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

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

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

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

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 well-being 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

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

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 being of young adults, namely financial socialization, financial literacy and financial behavior The proposed questions are as follows:

well-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

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

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

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

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

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

Met demands Achieve goals Altered resources Life satisfaction

Feedback

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

of personal being Some researchers in the older time considered financial being only as material aspects of their financial status The later researchers gradually

well-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

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 well-being 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

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

well-being 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;

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 well-being (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

well-being 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

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

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

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,

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

Figure 2.2 Theoretical model

The five hypotheses respectively are:

H1 There is a positive relationship between financial behavior and financial

well-being 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

H1 (+)

H2 (+) H5 (+)

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

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

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

Literature review Draft measurement scale

Qualitative research Final measurement scale

Main quantitative research

Assessment of measurement

Testing hypotheses

the proposed model and its hypotheses The pilot study is qualitative research while the main one is quantitative research The sample size, sampling method, data collecting method and data analysis method would be described in more detail in the following sections

on a five-point Likert scale which could be supervised easily, ranging from 1 (lowest financial well-being) to 5 (highest financial well-being)

Financial Behavior

This thesis considers the Financial Management Behavior Scale (FMBS) by Dew and Xiao (2011) covering many dimensions The initial FMBS includes 17 items with response set ranged from 1 to 5 However, Dew and Xiao (2011) then ignored 2

questions from the original for the revised scale of 15 items This revised one will be

used to measure the construct “financial behavior” in this study

With this scale, financial behaviors are measured in 5 domains: consumption, cash management, saving and investment, credit management and insurance management The instruction for the first twelve domains is, “Please indicate how much you agree with the activities you have engaged in the past six months.” and for the rest domain

is, “Please rate how much you agree with your behavior regarding insurance within the past year.” Higher scores reflect sounder financial behaviors

Financial Socialization

Financial socialization is simply measured by four items on a five-point Likert scale asking how much parental socialization, peers, schools and media affect the way they learn about and behave with money, which follows the scale of Mohamad et al (2012)

Financial Literacy

For this thesis, financial literacy is measured using the revised scale from one developed by Perry and Morris (2005) Although it measured subjective financial knowledge which is self - assessed and reported by the respondents, it was proved to also cover an objective measurement The general instruction is that how much you agree with the following statement of your financial knowledge Scores on each question is rated on a 5-point Likert scale

Table 3.1 Measurement scale

How do you feel about your current financial situation?

How often do you worry about being able to meet

normal monthly living expenses?

How confident are you that you could find the money to

pay for a financial emergency that costs about $1,000?

How often does this happen to you? You want to go out

to eat, go to a movie or do something else and don’t go

because you can’t afford to?

Prawitz et al (2006)

Table 3.1 Measurement scale (cont.)

FS7

FS8

How frequently do you find yourself just getting by

financially and getting paycheck to paycheck?

How stressed do you feel about your personal finances

in general?

Prawitz et al (2006)

Paid all your bills on time

Kept a written or electronic record of your monthly

expenses

Stayed within your budget or spending plan

Paid off credit card balance in full each month

Maxed out the limit on one or more credit cards

Made only minimum payments on a loan

Began or maintained an emergency savings fund

Saved money from every paycheck

Saved for a long term goal such as a car, education,

home, etc

Contributed money to a retirement account

Bought bonds, stocks, or mutual funds

Maintained or purchased an adequate health insurance

policy

Maintained or purchased adequate property insurance

like auto or homeowners insurance

Maintained or purchased adequate life insurance

Dew and Xiao (2011)

Table 3.1 Measurement scale (cont.)

FSO1

FSO2

FSO3

FSO4

Parental socialization much affects the way you learn

about and behave with money

Peers much affect the way you learn about and behave

I know about credit ratings and credit files

I know about managing finances

I know how to invest my money

I know and understand my bank statement

Perry and Morris (2005)

3.3 Draft Questionnaire

Before conducting the pilot study, the draft questionnaire was developed so that

it would be modified in the pilot study for a final one used in the main survey The draft questionnaire was originally in English but because all target respondents are Vietnamese, the questionnaire then was translated into Vietnamese

The questionnaire was divided into two parts, the first part included questions relating to demographic characteristics of respondents and the second part included questions measuring four constructs Because the target respondents are young adults aged from 22 to 30, the questionnaire also includes a prominent note after the filter question about age to ensure this age range

in the context of the research Through this research, the researcher could gain helpful comments to modify the measurement scale such as remove and/or revise the draft questionnaire to get the final one compatible with some specific context for the main survey

Focus –group interview was chosen with which, the participants are required to feel comfortable to talk to the interviewer and to each other as well as engage in the discussion This technique therefore could help generate data based on the synergy of the group interaction It also provides a range of ideas and feelings the individuals have about some certain issue, and enlightens the differences in viewpoint between groups if any The optimum number of participants might vary between six and ten because this quantity is small enough not to be split and large enough to reach the diversification of perspectives (Rabiee, 2004) According to Donald and Pamela (2006), each group interview should last until no new insights are gained

For this research, the participants of focus group were the young adults aged from 22 to 30 living and working in HCM city They were designed into one 6-participant group One of them is a teacher, the other two are officers, the other two are managers, and the last one is a worker The interview took place within 2 hours The researcher who understands the questionnaire the most is also the leader of the interview, guiding the discussion and finalizing the modification In the interview, the leader explained all the concepts in the study with the interviewees and went through

the whole questionnaire with them Only the opinions agreed by equal or more than fifty percent of the participants would be kept Accordingly, some items of the scale which are not suitable in the Vietnamese context, or some words which seem to be able to confuse or mislead the respondents, would be modified or even removed from the questionnaire

The script of this qualitative research is shown in Appendix 2 The findings based on which the final questionnaire was formed was listed as below Among six items removed are four ones relating to credit cards Five over six interviewees considered that credit card was hardly to become a standard to evaluate positive or negative financial behaviors in Vietnam There are also reports on the credit card market showing a very low rate of credit card users in Vietnam (Cong Thuong, 2015; Kinhte Saigon Online, 2011)

Table 3.2 Findings of qualitative research

Financial Well-Being

FS5 You are confident that you could

find the money to pay for a

financial emergency that costs

about $1,000

Modified to be “You are confident that you could find the money to pay for a financial emergency that costs about 20 million dong.” Because the exchange rate between USD and VND is about 20,000 for the last five years

Financial Behavior

FB5

FB6

FB7

You paid off credit card balance

in full each month

You maxed out the limit on one

or more credit cards

You made only minimum

payments on a loan

Removed because it is related to credit cards This is one of the most popular type of credit on around the world

However, it is still unfamiliar and rarely used in Vietnam Therefore we consider that credit card is hardly to become a

Table 3.2 Findings of qualitative research (cont.)

Financial Behavior

…standard to evaluate positive or negative financial behaviors in Vietnam There are also reports on the credit card market in our country showing a very low rate of credit card users among population It was about 1% of people ranged 18 to 50 in year 2011 (Kinhte Saigon Online, 2011) and 3.3% among adults in year 2015 (Cong Thuong, 2015)

FB11 You contributed

money to a

retirement

account

Removed This retirement account could be considered to

be equivalent to retirement insurance in Vietnam which is included in social insurance In addition, social insurance

is a compulsory insurance for all employees in both public and private sectors So this item should not be present to assess positive or negative financial behaviors because it is much related to obligation of most young adults

in this quite new field to the majority of the population

By 2015, Vietnam’s stock market has just been 15 years old All respondents agreed it was not the strong item to

Table 3.2 Findings of qualitative research (cont.)

…evaluate the personal financial behaviors in Vietnam and accepted to eliminate it

Financial Literacy

FK2 You know about credit

ratings and credit files

Removed because it is related to credit cards, whose reason was explained in FB5, FB6 and FB7

3.5 Main Study

3.5.1 Sampling method

As mentioned in chapter one, the research only focuses on the young adults aged from 22 to 30 This choice was based on some logic reasons which were also discussed in details in that section Young adults have been paid much attention for their financial well-being because they have just started experiencing their independent life and managing their finance by themselves therefore they seem to have encountered more financial problems than others (summarized and cited in Chan

et al., 2012; Worthy, Jonkman & Blinn-pike, 2010) The age range of Vietnamese young people according to Vietnamese law is from sixteen until thirty However, the differences between the advanced countries and Vietnam’s practical situations leaded

to ignore the sample ranging under 22, which was explained clearly in the research scope section Thus the data for testing the research hypotheses was collected from young adults aged from 22 to 30 living and working in Ho Chi Minh City, Vietnam

The convenience sampling method with a structured questionnaire was used

3.5.2 Sample size

The sample should be equal or greater than 100 and the minimum should be five times the number of measurement items (Hair, Black, Babin and Anderson, 2010) Minimum sample size requirement in SEM analysis is still big concern when

no consensus of formula exists among researchers Most researchers used the rule of

Wu, 2007) Following these rules, the number of samples for this thesis should be larger than the calculation of 5 multiplied 26 - the number of items after modification

It means that the minimum sample size required for testing hypotheses of this thesis is

130 To obtain a sample size of at least 130, we approached up to 350 respondents via convenience sampling method mentioned above

3.5.3 Data collection method

The questionnaires are sent indirectly by forms using Google Docs for the following objects: ISB learners, the author’s colleagues at Phu Loc Technologies Company in Ho Chi Minh City and the acquaintances via email To maximize the number of respondents, the questionnaires are also sent directly in papers, to the learners of postgraduate classes at the universities in Ho Chi Minh City, to the acquaintances on the meeting occasions, and some employees and workers of Vissan Limited Company in Ho Chi Minh City The author even shared the link of the survey form on the social network – facebook.com to attract more help and remind the respondents to complete the survey

3.5.4 Data analysis techniques

The Cronbach’s alpha was used to assess the reliability; the Exploratory Factor Analysis EFA and the Confirmatory Factor Analysis CFA were used to assess the validity of the measurement scales; then the Structural Equation Modeling SEM was used to test the hypotheses of this study This research used SPSS and AMOS computer software to analyze the collected data

3.5.4.1 Cronbach’s alpha

Cronbach’s alpha was used to examine the reliability of the scales in the research Connelly (2011) stated that Cronbach’s alpha was “one form of reliability known as internal consistency” (p 45) If some item has the item-total correlation of less than 0.3 and the Cronbach’s alpha increases when deleting it, this item will be unacceptable and removed from the variable system (Nunally and Berstein, 1994)

3.5.4.2 Exploratory factor analysis

After testing with Cronbach’s alpha, we continue to test the scales using EFA (Exploratory Factor Analysis) Norris and Lecavalier (2010) argued that EFA aimed to identify latent constructs which were hypothesized to account for the patterns of correlation underlying a set of manifest variables, or simply, explain common variance In EFA, the KMO value must be higher than the required minimum value of 0.5 Bartlett’s test of sphericity should also have the statistically significant value at 5 percent If some item has factor loading of less than 0.4 or loads in many components (crossing loading), it does not satisfy the requirement and must be eliminated from the measurement scales

3.5.4.3 Confirmatory factor analysis

The result of confirmatory factor analysis (CFA) of measurement scale was gotten by using AMOS 16 software When using CFA to examine, the following five indices (summarized in Nguyen and Nguyen, 2008) were adopted:

- A chi-square to degree of freedom ratio: the smaller the Chi-square, the better the fit

of the model It has been suggested that a Chi-square two or three times as large as the degrees of freedom is acceptable (Carmines and McIver, 1981)

- RMSEA (root mean square of approximately): the smaller the RMSEA, the better the model The closer the RMSEA for a model being tested, the better the model fit RMSEA should be between 0.03 and 0.08

- GFI (Goodness-of fit) should by equal to or greater than 0.90 to indicate good fit

- CFI (comparative fix index), close to 1 indicates a very good fit, > 0.90 or close to 0.95 indicates good fit, by convention, CFI should be equal to or greater than 0.90 to accept the model

- TLI (Tucker & Lewis index value) should exceed 0.90

Besides, there are a few measures that are useful for establishing validity and reliability The composite reliability (CR) of all latent constructs should exceed the

recommended level of 0.7 Convergent validity is the degree to which multiple attempts to measure the same concept in agreement The factor loading for all items should exceed the recommended level of 0.4 Discriminant validity is the degree to which the measures of different concepts are distinct Discriminant validity can be examined by testing the correlation between constructs, which is different from 1 was acceptable

3.5.4.4 Structural equation model

Structural equation model SEM is a powerful analysis technique which includes various analysis methods such as factor analysis, path analysis and regression

as its special cases SEM aims to test hypotheses about the relationships among observed and latent constructs in the structural model (Teo, 2011) In this current study, SEM is used to examine the relationships among financial socialization, financial literacy, financial behaviors and financial well-being In SEM, there are different recommendations on the use of different fit indices and hypothesis tests The frequently used absolute measures of fit are Chi-square with recommended value of less than 3 and Root mean square error of approximation (RMSEA) with recommended level of less than 0.08; the incremental fit indices used are comparative fit index CFI and Tucker and Lewis index TLI of greater than 0.9, which shows the model fits the data and is appropriate Next, the t-test critical was used The critical ratio of above 1.96 or p-value of under 0.05 indicates a statistical significance of each parameter for the paths in the model (Byrne, 2001 as cited in Teo, 2011)

3.6 Chapter Summary

This chapter presents the research methods used to test the measurement scale, the structural model and research hypotheses 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

CHAPTER 4 DATA ANALYSIS AND RESULTS

The beginning of the chapter is the sample characteristics of the respondents such as their gender, age, and career Next, results of scale validation are presented Cronbach’s alpha and EFA were used to examine reliability and validity of the constructs Continued, CFA is used to test discriminant and convergent validity Finally, hypotheses were examined by using structural equation model

4.1 Descriptive Analysis

Total 299 questionnaires were gathered back after distributing to the 350 respondents at the end of the survey Among them are 35 invalid ones which are incomplete or carelessly completed The rest of 264 were then officially analyzed for the research results followed

Firstly, the data analysis is shown, so that readers could have an overall look and fast classification about data collected

The below Tables 4.1, 4.2 and 4.3 respectively statistic the different types of participants attending this survey Obviously, respondents are diversified by different gender, age, and career

Initial analysis of data indicated that gender was relatively equally with 59.1%

of the total respondents are female and the rest of 40.9% are male

The respondents in age range of from 25 to 27 dominate with the rate of 39.4% The number of ones from 22 to 24 years old is nearly equivalent at 37.9% The oldest range of from 28 to 30 accounts for 22.7%

The participants also come from a lot of career fields Most of them are officers with a percentage rate of 56.8% Especially, there are up to 33 respondents rejecting to

declare their job, which create missing values of this item In summary, respondents are widely diverse by different gender, age, and career

The item named FS7 of the financial well-being variable has corrected total correlation of less than 0.3 Meanwhile, the Cronbach’s alpha of financial well-being variable increases if deleting this item For these reasons, item FS7 must be knocked out from the item system

item-The rest three variables, financial socialization, financial behaviors, and financial literacy satisfied both conditions of Cronbach’s alpha and item-total correlation They all got good Cronbach’s alpha coefficients which are higher than 0.80 The corrected item-total correlation of all these scales also met the criterion of above 0.30 Therefore all these constructs are acceptable There was no need to modify these variables

Table 4.4 Cronbach’s Alpha coefficients

Observed

Variable

Scale Mean if Item Deleted

Scale Variance

if Item Deleted

Corrected Total Correlation

Item-Alpha if Item Deleted

Financial well-being: Cronbach’s anpha = 0.828