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Pathways to financial success: Determinants of financial literacy and financial well-being among young adults

ProQuest Dissertations and Theses, 2011
Dissertation
Author: Mohamad Fazli Sabri
Abstract:
The issue of financial literacy and financial well-being among college students has received increasing research attention. This investigation was designed to examine several unanswered questions about college students' financial knowledge, how it is derived, and the overall financial literacy and well-being of young adults. The dissertation follows a journal paper format and consists of two research manuscripts prepared for publication. Data for each article is derived from a study of eleven public and private universities across Malaysia and the sample consists of 2,519 college students. The first article, addresses the effects of childhood consumer experience on financial literacy. This study investigates the impact of personal and family background, academic ability, and childhood consumer experience on financial literacy among college students. This investigation is among the first to examine the role that ethnicity plays in the relationship between childhood consumer experience and in explaining financial knowledge. Financial literacy was measured with a 25-item test of financial knowledge. On average, students answered less than half of the questions correctly. Methods of analysis included bivariate t-tests, analysis of variance, and multiple regression analysis. Discussing family finances with parents as a child had a substantial positive relationship on students' financial literacy. Students of Chinese ethnicity, who live on campus, and who attend private colleges were less likely to be financially literate. The second article, takes the next step, moving from understanding financial literacy, to examining how various factors (personal and family background, academic ability, early childhood consumer experience, financial socialization, and financial knowledge) predict students' perceived financial well-being. Structural equation modeling indicated that early childhood consumer experiences such as savings' habits contribute to students' financial well-being; measured as money saved, current financial situation, and financial management skills. Furthermore, financial socialization agents including parents and religion sources increased college students' financial well-being. Financial knowledge was related to financial well-being. Implications and recommendations for future research, teaching, and public policy are provided for parents, college administrators, counselors, and educators.

TABLE OF CONTENTS

LIST OF FIGURES v

LIST OF TABLES vi

ACKNOWLEDGEMENTS vii

CHAPTER 1. GENERAL INTRODUCTION 1 Introduction 1 Dissertation Organization 3 Theoretical Underpinnings of the Dissertation Research 5 Supporting Literature 6 References 19

CHAPTER 2. CHILDHOOD CONSUMER EXPERIENCE AND THE FINANCIAL LITERACY OF COLLEGE STUDENTS IN MALAYSIA 29 Abstract 29 Introduction 29 Consumer Socialization Framework 31 Literature Review 32 Methods 35 Results 37 Discussion 40 Conclusion 42 Study Limitations 43 References Appendix 1. Financial Literacy Test - True-False Questions 44 53

CHAPTER 3. A CONCEPTUAL MODEL OF PERCEIVED FINANCIAL WELL- BEING: EARLY CHILDHOOD CONSUM ER EXPERIENCE, FINANCIAL SOCIALIZATION, AND FINANC IAL KNOWLEDGE PATHWAYS 54 Abstract 54 Introduction 54 Theoretical Framework 57 Literature Review 58 Methods 66 Results 72 Discussion 75 Limitations 81 Conclusion and Implications 82 References 84

iv

CHAPTER 4. OVERALL SUMMARY 100 General Discussion 100 Limitations 102 Education Implications 103 Future Research 106 Public Policy 107 References 109

APPENDIX: IRB LETTER 112

v

LIST OF FIGURES

CHAPTER 2:

Figure 1. Theoretical Framework 48

CHAPTER 3:

Figure 1. The Proposed Conceptual Framework 93 Figure 2. The Student Perceived Financia l Well-Being Model: The Final Structure Equation Model (Standardized Estimates)

94

vi

LIST OF TABLES

CHAPTER 2:

Table 1. Measurement and Descriptive Statis tics of College Students in Malaysia 49 Table 2. T-tests of Differences in Financial Literacy Scores of College Students in Malaysia

50 Table 3. Analysis of Variance for Financial Li teracy Scores of College Students in Malaysia

51 Table 4. The Effect of Personal and Family Background, Academic Ability, and Childhood Consumer Experi ence on Financial Literacy Scores of College Students in Malaysia

52

CHAPTER 3:

Table 1. Sample Characteristics 95 Table 2. Correlations among Obse rved Variables in Model 96 Table 3. Estimated Path Coefficients in Th e Final Structural M odel (Standardized) 98

vii

ACKNOWLEDGEMENTS

A special thanks to Dr. Christine C. Cook, my committee chairman for her countless hours of reflecting, reading, encouraging, and most of all patience throughout the entire process. Thank you to Dr. Tahira K. Hira, Dr. Steven B. Garasky, Dr. Mack C. Shelley, and Dr. Pat M. Swanson for their precious time, encouragem ent, and expertise thr oughout this project. My sincere thanks also go to Dr. Mauri ce MacDonald for his guidance and continuous support.

Also, I would like to thank Dr. Jariah Masud, Dr. Laily Paim, and Amim Othman for their expertise and support during the two years research project.

I also gratefully acknowledge the Ministry of Science, Technology, and Innovation, Malaysia for funding this project.

Finally, a special thank you is extended to the students who graciously participated in the “Financial literacy, attitudes and practices among college students in Malaysia” study and gave us access to their lives.

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CHAPTER 1: GENERAL INTRODUCTION Introduction College students are at a decisive time in their lives as they move from financial dependence to financial independence. For a major ity of students, the firs t year of college is viewed as an important transitional stage in which parental supervision and oversight are reduced and students begin to achieve some de gree of financial autonomy. When they go to college, many students are confronted with fi nancial responsibilities such as paying bills, creating a budget, and using cred it for the first time in their lives. How well they cope with these challenges depends in part on the fina ncial knowledge and behaviors they acquired prior to arriving at college (Lyons, Scherpf, & Roberts, 2006). Previous studies in the United States and other countries have shown that co llege students are inadequately prepared for these new burdens and that they often poorly manage their finances (Markovich & DeVaney, 1997; Chen & Volpe, 1998; Beal & De lpachitra, 2003; Murphy, 2005). Colleges and universities have a unique opportunity to en courage the development of sound financial practices among students through coursework, workshops, and other education experiences (Xiao, Shim, Barber, & Lyons, 2007). Increasin gly, researchers are beginning to examine students’ knowledge about finances to determ ine how they acquire financial management skills and to identify the best methods for teachin g these skills, with the goal of helping them achieve financial well-being (Shi m, Xiao, Barber, & Lyons, 2009). Today’s college students have had more money to spend than students in past generations, but conversely they have been shown to have low levels of financial literacy and to be impulsive buyers (Hira & Brinkm an 1992; Danes, Huddleston, & Boyce, 1999;

Henry, Weber & Yarbrough, 2001). Inadequate comprehension of personal finance, such as

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budgeting and tracking expenses, can lead to increased conspicuous consumption behaviors (i.e., lavish spending on goods and services for the purpose of impressing others) among young adults. Although many studies have identified parents as the most important sources for teaching children about money, it is reasonable to expect that, once away from home and family, peers and the media may become more important factors in forming college students’ financial knowledge and behavior. The role of influences outside the family on financial knowledge and behaviors of college students has had limited attention. Another topic of current research examines the association between financial behavior and financial well-being (Xiao, Tang, & Shim, 2009; Shim et al., 2009). For the most part, however, these previous investigations have not considered the association between financial literacy and financial well-being. Furthermore, the investigations that have measured financial well-being have not always been consistent in how they define it. For example, Shim et al. (2009) define financial well-being as satisfaction with one’s current financial status (subjective measure) and level of debt (objective measure). Others define financial well-being as overall satisfaction with one’s financial situation (Van Praag, Frijters, & Ferer-i-Carbonell, 2003; Joo, 2008). A recent study by Shim et al. (2009) on financial well-being among young adults found that there are direct links between financial knowledge, financial attitude, and financial behavior, but did not find a direct relationship between financial knowledge and financial well-being. There is obviously more to be uncovered regarding the influence of financial literacy on financial well-being among college students. This dissertation research was designed to examine several unanswered questions about college students’ financial knowledge and how it is derived, and about the financial

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literacy and financial well-being of young adu lts. The data employed in this study were collected from students in public and privat e colleges in Malaysia. The data allow for examination of the effects of personal and family background, academic ability, and childhood consumer experience on co llege students’ financial l iteracy and provide a unique opportunity to investigate the de terminants of financial lite racy and financial well-being among college students. Improved understanding of the acquisition of financial knowledge was intended to provide additiona l insight into the relationshi p between financial knowledge and financial well-being. Two artic les were prepared for publicati on in this disse rtation; each with the overarching goal of cont ributing to the literature on colle ge students’ financial well- being. Dissertation Organization The organization of this dissertation follows the journal paper format. Chapter 2 contains the first research article, “Childhood Consumer Experience and The Financial Literacy of College Students in Malaysia,” published in 2010. A s econd research article follows in Chapter 3 and is titled, “A Concep tual Model of Perceived Financial Well-Being: Early Childhood Consumer Experience, Financia l Socialization, and Financial Knowledge Pathways”.

The first article, Chapter 2, addresses the effects of ch ildhood consumer experience on financial literacy. Prior resear ch suggests that college stude nts lack sufficient knowledge in personal finance (Chen & Volpe, 1998; Jorgen sen, 2007; Mandell, 2008). In addition, current literature suggests that learning personal finance at an earl y age is important; perhaps more important than previously hypothesized (Martin & Oliva, 2001; Koonce, Mimura, Mauldin, Rupured, & Jordan, 2008). Thus, what college st udents have learned and experienced in the

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past could affect their knowledge of personal finance much more than is currently understood. This study investigates the impact of personal and family background, academic ability, and childhood consumer experience on financial literacy among Malaysian college students. Malaysian students typically come from one of three ethnic backgrounds: Malay, Chinese, or Indian. This investigation is among the first to examine the role that ethnicity plays in the relationship between childhood consumer experience and in explaining financial knowledge. Three hypotheses were tested: 1) Financial literacy is associated with ethnicity, gender, student’s residence, type of college, place of origin, and parents’ education, 2) Students with greater academic achievement and more schooling completed have greater financial literacy, and 3) Childhood consumer experience is positively related to financial literacy; the earlier the experience, the greater the financial literacy. The second article, Chapter 3, takes the next step, moving from understanding financial literacy, as depicted in Chapter 2, to examining how various factors (personal and family background, academic ability, early childhood consumer experience, financial socialization, and financial knowledge) predict students’ perceived financial well-being. Structural equation modeling was utilized to examine the hypothesis that the effect on perceived financial well-being is mediated by financial socialization and financial knowledge. In turn, having earlier childhood experiences and greater financial knowledge were hypothesized to have a positive impact on college students’ perceived financial well- being. Six hypotheses were tested: 1) Students’ personal and family backgrounds have a significant direct impact on perceived financial well-being, 2) Students with higher GPAs and those with more years at university have higher scores on perceived financial well-being, 3) The influence of early childhood consumer experience on perceived financial well-being is

5

mediated by financial socialization and financial knowledge, 4) Financial knowledge directly and positively impacts perceived financial well-being, 5) Parents have greater influence than peers, school, religion, and media on college students’ financial knowledge, and 6) The influence of financial socialization on perceived financial well-being is mediated by financial knowledge. Few previous studies have employed a structural equation model (SEM) to examine the relationships between and among personal and family background, academic ability, early childhood consumer experience, financial socialization, financial knowledge, and financial well-being. Thus, the present study will contribute to existing literature by providing a methodologically rigorous (i.e., using SEM) approach to modeling and predicting college students’ perceived financial well-being. Finally, Chapter 4 of this dissertation contains a general discussion of both articles, beginning with an overall summary of the main findings from both studies. General conclusions that can be drawn from both studies are included and discussed as they pertain to future research investigations to be undertaken. Recommendations are also provided for public policies, educational programs, and intervention strategies that will help college students achieve financial success in their campus life. Finally, the limitations of each research study are discussed.

Theoretical Underpinnings of the Dissertation Research Social Learning Theory and the theory of consumer socialization guided the development of the hypotheses in this investigation. Social learning theory explains how people learn behavior by observing that of others'. If individuals observe positive outcomes resulting from a behavior, they are more likely to imitate that behavior; if they observe

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negative outcomes they are less likely to do so (Bandura, 1969). Social Learning Theory has been applied to a variety of topics including compulsive behavior (Fabien & Joliceour, 1993), financial behavior (Hira, 1997; Martin & Bush, 2000), and children’s socialization (Chan & McNeal, 2006; Hsieh, Chiu, & Lin, 2006). People learn behavior through the process of socialization; similarly consumer research suggests that consumer socialization is the process “by which young people acquire skills, knowledge and attitudes relevant to their functioning in the marketplace” (Ward, 1974, p.2). Another definition refers to it as the process by which individuals acquire knowledge, skills, and value dispositions that enable them become participating members of society (McNeal, 1987; Moschis, 1987). The definition has been extended beyond general consumer behavior to include values, attitudes, norms, skills, behaviors, motives, and knowledge that contribute to financial skills and understanding (Danes, 1994; Fox, Bartholomae, & Gutter, 2000; Gutter, Copur, & Selena, 2009). Several researchers have applied consumer socialization theory to the study of college students’ financial knowledge, behavior, and well-being (Shim et al., 2009; Shim, Barber, Card, Xiao, & Serido, 2010; Gutter, Garrison, & Copur, 2010). Along with social learning theory, consumer socialization provides the theoretical underpinning for this research. Additional information is provided in each of the articles (see chapters 2 and 3). Supporting Literature Definition of Financial Literacy The terms financial literacy, financial knowledge, and financial education often have been used interchangeably both in the academic literature and in the popular media (Huston, 2010). One definition of financial literacy can be defined as the ability to effectively evaluate and manage one’s finances in order to make frugal decisions in order to reach life goals and

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achieve financial well-being (American Institute of Certified Public Accountants, 2003). Garman and Forgue (2000) define financial literacy as knowing the facts and vocabulary necessary to manage one’s personal finances successfully. According to Kim (2001) financial literacy is basic knowledge that people need in order to survive in modern society. Financial literacy involves knowing and understanding the often complex principles of spending, saving, and investing. Financial literacy also is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being (U.S. Financial Literacy and Education Commission, 2007). It is an essential skill, increasingly seen as important to the long-term well-being of individuals and communities (Greenspan, 2001). Huston (2010) analyzed seventy-one individual studies published between 1996 and 2008. These studies were based on fifty-two different data sets for which a broad range of financial literacy/financial knowledge measures were developed over the last decade. She examined the definitions of financial literacy used in these earlier literatures and found that majority (72%), did not include a definition of financial literacy. Forty-seven percent of the studies analyzed used the terms “financial literacy” and “financial knowledge” synonymously. Huston (2010) identified four main categories that emerged from these studies’ definitions of financial literacy and knowledge: personal finance basics, borrowing, saving/investing, and protection. Huston proposed that financial literacy could be conceptualized as having two dimensions: understanding personal finance knowledge (theory) and using personal finance knowledge (application). Financial literacy, therefore, should be defined as measuring how well an individual can understand and use personal finance-related information.

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Financial knowledge is an integral component of financial literacy, but not identical to financial literacy (Hus ton, 2010). Recently, Remund (2010) reviewed the conceptual definitions of financial literacy and determined that definitions fell into five categories: (1) knowledge of financial concepts, (2) ability to communicate about financial concepts, (3) aptitude in managing personal finances, (4) sk ill in making appropriate financial decisions, and (5) confidence in planning effectively for future financial needs. Like Huston, Remund concluded that financial literacy is more than simply a measure of knowledge and offered this definition of financial li teracy: “a measure of the degr ee to which one understands key financial concepts and possesses the ability and confidence to mana ge personal finances through appropriate, short-term decision ma king and sound, long-range financial planning, while mindful of life events and changing economic conditions” (p. 284).

An Overview of Studies Conducted on the Fi nancial Knowledge and Fina ncial Literacy of College Students Most previous studies on fi nancial literacy and or fina ncial knowledge have focused on high school students or adults (Danes et al., 1999; Hilgert, H ogarth, & Beverly, 2003; Mandell, 2008). Seventeen empiri cal studies on the financial lit eracy or financial knowledge of college students were found in the reviewed literature conducted either in the U.S. or outside the U.S. between 1987 and 2010. The fi rst reported study (Danes & Hira, 1987) investigated 323 Iowa State University student s’ knowledge about cred it cards, insurance, personal loans, financial record keeping, and overall financial management. The study indicated that in general college students had limited financial knowle dge but that males, upper classmen, and married students were more knowledgeable than females, lower classmen, and single students in two areas of pe rsonal finance (insurance and personal loans).

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A second study conducted in 1996 examined the personal investment literacy of 454 students at Youngstown State University (Volpe, Chen, & Pavlicko, 1996). The study explored the relationship between level of investment literacy and gender, academic discipline, and experience. Students’ knowledge of investing was measured using a questionnaire developed by John Markese, president of the American Association of Individual Investors, and adapted from the Money Forecast Issue of Money magazine (1993). The survey contained ten questions on personal investment topics including risk, diversification, financial advisor qualifications, tax planning, business math, interest rates, stocks, bonds, mutual funds, and global investing. Each correct answer was worth 10 points and respondents who received a score of 70 or higher were considered knowledgeable about the basics of personal investment. The mean score was 44, which indicated that students’ had inadequate knowledge of personal investment. The results revealed that female students and non-business majors were less knowledgeable about personal investment than were males and business majors. A third study by Markovich and DeVaney (1997) surveyed 500 college seniors at a large Midwestern university on personal finance knowledge and practices. This survey asked a total of 21 multiple choice questions concerning credit use, loan payments, emergency funds, and insurance use to measure students’ financial literacy. One point was given for each correct answer. The scores ranged from zero to 21 with a mean of 9.31 (SD=3.67), again suggesting that college seniors lack sufficient personal finance knowledge. Male seniors and seniors in the school of management tended to have higher knowledge scores; seniors with three or fewer credit cards tended to have less outstanding credit card debt than those with

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four or more cards; and, college seniors were more satisfied with their financial management skills (ability to manage finances) than with their financial knowledge. Chen and Volpe (1998) conducted a personal financial literacy study among 924 students from 13 college campuses, including both public and private schools in California, Florida, Kentucky, Massachusetts, Ohio, and Pennsylvania. This study examined the relationship between financial literacy and several students’ characteristics, and the impact of financial literacy on students’ opinions and decisions related to financial issues. The survey consisted of 52 questions, including 36 multiple-choice questions testing financial knowledge and eight questions about opinions and financial decisions. As is typical of research on financial literacy, financial knowledge was assessed based on general knowledge and knowledge of savings and borrowing, insurance, and investments. The mean percentage of correct scores was 52.9%, indicating the students answered only about half the survey questions correctly. The results suggest that students have inadequate knowledge of personal finance. Results also revealed that non-business majors, women, students in lower class rank, less than age 30, and those with little working experience have lower levels of financial knowledge. Students with less financial knowledge tended to make incorrect financial decisions in the areas of general knowledge, savings and borrowing, and investments. Using the same data set to study gender differences in knowledge of personal finance, Chen and Volpe (2002) found women to be less knowledgeable about personal finance than their male counterparts. Financial literacy was related to education (academic discipline and class rank) and experience-related factors (years of work experience and age). The results also revealed that men had a higher level of enthusiasm for and confidence in personal finance issues. The majority of students reported that they obtained financial knowledge through their parents.

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Other studies conducted in the early 2000s continued to find that college students did not have a high level of financial knowledge, both within the United States (Jones, 2005; Murphy, 2005; Avard, Manton, English, & Walker, 2005) and outside it (Beal & Delpachitra, 2003). Studies used the terms “financial literacy” and “financial knowledge” interchangeably and reported common variables associated with financial knowledge/literacy such as gender. Typically males scored better but were also more likely to be in academic fields that emphasized financial knowledge skills. Avard et al. (2005), however, found little difference between males and females in their examination of college students’ financial knowledge. Several studies have used the Jump$tart survey to explore financial literacy (e.g. Norvilitis, Osberg, Young, Merwin, Roehling, & Kamas, 2006; Eitel & Martin, 2008; Robb & Sharpe, 2009; Lalonde & Schimdt, 2009). Jump$tart is a “national coalition of organizations dedicated to improving the financial literacy of pre-kindergarten through college-age youth by providing advocacy, research, standards and educational resources” (www.jumpstart.org). The study of financial knowledge/literacy has often been coupled with examination of credit card behaviors. Norvilitis et al. (2006) explored three sets of risk factors (financial knowledge and attitudes, personality factors, and demographic factors) which they believed would predict students’ debt and factors predicting the effects of debt. The results showed that lack of financial knowledge, greater student age, greater number of credit cards, lower ability to delay gratification, and positive attitudes toward credit card use were significantly related to debt. They also found that higher debt significantly contributes to lower financial well-being, higher stress, and longer projected repayment of college loans. Later, Eitel and Martin (2008) studied 204 female first-generation college students and found that Caucasian and older students scored higher on financial literacy than Black or Hispanic

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and younger age students. Robb and Sharpe (2009) studied the relationship between personal financial knowledge and credit card behavior among 6,250 college students at a large Midwestern university. The results indicated that the relationship between financial knowledge and actual behavior was not clear. For example, they found that students with higher financial knowledge also had significantly higher credit card balances. Some possible explanations for this unexpected result include differences between students who completed the survey and those who did not, inability of measures financial need or financial attitudes to capture why students carry a higher balance, and the fact that the measure of personal financial knowledge used in the study was experimental (validity was not tested for multiple samples). Lalonde and Schmidt (2009) examined factors that contributed to financial literacy among 192 college students at a small liberal arts college in the Northeastern United States. The number of credit cards and degree of interest in personal finance were the most significant predictors of financial literacy and, contradicting previous findings, women showed a higher level of financial literacy than men. Like the Jump$tart studies, research on financial knowledge/literacy has often been coupled with examination of credit card behaviors, but sometimes investigators have used tools other than Jump$tart to measure financial literacy (Robb, 2008; Xiao, Serido, & Shim, 2010). Robb (2008) explored the relationship between personal financial knowledge and credit card behaviors among 1,354 college students at a larger, public university in the southeast. Personal financial knowledge was measured using a six-question scale designed to capture general financial information. The results showed that financial knowledge influenced whether students reported having credit cards at the maximum limit, used one credit card to pay off another, always paid off balances at the end of the month, frequency of

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making only the minimum payment, delinquency, exceeding their credit card limit, and taking cash advances on their cards. In general, the above studies showed mixed results on the relationship between financial literacy/knowledge and credit card behaviors. A recent study on financial knowledge was conducted by Xiao et al. (2010) to examine the associations among financial education, financial knowledge, and risky credit behavior of college students. Financial knowledge was measured using both subjective and objective instruments. Subjective knowledge referred to students’ self-assessment of their financial knowledge on a five-point scale from one (very low) to five (very high). Objective knowledge was measured using eight true-false questions developed by Hilgert et al. (2003). The results showed that personal finance courses may contribute to the subjective knowledge of students, which in turn may contribute to a lower likelihood of engaging in credit paying behavior. The results also revealed that objective credit knowledge reduces risky paying and borrowing behaviors. Other studies used different measures and scales of financial knowledge/literacy but did not examine credit card behaviors exclusively (Borden, Lee, Serido, & Collins, 2008; Heckman, 2009). Borden et al. (2008) examined the influence of a financial education seminar (Credit Wise Cats) on the financial knowledge, attitudes, and behavior of 93 college students. The financial knowledge score was computed to detect good financial management practices, with items such as paying off store and other credit cards each month and having a high APR credit card. The study found that students had significantly higher financial knowledge at post-test than pre-test, and that male students showed more financial knowledge than female students. Heckman (2009) evaluated the determinants of personal finance knowledge among college students and how this knowledge affects their perceived

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self-efficacy in dealing with financial issues. A 20-item personal finance index from Avard et al. (2005) was used to measure personal financial knowledge. Holding age and gender constant, the study found that financial knowledge was significantly and positively associated with self-efficacy, which suggests that more knowledgeable students should be more effective and confident in financial matters. In summary, there is as yet no single standard measurement of financial literacy and/or financial knowledge of college students. Nevertheless, previous studies agree that a lack of financial knowledge is a growing problem in the U.S. and other countries. The literature overview also shows that the terms “financial literacy” and “financial knowledge” often have been used interchangeably, but the current literature suggests that the two terms are not equivalent. To be considered financially literate, one must be able to use knowledge of personal finance to make sound financial decisions.

The Concepts and Measurement of Financial Wellness, Financial Satisfaction, and Financial Well-Being Personal financial wellness is a complex concept with multiple dimensions distributed along a continuum (Prawitz, Garman, Sorhaindo, O’Neill, Kim, & Drentea, 2006; Joo, 2008; Rutherford & Fox, 2010). Financial wellness has been studied extensively by consumer scholars in various topical areas such as credit management, net worth, savings amounts, attitudes, and satisfaction (Rutherford & Fox, 2010). Joo and Grable (2003) defined financial wellness as an active state of financial health evidenced by low debt level, active savings and/ or retirement plan(s), and a good spending plan. More recently, Joo (2008) broke down

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financial wellness into four sub-concepts: objective status, financial satisfaction, financial behavior, and subjective perception. Financial satisfaction has been defined as satisfaction with one’s income, ability to handle financial emergencies, amount of debt, level of savings, and money for future needs (Hira & Mugenda, 1998). The ability to manage financial resources effectively is an important component of financial satisfaction. Satisfaction is achieved when a need or desire is fulfilled, financial satisfaction therefore can be defined as the difference between desired and actual financial situation. Financial satisfaction is measured both objectively by factors such as income and wealth, and subjectively by comparison to a standard or reference point (Lown & Ju, 1992). Rutherford and Fox (2010) found that financial satisfaction should be measured using several items to capture respondents’ feelings regarding their financial situation. Previous researchers (Berger, Powell, & Cook, 1988; Krannich, Riley, & Leffler, 1988; Lown & Ju, 1992 ) have suggested that the most economical and reliable measure of financial satisfaction appears to be a six-item index measuring one’s satisfaction with level of income, level of savings, amount of money owed, money for family necessities, money for future needs of the family, and ability to handle financial emergencies. Hira and Mugenda (1999a; 1999b) measured financial satisfaction with multiple items including satisfaction with (a) money saved, (b) amount of money owed, (c) current financial situation, (d) ability to meet long- term goals, (e) preparedness to meet emergencies, and (f) financial management skills. Joo and Grable (2004) however suggested that a single-item measure of financial satisfaction can be as effective as a multi-item measure; a one-item 10-point stair-step question asked respondents to choose how satisfied they were with their present financial situation. Financial

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satisfaction was measured on a five-point scale (1-very unsatisfied, 5-very satisfied) by Xiao et al. (2009) when they studied financial behavior and life satisfaction of college students. Since financial satisfaction is not tied to having a specific amount of money, two people may feel different degrees of satisfaction when experiencing the same financial situation. That is, one person may feel very satisfied while another may not, despite having similar financial resources (Rutherford & Fox, 2010). Regardless of this element of subjectivity, satisfaction with personal financial affairs generally has been shown to contribute to life satisfaction (Kapoor, Dlabay, & Hughes, 2007; Xiao et al., 2009). Joo & Grable (2004) noted that learning how to manage money wisely is likely to lead to financial satisfaction, as well as to financial wellness. Further research by Joo (2008) found financial satisfaction to be a significant predictor of financial wellness. Well-being or a good quality of life is an ongoing goal for individuals and a major criterion for evaluating governments and societies. The variety of methods for assessing well-being has increased in recent years (Kahn & Juster, 2002). According to Kahn and Juster (2002), scales of satisfaction-dissatisfaction and happiness-unhappiness still predominate and subjective well- being is most commonly assessed using self-reports of satisfaction and dissatisfaction. Results suggest that young people who “feel lucky” in their financial affairs (i.e., are satisfied with the state of their finances) are more likely to indicate financial wellness compared to those who were felt unlucky (Rutherford & Fox, 2010). Financial well-being is defined as “a state of being financially healthy, happy, and free from worry” and is based on subjective appraisals of one’s financial situation (Joo, 2008, p. 22). Porter (1990) defined perceived attributes as “an individual’s subjective evaluation of his/her own financial situation” (p. 24). She used satisfaction with income, level of living, net worth, general financial management,

Full document contains 120 pages
Abstract: The issue of financial literacy and financial well-being among college students has received increasing research attention. This investigation was designed to examine several unanswered questions about college students' financial knowledge, how it is derived, and the overall financial literacy and well-being of young adults. The dissertation follows a journal paper format and consists of two research manuscripts prepared for publication. Data for each article is derived from a study of eleven public and private universities across Malaysia and the sample consists of 2,519 college students. The first article, addresses the effects of childhood consumer experience on financial literacy. This study investigates the impact of personal and family background, academic ability, and childhood consumer experience on financial literacy among college students. This investigation is among the first to examine the role that ethnicity plays in the relationship between childhood consumer experience and in explaining financial knowledge. Financial literacy was measured with a 25-item test of financial knowledge. On average, students answered less than half of the questions correctly. Methods of analysis included bivariate t-tests, analysis of variance, and multiple regression analysis. Discussing family finances with parents as a child had a substantial positive relationship on students' financial literacy. Students of Chinese ethnicity, who live on campus, and who attend private colleges were less likely to be financially literate. The second article, takes the next step, moving from understanding financial literacy, to examining how various factors (personal and family background, academic ability, early childhood consumer experience, financial socialization, and financial knowledge) predict students' perceived financial well-being. Structural equation modeling indicated that early childhood consumer experiences such as savings' habits contribute to students' financial well-being; measured as money saved, current financial situation, and financial management skills. Furthermore, financial socialization agents including parents and religion sources increased college students' financial well-being. Financial knowledge was related to financial well-being. Implications and recommendations for future research, teaching, and public policy are provided for parents, college administrators, counselors, and educators.