. Moreover,
during teenage years, children usually spend more time at school, with teachers and
friends than at home with family. Varcoe et al. (2001) examined that information at
school played an important role in shaping skills and behaviors of children (as cited in
Mohamad et al., 2012). One another model, media sources such as television, radio,
internet, newspapers also have an important effect on children’s attitude and
behaviors.
There are also studies specifying the relationship between parental socialization
and their children’s financial knowledge (Bandura, 1986; Copur and Gutter, 2011;
John, as cited in Jorgensen and Savla, 2010; Jorgensen and Savla, 2010). They suggest
that children learn about finances, get financial learning experiences and gradually
form the behaviors towards finances; explicitly through instruction, family discussion,

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reinforcement, practices and participation; implicitly through observations (Jorgensen
and Savla, 2010). Mohamad et al. (2012) concluded that parental socialization is a

significant source of financial knowledge.
Therefore we have the hypothesis 4 and hypothesis 5 as below:
H4.

There is a positive relationship between financial socialization and financial
behavior among young adults.

H5.

There is a positive relationship between financial socialization and financial
literacy among young adults.

2.3 Theoretical Model
With the above review, the conceptual model is proposed as below.
Financial socialization
H4 (+)

Financial behaviors

H5 (+)

H1 (+)

Financial well-being

H3 (+)
H2 (+)

Financial literacy
Figure 2.2. Theoretical model

The five hypotheses respectively are:
H1. There is a positive relationship between financial behavior and financial wellbeing among young adults.
H2. There is a positive relationship between financial literacy and financial well-being
among young adults.
H3. There is a positive relationship between financial literacy and financial behavior
among young adults.
H4. There is a positive relationship between financial socialization and financial
behavior among young adults.
H5. There is a positive relationship between financial socialization and financial
literacy among young adults.

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2.4 Chapter Summary
This chapter reviews two theoretical frameworks: the Family Resource Management
System Model of Deacon and Firebaugh (1988) and the Social Learning Theory of
Bandura (1986) as well as literatures on relationships among financial socialization,
financial literacy, financial behaviors and financial well-being. Based on these firm
foundations, the theoretical model of the thesis is presented and includes five
hypotheses showing positive impact of financial behaviors and financial literacy on
financial well-being, positive relationship between financial literacy and financial
behaviors, and positive effect of financial socialization on financial literacy and
financial behaviors.

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CHAPTER 3
RESEARCH METHODOLOGY

This chapter presents the research design and the method used in the current research.
The research is implemented with a combination of qualitative research and
quantitative research. The measurement scales after modified through qualitative
research are employed in main survey with a sample of 350 chosen respondents. The
procedures to analyze the data collected: Cronbach’s Alpha, EFA, CFA and SEM are
also mentioned.
3.1 Research Design
Literature review

Draft measurement scale

Final measurement scale

Qualitative research

Main quantitative research
Assessment of measurement
Testing hypotheses
Figure 3.1. Research design
The study was conducted through the combination of qualitative research as
pilot study and quantitative research as a main survey. The pilot test was conducted
with a small sample of 6 young adults in Ho Chi Minh City to modify the
measurement. The scales as well as the questionnaire then were revised and refined
suitably for a final one. Next, the main survey was organized to collect data for testing

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