Pathways to financial success: Determinants of financial literacy and financial

well-being among young adults

by

Mohamad Fazli Sabri

A dissertation submitted to the graduate faculty

in partial fulfillment of the requirements for the degree of

DOCTOR OF PHILOSOPHY

Major: Human Development and Family Studies

Program of Study Committee:

Christine C. Cook, Major Professor
Tahira K. Hira
Steve Garasky
Pat Swanson
Mack Shelley

Iowa State University

Ames, Iowa

2011

Copyright © Mohamad Fazli Sabri, 2011. All rights reserved.

 UMI Number: 3458371

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 ii

DEDICATION

In the name of Allah, the Most Gracious, the Most Merciful. Thank you ALLAH for all your
blessing. This dissertation is lovingly dedicated to my parents, wife, children, and all family
members. I give my deepest expression of love and appreciation for the encouragement that
you gave and the sacrifices you made during this graduate program. Your support,
encouragement, and constant love have sustained me throughout my life
 iii

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 44
Appendix 1. Financial Literacy Test - True-False Questions 53

CHAPTER 3. A CONCEPTUAL MODEL OF PERCEIVED FINANCIAL WELL-

BEING: EARLY CHILDHOOD CONSUMER EXPERIENCE, FINANCIAL
SOCIALIZATION, AND FINANCIAL 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 Financial Well-Being Model: The Final Structure
Equation Model (Standardized Estimates) 94
 vi

LIST OF TABLES

CHAPTER 2:

Table 1. Measurement and Descriptive Statistics 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 Literacy Scores of College Students in
Malaysia 51
Table 4. The Effect of Personal and Family Background, Academic Ability, and
Childhood Consumer Experience on Financial Literacy Scores of College
Students in Malaysia 52

CHAPTER 3:

Table 1. Sample Characteristics 95

Table 2. Correlations among Observed Variables in Model 96
Table 3. Estimated Path Coefficients in The Final Structural Model (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, encouragement, and expertise throughout this project.
My sincere thanks also go to Dr. Maurice 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.
 1

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 majority of students, the first year of college is

viewed as an important transitional stage in which parental supervision and oversight are

reduced and students begin to achieve some degree of financial autonomy. When they go to

college, many students are confronted with financial responsibilities such as paying bills,

creating a budget, and using credit for the first time in their lives. How well they cope with

these challenges depends in part on the financial 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 college students are inadequately prepared for

these new burdens and that they often poorly manage their finances (Markovich & DeVaney,

1997; Chen & Volpe, 1998; Beal & Delpachitra, 2003; Murphy, 2005). Colleges and

universities have a unique opportunity to encourage the development of sound financial

practices among students through coursework, workshops, and other education experiences

(Xiao, Shim, Barber, & Lyons, 2007). Increasingly, researchers are beginning to examine

students’ knowledge about finances to determine how they acquire financial management

skills and to identify the best methods for teaching these skills, with the goal of helping them

achieve financial well-being (Shim, 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 & Brinkman 1992; Danes, Huddleston, & Boyce, 1999; Henry,

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

 2

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
 3

literacy and financial well-being of young adults. The data employed in this study were

collected from students in public and private colleges in Malaysia. The data allow for

examination of the effects of personal and family background, academic ability, and

childhood consumer experience on college students’ financial literacy and provide a unique

opportunity to investigate the determinants of financial literacy and financial well-being

among college students. Improved understanding of the acquisition of financial knowledge

was intended to provide additional insight into the relationship between financial knowledge

and financial well-being. Two articles were prepared for publication in this dissertation; each

with the overarching goal of contributing to the literature on college 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 second research article

follows in Chapter 3 and is titled, “A Conceptual Model of Perceived Financial Well-Being:

Early Childhood Consumer Experience, Financial Socialization, and Financial Knowledge

Pathways”.

The first article, Chapter 2, addresses the effects of childhood consumer experience on

financial literacy. Prior research suggests that college students lack sufficient knowledge in

personal finance (Chen & Volpe, 1998; Jorgensen, 2007; Mandell, 2008). In addition, current

literature suggests that learning personal finance at an early age is important; perhaps more

important than previously hypothesized (Martin & Oliva, 2001; Koonce, Mimura, Mauldin,

Rupured, & Jordan, 2008). Thus, what college students have learned and experienced in the
 4

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
 6

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
 7

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.
 8

Financial knowledge is an integral component of financial literacy, but not identical

to financial literacy (Huston, 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) skill 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 literacy: “a measure of the degree to which one understands key

financial concepts and possesses the ability and confidence to manage personal finances

through appropriate, short-term decision making and sound, long-range financial planning,

while mindful of life events and changing economic conditions” (p. 284).

An Overview of Studies Conducted on the Financial Knowledge and Financial Literacy of

College Students
Most previous studies on financial literacy and or financial knowledge have focused

on high school students or adults (Danes et al., 1999; Hilgert, Hogarth, & Beverly, 2003;

Mandell, 2008). Seventeen empirical studies on the financial literacy 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 first reported study (Danes & Hira, 1987)

investigated 323 Iowa State University students’ knowledge about credit cards, insurance,

personal loans, financial record keeping, and overall financial management. The study

indicated that in general college students had limited financial knowledge but that males,

upper classmen, and married students were more knowledgeable than females, lower

classmen, and single students in two areas of personal finance (insurance and personal loans).
 9

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
 10

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.
 11

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
 12

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
 13

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
 14

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
 15

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
 16

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,
 17

cash management, credit management, risk management, capital accumulation, and

retirement/estate management as the perceived indicators of financial well-being. Overall

satisfaction with one’s financial situation is often used as a measure of financial well-being

(Joo, 2008). Conversely, financial well-being often arises from overall satisfaction with one’s

financial situation (Van Praag et al., 2003). In a recent study by Malone, Stewart, Wilson,

and Korsching (2010), financial well-being was measured in four domains: buying behavior,

perception of current finances, perception of financial future, and attitude toward long-term

care insurance.

Prawitz et al. (2006) developed the Incharge financial distress/financial well-being

scale (IFDFW) to measure the level of stress and well-being resulting from one’s personal

financial condition. The IFDFW scale is an eight-item self-report, a subjective measure of

financial distress/financial well-being. This scale has been used to study various groups of

people including adults (Garman, Sorhaindo, Prawitz, O’Neill, Osteen, Kim, Drentea,

Haynes, & Weisman, 2005; Garman & Sorhaindo, 2005) and college students (Copur,

Gutter, Eisen, & Way, 2008). Copur et al. (2008) used the IFDFW scale to measure college

students’ financial well-being. They found that average financial well-being scores differed

significantly by race, marital status, class rank, monthly income from work, work hours, and

type of financial aid received.

Recent studies on college students’ financial behavior have found that credit card debt

is negatively correlated with academic achievement and health (Lyons, 2004; Adams &

Moore, 2007) and positively correlated with decreased financial well-being (Norvilitis et al.,

2006). Financial circumstances such as mismanagement of credit cards and/or accumulated

credit card debt may also have a negative effect on students’ psychological well-being,
 18

interpersonal and family relationships, and chances of being successful in adulthood (Shim et

al., 2009). Little is known about the links between young adults’ financial behavior and their

financial well-being (Shim et al., 2010).

There is significant overlap in the definition and measurement of financial wellness,

financial satisfaction, and financial well-being. No single definition or measurement tool has

yet emerged from the literature, making it difficult for researchers, educators, and policy

makers to draw conclusions or make recommendations about the financial circumstances of

various population subgroups. Additional attention to college students’ financial attitudes

and conditions is clearly warranted.

Consumer and financial socialization

According to Lachance and Choquette-Bernier (2004), many students learn basic

financial knowledge through observation, parental communication, and/or through trial and

error. Consumer socialization research suggests that much of the consumer knowledge and

behavior in adults was learned during pre-adult years through the influence of socialization

agents such as parents, family members, peers, media, school, and religion (Churchill &

Moschis, 1979; Moschis & Moore, 1984). These agents (parents, peers, and media) influence

the knowledge, attitudes, and behavioral development of young people as they become

consumers in the marketplace (Moore, Raymond, Mittelstaedt, & Tanner, 2002). Martin and

Oliva (2001) determined that financial decisions made early in life will affect students’

ability to become financially secure adults. Thus, what college students learn and experience

as children and youth may affect both their knowledge and management of personal finances.

As many studies have found, family, peers, school, and the media are typical sources of

financial information (Fox et al., 2000; Pinto, Parente, & Mansfield, 2005; Koonce et al.,
 19

2008). Financial socialization, according to Danes (1994) is “much more inclusive than

learning to effectively function in the marketplace. It is the process of acquiring and

developing values, attitudes, standards, norms, knowledge, and behaviors that contribute to

the financial viability and well-being of the individual” (p.128).

Pinto et al. (2005) found that college students learned more information about credit

cards from their parents than from any other socialization agent (peers, school, or media).

Lachance and Legault (2007) found that parents are the only significant social sources of

consumer knowledge. It appears that most previous studies have focused on the influence of

parents rather than the influence of peers, school, and the media in predicting college

students’ financial knowledge. In addition, few studies have focused on the role of ethnic

differences in understanding college students’ financial socialization and financial literacy.

Perhaps students from different ethnic or cultural backgrounds are socialized differently and

these differences affect their acquisition of knowledge in personal finance. Additional

attention to family and cultural influences on college students’ financial knowledge and well-

being is needed to illuminate this question.

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CHAPTER 2: CHILDHOOD CONSUMER EXPERIENCE AND THE FINANCIAL

LITERACY OF COLLEGE STUDENTS IN MALAYSIA

A paper published in the Family & Consumer Sciences Research Journal

Mohamad Fazli Sabri, Maurice MacDonald, Tahira K. Hira, and Jariah Masud

Abstract

The purpose of this study was to investigate the impact of personal and family background,
academic ability, and childhood consumer experiences on the financial literacy of college
students in Malaysia. The sample comprised 2,519 students in 11 public and private colleges
in Malaysia. 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. The
childhood consumer experience of discussing family finances with parents has a substantial
positive relationship with financial literacy. Students of Chinese ethnicity, who live on
campus, and who attend private colleges are less likely to be financially literate.

Keywords: Childhood consumer experience, Financial literacy, Malaysian college students

Introduction

This study of college students’ financial literacy is motivated by concern about how

young Malaysians obtain knowledge to handle credit and other important aspects of personal

finances as the Malaysian economy develops. Malaysians have a variety of cultural and

ethnic backgrounds that may affect the process for acquiring financial knowledge from their

families, schools, and through diverse childhood consumer experiences. Obtaining better

knowledge about specific influences on college students’ financial literacy is necessary to

design more effective financial education programs. Hence, the main objective is to

investigate the impact of personal and family background, academic ability, and childhood

consumer experience on financial literacy.

 30

Rapid economic development, since independence in 1957, has brought drastic

changes for young Malaysians, including increased income (Economic Planning Unit, 2006)

and expansion of consumer markets (Department of Statistics Malaysia, 2005). However,

the expansion of consumer credit and recent economic troubles suggest the need for better

household financial management. Consumer credit card use increased from Malaysian

Ringgit (MR) 10.2 million in 2003 to MR 12.8 million in 2006 (Central Bank of Malaysia,

2009a). Data from the Central Bank of Malaysia (2009b) indicated that the numbers of

individuals who declared bankruptcy increased from 11,685 in 2001 to 16,251 in 2004.

Malaysian college students became a lucrative consumer market segment as the

number of students enrolled in tertiary education tripled between 1999 and 2005 (Department

of Statistics Malaysia, 2008). As the standard of living among Malaysians has improved

significantly and stimulated changing lifestyles, college students today are granted greater

freedom from their parents to make their own shopping and consumption decisions

(Kamaruddin & Mokhlis, 2003). Inadequate knowledge of personal finance may increase

conspicuous consumption and lead to poor financial management. According to Bodvarsson

and Walker (2004), and Lyons (2003; 2004) poor financial management can affect students’

academic performance, mental and physical well-being, and even their ability to find

employment after graduation. Previous studies in the United States and other countries have

shown that college students had inadequate financial knowledge and might have been poor

managers of their finances (Markovich & DeVaney, 1997; Chen & Volpe, 1998; Murphy,

2005).

Because the Malaysian consumer market has changed tremendously, the role of

parents for monitoring their children’s consumption habits has become more critical and
 31

parents’ characteristics may also be related to the development of their children’s financial

knowledge and behavior (Clarke, Heaton, Israelsen, & Egget, 2009). Consumer socialization

research suggests that much of the consumer behavior among adults is learned during

preadult years through the influence of socialization agents (Moschis & Moore, 1984). Thus,

what college students have learned and experienced in the past could affect their knowledge

of personal finance much more than is currently understood. Furthermore, Malaysia’s ethnic

diversity and potentially related differences in family experiences suggest a need to

understand the impact of ethnic background on college students’ financial literacy. A

considerable amount of previous research on young Malaysians has been devoted to the

impact of ethnicity on academic achievement (Hashim, O’Neil, & Hocevar, 2002; Ismail &

Awang, 2008), consumer socialization (Kamaruddin & Mokhlis, 2003), and financial

knowledge concerning educational loans (Abu Bakar, Masud, & Md. Jusoh, 2006).

Consumer Socialization Framework

Previous research has emphasized that parents, peers, printed media, television

commercials, and in-school education are the most important agents of consumer

socialization (Moschis, 1987; O’Guin, & Farber, 1989; Chan & McNeal, 2006). Therefore,

personal and family background, childhood consumer experience (savings account

experience, and discussion of family financial matters with parents), and student

characteristics may have significant impacts on financial literacy as an outcome among

college students in Malaysia. Presumably, the earlier the students’ involvement in financial

activities, the better the impact for their financial knowledge. The student characteristics in

this study include academic achievement (grade point average [GPA]) and year in college,

which indicate cognitive ability and are expected to be positively related to financial literacy
 32

scores because that ability may improve test performance. Personal and family background

includes gender, ethnicity, and place of origin, type of college, students’ residence, and

parents’ education.

Literature Review

Not much is known about financial knowledge and behaviors among young

Malaysians. Therefore, this discussion focuses on literature about college students’ financial

literacy elsewhere and what has been learned from two studies of Malaysian adolescent

consumers.

Childhood Consumer Experience

Danes (1994) investigated parental perceptions of children’s financial socialization.

Parents were asked at which age they would share information or become involved with the

child in several financial activities. For complex financial activities (such as knowing about

insurance, and having their own checking account) most parents believed that children

should be engaged at the age of 15 to 17. More than half of the parents thought children at

age 18 or older were ready to be responsible for their own checking account, credit cards, and

other personal loans. Hira (1997) studied financial attitudes, beliefs, and behavior of college

students from three personal finance classes, supplemented by a state-wide sample for Iowa

in the United States. Hira found that individuals express different money behaviors and

beliefs because of the different ways in which money was handled in their family. The

majority of students indicated that their mother and father were the most important source of

influence on money beliefs and attitudes. About one third of the students identified their

friends as a strong influence on their money behavior. In terms of family money

 33

communication, about two thirds of the students said that finances were never discussed with

children in their families.

Personal and Family Background.

Past research has commonly found that male college students had higher levels of

financial literacy than their female counterparts (Markovich & DeVaney, 1997; Chen &

Volpe, 1998, 2002). Murphy (2005) found that undergraduate business majors were more

financially literate than nonbusiness majors and that those who were from more educated

families scored better than those from less educated backgrounds. The Jump$tart College

Survey (Mandell, 2008) also found that financial literacy was monotonically related to

parents’ education levels. Other research has demonstrated the importance of controlling for

class year (Avard, Manton, English, & Walker, 2005) and the impact of academic abilities to

understand how financial literacy varies (Chen & Volpe, 1998; Murphy, 2005).

Abu Bakar et al. (2006) examined students’ knowledge and attitudes regarding

educational loans in Malaysia. They found that Chinese students and students from a rural

area, and those in their senior year tended to have higher mean scores about educational loan

knowledge. Kamaruddin and Mokhlis (2003) conducted a study of 934 adolescents in

Malaysia on the topic of consumer socialization, sociostructural factors, and decision-making

styles. They found that compared to Malays, Chinese youngsters were less likely to interact

with parents and peers. Their findings also suggest that Chinese adolescents were less brand-

conscious, fashion-conscious, and recreational-oriented toward shopping activities than their

Malay counterparts. Adolescents who lived in suburban and urban areas were more likely to

be brand-conscious and fashion conscious. Hence, college students in more urbanized areas
 34

and from Malay ethnicity background may be less concerned about financial knowledge for

goals such as saving, versus consumption for brand and fashion purposes.

Hypotheses

Some general hypotheses are appropriate for this exploratory study:

Hypothesis 1: Financial literacy will be associated with ethnicity, gender, students’ residence,

type of college, place of origin, and parents’ education.

Hypothesis 2: Students with greater academic achievement and more class years completed

will have greater financial literacy.

Hypothesis 3: Financial literacy will be positively related to childhood consumer experience,

and the earlier the experience the greater financial literacy.

Ethnicity is a predictor variable in the list for hypothesis testing because that

characteristic may represent different family cultural practices and market orientations that

influence financial knowledge. Including ethnicity helps to control for other unobservable

characteristics that are associated with aspects of family background or experience prior to

and during college. For example, Grable and Joo (2006) discussed racial differences in

exposure to wealth accumulation and structural barriers in education for African-Americans

as reasons why that ethnic group of college students differs from non-Hispanic whites with

respect to credit card debt and related financial behaviors. Although there is one study that

found ethnicity differences with respect to college students’ knowledge about student loans

(Abu Bakar et al., 2006), the reasons for that are unclear.
 35

Methods

Sample

After receiving permission to conduct the study, a list of all public and private

colleges in Malaysia was obtained. From the list, five public colleges and five private

colleges were selected at random. In addition to the 10 randomly selected colleges,

University Putra Malaysia included in the study to assist the authors for planning educational

programs. The survey consisted of 25 true and false questions concerning financial goals,

financial records, saving, investment, retirement, banking system, time value of money, wills,

insurance, educational loan, and general knowledge on personal finance. The questions are

shown in the Appendix 1.

For each college, 350 students were selected randomly using the list of names

obtained from the student affairs office. The number of questionnaires distributed to the 11

colleges was 3,850. A total of 2,519 completed and usable questionnaires were returned by

the students resulting in a 65% response rate. The average responses rates were: for the six

public colleges, 72.8%, and for the five private colleges, 56.6%.

The main sources of missing data that caused reduction from the 2,519 respondents to

an analysis sample size of 1,865 were analyzed. The results show that the most important

reason for missing data is the dependent variable; 473 respondents did not answer all of the

25 questions about financial knowledge. Other variables which had high frequencies of

missing data include childhood consumer experience reports. For example, 204 cases have

missing data about discussing finances with parents.

 36

Participants

Of the 2,519 students who responded to the survey, 40.4% are male and 59.6% are

female students. The ethnic composition is Malay (67.2%), Chinese (21.6%), Indian (5.0%),

and others (5.3%). The mean age of the respondents is 20.9 years with standard deviation of

2.99. A majority of the students live on campus (71.7%). Most of the students report that they

are in a public college (60.7%), and from a rural area (51.3%). About one third of the sample

was sophomores. The average GPA is 3.00. More than half of the students in the sample are

not employed (59%) and nearly all of them are not married (98.4%). The students report that

78% of their fathers and 70% of their mothers have a secondary education, or better (28% of

fathers are college educated, and 22% of mothers). Regarding parental marital status, 55% of

students report that their parents are married and living together, 21% report their parents are

divorced, and 12% report their sole parent is a widow or widower.

Measurement of Variables

The measurements of all variables are defined in Table 1, which also provides

descriptive statistics. The dependent variable, financial literacy, is measured by testing for

correct answers on 25 questions concerning financial goals, financial records, saving,

investment, retirement, banking system, time value of money, wills, insurance, education

loan, and general knowledge on personal finance. The average score is 11.77, with a standard

deviation of 3.66. The Cronbach’s alpha statistic from reliability analysis of the financial

literacy score is .70. Because most of the independent variables are qualitative

characteristics, all of them were specified as categorical variables for ease of comparing their

effects as predictors. Thus, the descriptive statistics for the independent variables are shown

as category percentages.
 37

Respondents were asked at what age they became involved in financial activities,

which included having their own saving account, and discussing financial matters with

parents. Response categories about when each of these financially-related activities began

were: < 7, 7-12, 13-15, 16-17, > 18 years, and “never”. For both childhood consumer

experience variables, two dummy variables were created to measure the timing of each

experience relative to the age at which the most respondents began that experience. The

reference group and most frequent category for when saving accounts began was age 7-12

years. The most frequent category for discussing finances was “never”.

Analysis Procedures

T-tests were used to examine the significance of mean differences in financial literacy

for predictors with two categories (e.g., gender) and analysis of variance to test for literacy

mean differences with multiple category variables. Test of hypotheses were obtained from

ordinary least squares multiple regressions in a step-wise procedure. First, the personal and

family background variables were used to predict financial literacy. Second, the academic

abilities variables were added as predictors while continuing to control for personal and

family background. In the final stage the childhood consumer experience variables were

added.

Results

The average score on the 25-item test of financial knowledge is 11.77, that is, less

than half of the questions were answered correctly. Tables 2 and 3, respectively, show the

results of bivariate t tests and analysis of variance for financial literacy scores. Students of

Chinese ethnicity have lower mean scores than Malay, Indian, and the other ethnic groups,

which is not consistent with a previous finding that Chinese students were more likely to
 38

have greater knowledge about educational loans (Abu Bakar et al., 2006) and were also

better in mathematics achievement (Ismail & Awang, 2008). The bivariate results also

demonstrate that students from private colleges have a lower mean score for financial literacy

than students from public colleges. First year students and those students who never had an

experience discussing finances with parents are also more likely to have lower financial

knowledge scores. To summarize, the bivariate tests reveal that Chinese students, those from

private colleges, freshmen, and those who had never discussed finances with parents have

less financial knowledge. Financial literacy is not different with respect to gender, place of

origin, students’ GPA, residence (on- or off-campus), parents’ education, and savings

account experience.

Table 4 shows the results from the three multiple regressions. The first model

included only personal and family background. In the second model, academic ability was

added, and in the third model, childhood consumer experience was added. The table reports

the results for standardized regression coefficients (βs). As shown in column 1, the regression

model for personal and family background influences is significant, explaining 2.7% of the

total variance in financial literacy (R2 =.027, F=3.438, p<.001). Financial literacy is

significantly associated with: ethnicity, students’ residence, and type of college. Chinese

ethnicity has a greater effect size than for living on campus and public college. However, the

negative coefficient indicates that Chinese ethnicity is associated with lower financial

literacy. Students who lived on campus are more likely to have a low level of financial

literacy. Public college students have greater financial literacy than students from private

colleges. Gender, parents’ education, and rural versus urban place of origin are not

significant (and that remained the case in subsequent regressions).

 39

The second regression focusing on academic ability to explained 3.1% of the total

variance in financial literacy (R2 =.031, F=2.988, p<.001). Four variables are significant

(p<.05) or marginally significant (p<.10). The significant variables are ethnicity, students’

residence, type of college, and year in college. The academic ability variables do not improve

explanatory power very much, but year in college (i.e., freshman) is marginally significant

indicating that freshman students have lower financial literacy compared to sophomores.

There is no effect of GPA on financial knowledge. Type of college is marginally significant,

but the effects of ethnicity and campus residence are very similar to the first regression

estimates for those variables.

The final regression that includes childhood consumer experience is significant

overall, explaining 4.0% of the total variance in the financial literacy scores (R2 =.040,

F=3.160, p<.001). Significant and marginally significant predictors of variance in financial

literacy include ethnicity, students’ residence, and type of college, saving account

experience, and having experience discussing finances with parents. Adding childhood

consumer experience predictor variables does improve explanatory power for financial

literacy. However, none of the academic ability variables are significant in this final stage

regression. Students who have experience discussing finances with parents are associated

with greater financial knowledge than those who never had that experience. The estimated

effect size of discussing finances with parents at a later age (> 18 years, β= .093) is third in

rank order of magnitude, after Chinese ethnicity (β= -.163) and nearly as large as for staying

on campus (β= -.097). Students who never had their own saving account and began to save

with an account after age 13 have less financial knowledge (β= -.045, p<.10) than those who

began saving between the ages 7-12. Ethnicity is a strong predictor of financial literacy with
 40

a negative coefficient indicating that Chinese students are associated with lower financial

knowledge. Students’ residence was significant demonstrating that students who stay on

campus have less financial knowledge. Type of college is marginally significant indicating

that public college students in Malaysia have greater financial knowledge.

Discussion

The descriptive analysis of financial literacy of Malaysian students reveals that

students of Chinese ethnicity, students in private colleges, freshmen, and students who never

discussed finances with parents in their childhood have less financial knowledge. The final

regression provides confirmation for Chinese ethnicity, college type, and discussing finances

with parents. An additional multivariate finding is that on-campus students have less

financial knowledge. There is no multivariate evidence of gender, place of origin, or

socioeconomic disadvantage for financial literacy.

The results for type and timing of childhood consumer experience demonstrate that

discussing family finances with parents is a positive influence on financial literacy, which

suggests that more involvement with important aspects of family finance could provide better

knowledge and experience about money management among Malaysian college students. A

study by Peng, Bartholomae, Fox, and Cravener (2007) found that an investment knowledge

score improved if the respondents held a bank account before age 18. This study’s

multivariate results are somewhat similar. Those who began a savings account between the

ages of seven and 12 have greater financial knowledge than those who began that practice

after age 13 or have not yet opened a savings account (a marginally significant result).

The estimated effect of Chinese ethnicity is negative and greater in absolute

magnitude than any of the other predictor variables. It was not expected that ethnicity would
 41

be as important as it is, nor that the effect for Chinese ethnicity would be negative because

Chinese students in Malaysia have been found to have higher mathematical achievement

(Ismail & Awang, 2008), and they were also found to know more about educational loans

(Abu Bakar et al., 2006).

College students who lived off-campus are more likely to have greater financial

knowledge. It is reasonable to suggest that this association occurs because off-campus

students probably have more financial responsibilities and liabilities. For example, costs

associated with on-campus living (rent and utilities) are typically deducted from their

educational loans or scholarships.

Students from public colleges are more likely to have greater financial knowledge.

Under Malaysia’s New Economic Policy, public universities are required to reserve an ethnic

quota of at least 60% of university places for Malays and others of indigenous origins which

accounts in part for the fact that the majority of students in public college came from low or

middle-income families (Joseph, 2008). Perhaps students from those less well-off families

have greater financial literacy because financial strain led their parents to emphasize the

importance of finances for a happy life. In contrast, most of the private college students came

from upper-income families who provide for more of their typical expenditures so that the

private college students may not be as motivated to learn about financial management. That

stratification of college type according to family income may also explain why parents’

education is not a significant predictor of financial literacy.

 42

Conclusion

Policy Significance

This study provides evidence that financial illiteracy is a problem among college

students in Malaysia. The average score on the 25-item test of financial knowledge is < 12,

that is, less than half of the questions were answered correctly. Multivariate analysis

demonstrated that financial illiteracy is concentrated among Chinese students, those who live

on campus, and students at private colleges. Those results may help to identify student

population subgroups that would benefit the most from educational programs about money

management. These are important findings because a typical assumption would be that

socioeconomic advantage would be associated with greater financial socialization. Thus,

Malaysian private, as well as public, college administrators and faculty leaders should

consider how to monitor and improve financial knowledge for their students. Clearly, the

main educational policy implication for Malaysia is that all kinds of college students have

deficits in their financial knowledge and need better financial education.

The results may also be beneficial to financial counselors who work with students on

a one-to-one basis at various stages of a student’s study program. Malaysian colleges could

take a more holistic approach when addressing the financial needs of their students. For

example, student organizations and parents could contribute to students’ financial

knowledge, along with on-campus residence managers and campus service offices such as

student affairs and financial aid.

The focus here on childhood consumer experience also has implications for

Malaysian family life educators and parents. Continuous education from parents could be

important for newly affluent young adults in Malaysia even though they are entering a life
 43

stage that brings more financial independence. Although the reasons why Chinese college

students tend to have less financial knowledge are unknown, that result indicates Chinese

parents and youth educators should be informed that they need to encourage their children to

learn more about personal financial management. In support of this recommendation, it is

noteworthy that Kamaruddin and Mokhlis (2003) found that Chinese adolescents were less

likely to interact with their parents and peers than Malay youngsters.

Study Limitations

The financial literacy instrument was developed primarily for Malaysian students,

which makes it difficult to compare results directly to other tests of financial knowledge.

Information about childhood consumer experience was self-reported. Thus, there is a need

for corroborative evidence from parents and other educators in future studies. The

explanatory power of the financial literacy regressions is statistically significant but quite

low-explaining < 5% of the variance in total scores. Hence, additional information is needed

to provide a better description of how students learn about finances for more specific

guidance for educators and policy makers. It may be particularly useful to include the work

experience and sources and amounts of the students’ current incomes (Chen & Volpe, 1998).

Specific information about whether the students have had formalized consumer or financial

education would also be valuable (Bernheim, Garret, & Maki, 2001; Peng et al., 2007).

Finally, studies of college student and young adult financial behavior (e.g., Xiao, Noring, &

Anderson, 1995) have shown that questions about experience with consumer debt can serve

as good indicators of informal learning. Conducting studies with Malaysian adolescents to

learn about their consumer financial experiences could be more informative than college

students’ retrospective reports about childhood experience. Because there is substantial

 44

variation in the age at which Malaysia’s college students obtained consumer experience,

further research is also needed to learn more about how that timing affects financial literacy.

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 48

Figure 1. Theoretical Framework

Personal and Family

Background
• Gender
• Ethnicity
• Place of origin
• Type of college
• Student residence
• Parents education

Academic Ability
• GPA Financial Literacy
• Year in college

Childhood Consumer
Experience
• Owned savings
account
• Received an
allowance
• Discussed finances
with parents
 49

Table 1. Measurement and Descriptive Statistics of College Students in Malaysia

(N = 2,519)

Dependent Variable
Financial literacy Correct answers for 25 financial knowledge questions: M =
11.77, SD = 3.66
Independent Variables (%)
Personal and Family Background
Gender Female =1, otherwise 0 59.6
Ethnicity Malay = 1, otherwise 0 67.2
Chinese = 1, otherwise 0 21.6
Indian = 1, otherwise 0 5.0
Other (reference group) 6.2
Place of origin Rural =1, otherwise 0 51.3
Type of college Public university = 1, otherwise 0 60.7
Student’s residence Stay on campus = 1, otherwise 0 71.7
Father’s education level Elementary = 1, otherwise 0 19.7
Secondary =1, otherwise 0 43.9
College degree =1, otherwise 0 28.2
Graduate = 1, otherwise 0 5.7
No formal education (reference group) 2.5
Mother’s education level Elementary = 1, otherwise 0 23.5
Secondary =1, otherwise 0 48.4
College degree = 1, otherwise 0 20.0
Graduate = 1, otherwise 0 1.5
No formal education (reference group) 6.6
Academic ability
Grade Point Average < 2.50 (reference group) 24.0
Grade Point Average 2.50 – 3.00 = 1, otherwise 0 72.4
Grade Point Average >3.00, = 1, otherwise 0 3.6
Year in college
Freshman = 1, otherwise 0 29.5
Sophomore (reference group) 32.9
Junior = 1, otherwise 0 26.2
Senior =1, otherwise 0 11.4

Childhood Consumer Experience

Own saving account < 7 years = 1, otherwise 0 23.2
Own saving account 7-12 years (reference group) 37.0
Own saving account > 13 years or never =1, otherwise 0 39.8
Discuss finances with parents < 7 to 17 =1, otherwise 0 38.0
Discuss finances with parents > 18 = 1, otherwise 0 32.5
Discuss finances with parents never (reference group) 29.5
 50

Table 2. T-tests of Differences in Financial Literacy Scores of College Students in Malaysia

(N = 2,519)

Personal and Variables p value T

Family Background
Gender Male 11.62 Female 11.87 .15 -1.45
Place of origin Rural 11.89 Urban 11.65 .14 1.49
Type of college Public 11.96 Private 11.47 .00** 2.92
Student’s residence On campus 11.78 Off campus 11.74 .86 1.77
** p < .01.
 51

Table 3. Analysis of Variance for Financial Literacy Scores of College Students in

Malaysia (N = 2,519)

Variables Mean differences p value F value

Personal and family background
Ethnicity ab bc bd
a
Malay 11.98 .00*** 10.55
b
Chinese 10.96
c
Indian 12.28
d
Other 12.19
Father’s education level
No formal education 11.96 .99 .07
Elementary 11.71
Secondary 11.76
College degree 11.73
Graduate degree 11.75
Mother’s education level
No formal education 11.88 .99 .06
Elementary 11.73
Secondary 11.78
College degree 11.70
Graduate degree 11.77
Academic ability ab
a
Grade Point Average < 2.50 11.71 .06+ 2.76
b
Grade Point Average 2.50 – 3.00 11.84
c
Grade Point Average > 3.0 10.98
Year in college ab ac
a
Freshman 11.43 .05* 2.62
b
Sophomore 11.94
c
Junior 11.93
d
Senior 11.68
Childhood consumer experience
Own savings account
< 7 years 11.75 .13 2.04
7 -12 years 11.99
Never and > 13 years 11.63
Discuss finances with parents ac bc
a
<7 to 17 11.88 .00*** 9.38
b
> 18 years 12.17
c
Never 11.28
Notes: The different pairs of letters represent the means of the groups (e.g., aMalay, bChinese,
c
Indian, dOther) that were significantly different from each other. For example, the letters ab show
that the average for Malaysian students was significantly different from the average score for Chinese
students.
+ p <.10. * p < .05. ** p < .01. *** p < .001.
 52

Table 4. The Effect of Personal and Family Background, Academic Ability, and
Childhood Consumer Experience on Financial Literacy Scores of College Students
in Malaysia (N = 1,865)

Variables Model 1 Model 2 Model 3

b β b β b Β
Personal and family background
Malay ethnicity -.02 -.37 -.01 -.24 -.02 -.34
Chinese ethnicity -.17 -3.60*** -.16 -3.43*** -.16 -3.44***
Indian ethnicity -.00 -.07 -.00 -.02 -.00 -.09
Stay on campus -.09 -3.27*** -.09 -3.21*** -.10 -3.44***
Public college (vs. private) .06 2.34** .05 1.83+ .05 1.74+
Academic Ability
Grade point average (>3.0) -.02 -.64 -.02 -.77
Grade point average (2.5-2.99) .02 .75 .02 .69
Reference group: <2.50
Freshman -.05 -1.81+ -.04 -1.47
Junior -.01 -.40 -.01 -.40
Senior -.03 -1.34 -.04 -1.40
Reference group: Sophomore
Childhood Consumer Experience
Own saving account (< 7 years) -.02 -.67
Own saving account (> 13 years or never) -.05 -1.74+
Reference group: 7-12 years
Discuss finances with parents (<7 to 16-17 years) .07 2.46*
Discuss finances with parents (>18 years) .09 3.37***
Reference group: never
R2 .03 .03 .04
Adjusted R2 .02 .02 .03
F value 3.44*** 2.99*** 3.16***
Notes: Other (nonsignificant) predictors included parents’ education, gender, and place of
origin.
+
p < .10. *p < .05. **p < .01. ***p < .001.
 53

Appendix 1. Financial Literacy Test True-False Questions

Statement True False

1. Buying goods on credit will reduce purchasing power in future
2. The increase of the price of goods will reduce buying power
3. Balance sheet shows your financial status
4. Credit card holder can spend without limit
5. We overspend when using savings to buy daily necessities
6. The value of money can double after 10 years
7. Savings is extra income after deducted expenses
8. Interest will influence the future value of savings
9. Income statement shows income and the expenses of a family in a
specific period
10. Will is unnecessary for a family
11. Buying insurance is the best investment
12. Savings account interest exceeds fixed deposit interest
13. Life insurance protects policy holder from financial burden
14. The longer the education loan is due the greater cost of financing it
15. Unregistered business needs to pay income tax
16. Owning a credit card will increase one’s purchasing power
17. One can spend more than 20% of their monthly income for
installments
18. Using credit card to get cash has the lowest finance charge
19. All types of investments are profitable
20. We can borrow to invest
21. Motorcyclist do not need insurance
22. Employment Provident Fund (EPF)a contribution are sufficient for
retirement
23. All Muslims must pay zakatb
24. In Malaysia we only have a conventional banking system
25. Family needs to save 3-month income for emergencies
Notes: a. The Malaysian Employees Provident Fund (EPF) Act of 1991 grants employees’
retirement benefits that are managed via a body that is intended to manage their savings.
b.
Paying a small percentage of one's surplus wealth to charity for poor and needy Muslims.
 54

CHAPTER 3: A CONCEPTUAL MODEL OF PERCEIVED FINANCIAL WELL-

BEING: EARLY CHILDHOOD CONSUMER EXPERIENCE, FINANCIAL
SOCIALIZATION, AND FINANCIAL KNOWLEDGE PATHWAYS

A paper to be submitted to the Journal of Financial Counseling and Planning

Mohamad Fazli Sabri, Christine C. Cook, Mack Shelley,

Tahira K. Hira, Steve Garasky, and Pat Swanson

Abstract

The issue of financial well-being among college students has received increasing attention.
The purpose of this study is to examine the relationships between personal and family
backgrounds, academic ability, early childhood consumer experience, financial socialization,
financial knowledge and perceived financial well-being of college students. Data were
collected from eleven public and private universities across Malaysia and the sample consists
of 2,219 college students. Structural equation modeling indicated that early childhood
consumer experiences such as savings habits contribute to students’ financial well-being
(money saved, current financial situation, and financial management skills). Financial
socialization agents, for example, through parents and religion sources could increase college
students’ financial well-being. Financial knowledge was related to financial well-being.
Overall, implications and recommendations for future research, teaching, and public policy
are also provided for parents, college administrators, counselors, and educators.

Keywords: Financial well-being, early childhood consumer experience, financial

socialization, financial knowledge

Introduction

College students are often considered a high-risk group when it comes to financial

stability. Students often borrow to fund their college education, meaning that recent college

graduates often carry a considerable debt load at a time when they are earning entry level

salaries (Leach, Hayhoe, & Turner, 1999). Besides student loans, college students sometimes

accumulate considerable credit card balances along with car loans and other forms of debt.

Previous studies have shown that many college students have low levels of financial

knowledge (Chen & Volpe, 1998; Henry, Weber, & Yarbrough, 2001; Murphy, 2005;
 55

Lusardi, Mitchell, & Curto, 2010). A low knowledge of personal finance among college

students is expected to be associated with ineffective financial behaviors, including a lack of

savings (Sabri & MacDonald, 2010), not keeping financial records (Chen & Volpe, 1998),

and greater credit card debts (Norvilitis, Osberg, Young, Merwin, Roehling, & Kamas,

2006). According to Varcoe, Martin, Devitto, and Go (2005), poor financial habits acquired

at a young age may carry on into adulthood and cause financial problems, in some cases

serious ones, without some type of effective educational intervention. Norvilitis and Santa

Maria (2002) confirmed that many students enter college with no experience with budgeting

or personal finances, and are liable to use credit unwisely. This combination of high debt,

low income, and low levels of financial knowledge may adversely affect college students’

financial well-being (Leach et al., 1999).

Quality of college life is a sub-domain of quality of life, and refers to the overall

feeling of satisfaction students experience in college (Sirgy, Grezeskowiak, & Rahtz, 2007).

An individual's feelings about his or her financial security and capability have appeared in

previous studies as a threat to life satisfaction or an important contributor to life satisfaction

(Xiao, Tang, & Shim, 2009; Shim, Xiao, Barber, & Lyons, 2009). Chow (2005) conducted a

study on life satisfaction among university students in Canada and found that the five areas

with which students were least satisfied were financial security, job situation, school

performance, leisure and recreational activities, and spiritual life. Several other studies have

shown that satisfaction with personal financial affairs is an important component in overall

life satisfaction (Hira, 1997; Joo & Grable, 2005; Shim et al., 2009). Often financial

satisfaction and financial well-being have been used interchangeably to mean a person's

feeling about his or her current financial situation or condition; more recently the term
 56

"financial well-being" has become preferred among investigators (Joo, 2008; Shim et al.,

2009).

Studies show that poor financial management can affect more than students’ finances.

Poor financial management can also impact academic performance, mental and physical

well-being, and even the ability to find a job after graduation (Lyons, 2003; 2004). Current

literature in consumer socialization has consistently found that children first learn about

money at home, and that their parents are the primary source of financial knowledge and

skills (Bowen, 2002; Chen & Volpe, 2002; Jump$tart Coalition, 2006; Koonce, Mimura,

Mauldin, Rupured, & Jordan, 2008). Consumer socialization is defined as the process “by

which young people acquire skills, knowledge and attitudes relevant to their functioning in

the marketplace” (Ward, 1974, p.2). However, there is little research about the influence of

peers, school, religion, and media specifically on students’ financial knowledge because most

of the research has focused more on the influence of parents. Because college students may

bring their heavy debt and financial insecurity with them into adulthood, understanding

financial well-being among college students can help educational loan providers, financial

counselors, college administrator, and parents to better understand students' current and

future financial challenges and needs (Leach, Hayhoe, & Turner, 1999). Few previous studies

have examined the associations between early childhood consumer experiences, financial

socialization, and financial well-being among college students. This study fills this research

gap by testing a conceptual model of perceived financial well-being among college students

in Malaysia. A better understanding of the financial development process from childhood

through college life will, we hope, yield a better explanation and comprehension of the

factors that influence students’ financial well-being.

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Theoretical Framework

Social Learning Theory emphasizes the role of both cognitive and environmental

influences in human development. This theory explains how individuals learn behavior.

Bandura (1969) says that children learn by observing the behaviors of others and imitating

and modeling their behavior. Authors in consumer-related fields have employed Social

Learning Theory in their investigations to explain compulsive behavior (Valence, D’Astous,

& Fourtier, 1988), financial behavior (Hira, 1997; Martin & Bush, 2000; Gutter, Garrison, &

Copur, 2010), and children’s’ consumer socialization (Chan & McNeal, 2006). Consumer

socialization draws heavily from Social Learning Theory to understand the development of

consumer behavior. According to McNeal (1987) and Moschis (1987), socialization refers to

the process by which individuals acquire the knowledge, skills, and value sets that enable

them to become contributing members of groups and of society. Socialization begins in

childhood and continues, to some extent, throughout one’s lifetime (Moschis, 1987; McNeal,

1987).

Previous research has identified parents, peers, printed media, television

commercials, and in-school education as the most important agents of consumer socialization

(Ward, 1974; Moschis & Churchill, 1978; Moschis, 1987; O’Guin & Farber, 1989). Personal

and family background, academic ability, early childhood consumer experience, financial

socialization, and financial knowledge may also influence a student’s perceived financial

well-being. The predicted determinants of perceived financial well-being are illustrated in

Figure 1. The model portrays direct effects between personal and family background

variables (gender, ethnicity, type of college, student’s residence, and parent’s education) and

perceived financial well-being. In addition, academic ability variables (grade point average
 58

[GPA] and class rank), and childhood consumer variables (opened a savings account,

received an allowance, and discussed finances with parents) are predicted to have directs

effects on perceived financial well-being. Financial socialization and financial knowledge

also are expected to have direct effects on financial well-being (Cude, Lawrence, Lyons,

Metzger, LeJune, Marks, & Machtmes, 2006). Figure 1 also illustrates indirect effects from

these variables.

Hypotheses

1. Students’ personal and family backgrounds have a significant direct effect on

perceived financial well-being.

2. Those students with higher GPAs and with more years at university (related to

academic ability) score higher on perceived financial well-being.

3. The influence of early childhood consumer experience on perceived financial well-

being is mediated by financial socialization and financial knowledge.

4. Financial knowledge directly and positively impacts perceived financial well-being.

5. Parents have a greater influence than peers, school, religion, and media on college

students’ financial knowledge.

6. The influence of financial socialization on perceived financial well-being is mediated

by financial knowledge.

Literature Review

Researchers have reported that a number of variables appear to influence financial

well-being or financial satisfaction. Among the most common are demographic and

socioeconomic characteristics such as gender, ethnicity, age, income, education, and marital

status (Hira & Mugenda, 1999a, 1999b; Leach, Hayhoe, & Turner, 1999; Joo & Grable,
 59

2004). For example, it has been suggested that financial well-being is positively related to

age, income, and education. Research indicates that other variables such as financial behavior

(Hira & Mugenda, 1999b, Joo & Grable, 2004), financial attitudes (Grable & Lytton, 1998),

and financial knowledge (Joo & Grable, 2004; Shim et al., 2009) can also affect financial

well-being. Recent studies on the financial well-being and satisfaction of college students

found gender, age, ethnicity, and parental income (Xiao et al., 2009; Shim, Barber, Card,

Xiao, & Serido, 2010) were all positively related to financial well-being or financial

satisfaction.

Academic ability is defined as the degree of competence to perform scholastic or

educational activities (http://www.education.com/, n.d). Prior studies suggest that students’

academic abilities have a positive impact on their life satisfaction and success (Chow, 2005).

The most common indicators of academic ability (GPA and class rank) have been used to

predict financial knowledge/literacy (Chen & Volpe, 1998, 2002; Xiao, Serido, & Shim,

2010; Sabri, MacDonald, Hira, & Masud, 2010) and financial satisfaction/well-being (Xiao

et al., 2009; Shim et al., 2009).

Early Childhood Consumer Experience

The results for type and timing of early childhood consumer experience demonstrate

that discussing family finances with parents is a positive influence on financial knowledge.

Recently published research showed that involvement with important aspects of family

finance improved knowledge and experience about money management among Malaysian

college students (Sabri et al., 2010). The results confirmed previous findings which reported

that the more parents talked about money matters with their children, the more

knowledgeable the children felt about personal finance as college students (Shim et al.,
 60

2009). Peng, Bartholomae, Fox, and Cravener (2007) examined the impact of personal

financial education delivered in high school and college on students’ investment knowledge

and savings rate. They found that if respondents held a bank account before age 18 they were

more likely to have greater investment knowledge. Sabri et al. (2010) found that financial

knowledge scores improved if respondents began a savings account between the ages of

seven and 12 compared to those who did so after age 13 or had not yet opened a savings

account. Another study by Kotlikoff and Bernheim (2001) found that individuals who had an

allowance, bank account, or investment when they were children saved more of their income

as adults.

Financial Socialization

Ward (1974) defined financial socialization as the “process by which young people

acquire skills, knowledge, and attitudes relevant to their effective functioning as consumers

in the marketplace” (p. 2). However, Danes (1994) gives a broader definition, as “the process

of acquiring and developing values, attitudes, standards, norms, knowledge, and behaviors

that contribute to the financial viability and well-being of the individual” (p. 128). Previous

research has acknowledged that parents, peers, printed media, television commercials, and

in-school education are the most important agents of consumer socialization (Moschis &

Churchill, 1978; Moschis, 1987).

Parents

The most significant influence on children as they learn consumer behavior

patterns is the parents (Caruana & Vasallo, 2003; Lachance & Legault, 2007; Hayta,

2008). Parents have been shown to be the primary source of financial information for
 61

teens and college students (Pinto, Parente, & Mansfield, 2005; Lyons, Scherpf, &

Roberts, 2006; Peng et al., 2007). Lyons et al. (2006) found that the majority of

college students (76.7%) indicated that they had gone to their parents for financial

information. Bowen (2002), in a study of financial knowledge of teens and their

parents, found the way young people learn about financial matters is likely to be a

combination of intentional and unintentional strategies by parents and other key

adults in their lives. Furthermore, parents play a significant role in shaping a child’s

financial habits and values (Pinto et al., 2005).

Peers

Peers become increasingly important during adolescence as children begin to

wean themselves from parents and become independent beings. The influence of peer

groups and friendships in childhood have long been known to be important in both

emotional and cognitive development (Pressley & McCormick, 2007), but studies

have also shown that peer groups contribute to effective learning about monetary

values and social motivation (Moschis & Churchill, 1978; Hayta, 2008). Interaction

with peers of course makes adolescents aware of fads and fashions that is, new goods

and services in the marketplace and new buying patterns. This greater awareness of

the consumer environment may in turn contribute to active peer interactions about

consumption matters, forming a cyclical or pattern. Lachance and Legault (2007)

found that normative (accepted by a reference group) and informative (source of

information) peer influences were significantly related to students’ attitudes and

behaviors towards consumption.

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School

Children spend more time in school than they do with their parents, starting in

preschool and continuing into their later school years (Hayta, 2008). School as a

social institution by and large reflects the requirements and objectives of society and

provides young people with necessary knowledge and skills in many areas including

consumption. Teachers play as important a role as parents in shaping children’s

consumption behaviors (Ozgen, 1995). Particularly during adolescence, children

spend more time at school with teachers and friends than they do with family.

According to Varcoe, Petersen, Gabertt, Martin, and Costello (2001), information

provided at school regarding economics has an important effect on the child in terms

of acquiring and shaping skills, and behaviors related to consumption.

Mass Media

Mass media such as television, radio, newspaper, and the Internet -- plays an

important role in the socialization of adolescents (Koonce et al., 2008; Varcoe,

Peterson, Swanson, & Johns, 2010) and adults as consumers (Hayta, 2008).

Lachance and Legault (2007) revealed that media (television, Internet, magazines,

and newspapers) were the second most important socialization influence on college

students’ attitudes towards consumption (defined as credit, advertising, and

commercial practices). Koonce et al. (2008) confirmed that students learned a “good

amount” or “a lot” from the media, which included television, radio, newspapers, and

magazines (18.1%), and the Internet (13.5%).

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Religion

Although not yet identified as one of the most important agents of consumer

socialization in current research, religion probably should be included, at least in

some cultures. According to Shweder (1991), religion is one of the most universal

and influential social institutions and has a significant influence on people’s attitudes,

values, and behaviors at both the individual and societal levels. Religious values and

beliefs are known to affect ritualistic and symbolic human behavior (Mokhlis, 2009).

Bailey and Sood (1993) examined the effects of religious affiliation on consumer

behavior and found variations in consumerism among different religious groups. For

example, Catholics were less likely to be informed shoppers, Hindus were likely to be

rational shoppers, and Muslims were least likely to be risky shoppers. There is

considerable literature focused on culture and its influence on various aspects of

consumer behavior (Mokhlis, 2009). However, little research has examined the effect

of religion specifically on financial behavior, financial knowledge, or financial well-

being. Religion and its associated practices often play a pivotal role in influencing

how individuals cope with important life transitions. This study hopes to fill this

research gap by examining the effect of religion on the financial knowledge and

financial well-being of college students.

Financial Knowledge

Financial illiteracy is a growing problem. A review of the literature on financial

literacy, also referred to as financial knowledge, suggests that a majority of college students

lack sufficient knowledge to effectively manage their personal finances (Chen & Volpe,

1998; Avard, Manton, English, & Walker, 2005; Murphy, 2005; Norvilitis et al., 2006). Most
 64

previous and current studies tried to establish a relationship between financial knowledge and

financial behavior (Chen & Volpe, 1998; Hilgert, Hogarth, & Beverly, 2003; Cude et al.,

2006; Robb & Sharpe, 2009). However, there is little previous or current research that links

financial knowledge and financial well-being among college students, and the extent to

which financial knowledge (or literacy) affects financial well-being has had very limited

attention. Shim et al. (2009) were the first to try to establish a link between financial

knowledge and financial well-being among college students. Financial well-being in their

study was defined as satisfaction with one's current financial status, including the level of

debt. Shim et al. did not find a significant relationship between these two variables. Joo and

Grable (2004) investigated the determinants of financial satisfaction (rather than financial

well-being) among white-collar clerical workers. They defined financial satisfaction as a

person’s satisfaction with his or her current financial situation. Results indicated that

financial knowledge had both a direct and an indirect effect on financial satisfaction. The

limited research on this topic and the mixed results make it difficult to draw conclusions

about the relationship between financial knowledge and financial well-being or financial

satisfaction.

Financial Well-Being

Financial well-being is defined as “a state of being financially healthy, happy, and

free from worry” and is typically based on a subjective appraisal of one’s financial situation

(Joo, 2008, p.22). Financial well-being has often been measured by overall satisfaction with

one’s financial situation (Van Praag, Frijters, & Ferer-i-Carbonell, 2003). Malone, Stewart,

Wilson, & Korsching (2010) posited four domains of financial well-being: buying behaviors,
 65

perception of current finances, perception of the financial future, and attitudes toward long-

term care insurance. According to Joo (2008), overall satisfaction with one’s financial

situation is often used as a measure of financial well-being. Few examinations of the

determinants of financial well-being have incorporated objective, subjective, and behavioral

measures into a single empirical test of individual financial satisfaction (Joo & Grable,

2004). Furthermore, most previous studies on financial well-being have been conducted

among adults or employees; few studies involved college students (Van Pragg et al., 2003;

Joo & Grable, 2004; Joo, 2008; Malone, et al., 2010). To date, no definitive measure of

college students’ financial well-being has been advanced. For example, Shim et al. (2009)

used both objective (amount of debt) and subjective (financial satisfaction and coping with

financial strain) measures in assessing financial well-being. Leach, Hayhoe, and Turner

(1999) measured students’ perceived economic well-being by asking them to describe how

they felt about their level of income, debt and savings, ability to handle financial

emergencies, and amount of money available for necessities and future needs (subjective

measures).

In conclusion, the literature supports the idea that college students lack sufficient

knowledge in personal finance and that financial behaviors are established at an early age.

These financial habits carry on to adulthood and can cause life-long financial difficulties

absent effective educational intervention. The mechanism by which financial well-being

among college students is achieved is not clear. In order to identify potential strategies,

additional research is needed to examine systematically the extent to which personal and

family background, academic ability, early childhood consumer experience, financial

socialization, and financial knowledge affect students’ financial well-being. An important

 66

goal of this study is to increase understanding about the role of parents, peers, media, school,

and religion on financial knowledge and financial well-being among college students. This

study also offers specific cultural insights that allow comparisons between Malaysian college

students and U.S. college students. To date there have been few studies of college students’

financial experiences, knowledge, and well-being outside of the U.S.

Methods

Procedure

This study of financial knowledge, attitudes, and practices was conducted in 2005-

2006 among college students in Malaysia. The study sample is comprised of students in

public and private colleges. Eleven colleges were selected for the study using a multi-stage

sampling technique (six public and five private colleges). For the first stage, a list of all

public and private colleges was obtained, from which five public and five private colleges

were selected at random. In addition to the ten randomly selected colleges, University Putra

Malaysia was included in the study to assist the researchers in planning educational

programs. At each college, 350 students were selected randomly using a list of names

obtained from the student affairs office. The number of questionnaires distributed to the 11

colleges was 3,850. A total of 2,519 questionnaires were completed and usable producing a

65% response rate. The average response rate for the six public colleges was 72.8% and

56.6% for the five private colleges. The response rates for public colleges ranged from 46.3%

to 95.1%. The private colleges’ response rates ranged from 13.1% to 83.4%. Thus, although

there is variation in response rates across colleges, the overall response rate seems adequate

to represent the population of interest.

 67

Students were given two weeks to complete the self-administered survey and return it

to their faculty. Prior to the study, students were informed that participation was voluntary

and that they were free to skip questions or withdraw from the study if they were

uncomfortable answering. The survey was written in the Malay language and had twelve

sections: Section A: Student Characteristics, Section B: Family Characteristics, Section C:

Early Childhood Consumer Experience, Section D: Sources of Money/Income, Section E:

Spending Pattern, Section F: Financial Behaviors, Section G: Financial Literacy/Knowledge,

Section H: Attitudes towards Money, Section I: Financial Experience, Section J: Financial

Socialization, Section K: Perceived Financial Well-Being, and Section L: Self Skills. Those

students who completed and returned the survey were given a book on “College Students’

Financial Planning” as a token of appreciation. For the purpose of the current study, only

data from seven of the 12 sections were analyzed and reported: A, B, C, G, I, J, and K

Sample

According to national statistics (Malaysian Ninth Plan, 2006a) the Malaysian

population consists of Malay (65.9%), Chinese (25.3%), Indian (7.5%), and others (1.3%).

Similarly, the study sample has a majority of Malay students (75.6%) and about one in four

were Chinese (24.4%). The sample for this study consisted of 59.1% female and 40.9% male

students. Respondents were on average 20.9 years old (standard deviation of 2.99). More

than half of the respondents (51.7%) were from a rural area. The sample consists of

somewhat more students attending public than private colleges (60.9%). A majority of

students lived on campus (72.5%). Sophomores accounted for 32.4%, 29.4% freshmen,

26.5% juniors, and 11.7% seniors. The sample average grade point average (GPA) is 3.00 on

a 4.00 scale. A majority of students reported a 2.50-2.99 GPA range (72.4%). More than half
 68

of the students in the sample reported they are not employed (59%) and nearly all of them are

single (98.4%). The students report that more than two-third of their fathers (78.5%) have a

secondary education (i.e. high school), or better; 28.8% of fathers are college educated.

Fifty-five percent of students report that their parents are married and living together, 21% of

parents are divorced, and 12% of students had a parent who is a widow or widower. Table 1

shows the demographic data.

In the present study, all the observations were eliminated for any of the variables used

in the structural equation model that had missing data. This strategy for handling missing

data was established to ensure a rectangular dataset in which there were no instances of

missing data. Doing so makes it possible for AMOS software to estimate modification index

values that indicate the extent to which additional model components would reduce the lack

of fit between the sample covariance matrix and the reproduced covariance matrix in the

model. Results of the chi-square goodness of fit tests, comparing the proportions of omitted

and non-omitted observations for the categorical variables included in the model, show that

there were no significant differences. Therefore, it is reasonable and valid to generalize from

model results for the non-omitted data. For example, 44.4% of students not included in the

model were male, compared to 39.9% of observations included in the model (χ2 (1, N=2,199)

= 3.10, p = .08). Also, 29.2% of students not included in the model lived on-campus,

compared to 27.0% of those included in the model (χ2 (1, N=2,185) = .88, p = .35).

Measures

Personal and family background.

Personal and family background variables included gender, ethnicity, place of origin,

student residence, type of college, and father’s education level. Gender information was
 69

obtained from a single question asking students to identify themselves as female (1) or male

(0). Chinese ethnicity was coded as 1 and Malay ethnicity, as the reference group, was coded

as 0. Place of origin was coded 1 for those who were from an urban and 0 for those from

rural area. Students who lived on campus were coded as 1; 0 for those who stayed off-

campus. Type of college was coded 1 for those from public colleges and 0 for private

colleges. Respondents were asked their father’s highest education level; responses were

coded as no formal education (0), elementary (1), secondary (2), college degree (3), and

graduate education (4).

Academic Ability.

Academic ability consists of two variables; student academic achievement (GPA) and

class rank. Self-reported (continuous) GPA was used to measure academic success. The

number of a student’s semesters in college was used to measure class rank.

Early Childhood Consumer Experience.

Respondents were asked at what age they became involved in financial activities,

which included a) having their own saving account, b) receiving an allowance, and c)

discussing financial matters with parents. This early childhood consumer experience measure

was based on an instrument developed by Danes (1994). Response categories about when

each of these financially-related activities began were coded: never (0), less than 7 years to

12 years (1), and greater than 13 years (2). Responses to these financially-related activities

were then recoded into two categories: never (0) and yes (1). Those who reported they began

these activities either less than 7 years ago, 7 to 12 years ago, or greater than 13 years ago

were combined to represent the “experienced” childhood consumer, coded as 1. Only those
 70

who said they had never had a savings account, an allowance or financial discussions with

parents were coded as 0.

Financial Socialization.

Financial socialization was measured by asking students to indicate how much

socialization agents (i.e. parents, peers, school, media, and religion) influenced the way they

learned about and how they behave with money management while at college (current life).

A single item was used for each of these socialization agents. Responses were made on a

nine point scale (0=no influence to 9= very much influence). For example, “Based on a scale

from zero (no influence) to nine (very much influence), how much do parents influence your

personal finances and money management while you are in college?”

Financial Knowledge.

Financial knowledge was measured by testing for correct answers on 25 questions

concerning financial goals, financial records, savings, investments, retirement, banking

systems, time value of money, wills, insurance, education loans, and general knowledge of

personal finance. The financial knowledge test (instrument) was developed primarily for

Malaysian college students in two stages. First, it was developed based on an extensive

review of literature (e.g., Chen & Volpe, 1998, 2002). Second, to test for face and content

validity of the developed instrument, researchers received input from experts and

practitioners in the personal and family finance area, including Central Bank Malaysia,

Malaysian Banking Institute, Federation of Malaysian Unit Trust Manager, Malaysian

Security Commission, Financial Planning Association of Malaysia, Malaysian Insurance

Institute, Employment Provident Fund Social Security Training Institute, Selangor Education

Foundation, National Higher Education Fund Corporation, and Hijrah Strategic Advisory
 71

Group. The financial knowledge index possessed adequate internal consistency (α = 0.70).

The average score among respondents was 11.77, with a standard deviation of 3.66

suggesting that less than half of the questions were answered correctly.

Perceived Financial Well-Being.

Perceived financial well-being was measured using three items adapted from Hira and

Mugenda’s measure of financial satisfaction (1999a, 1999b): money saved, current financial

situation, and financial management skills. Each item was measured by asking the

respondents to indicate their level of satisfaction on a nine point scale (0= completely

dissatisfied to 9= completely satisfied). For example, one question was “Based on a scale

from zero (completely dissatisfied) to nine (completely satisfied), please indicate your

satisfaction with your current financial situation.” Exploratory factor analysis in SPSS was

used to verify which items might load together. The indicators of perceived financial well-

being loaded on single factor. The indicators of perceived financial well-being in the

exploratory factor analysis included money saved, current financial situation, amount of

money owed, preparedness to meet emergencies, financial management skills, and ability to

meet long-term goals. The Kaiser-Meyer-Olkin measure of sampling adequacy was .87,

indicating that the present data were suitable for principal component analysis. Similarly,

Bartlett’s test of sphericity was significant (p <.001). Only three out of six items (money

saved, current financial situation, and financial management skills) with the higher value of

communalities were chosen as manifest (observed) variables and these variables served as

indicators of the underlying construct (perceived financial well-being). Communalities were

high for each of the three items, ranging from .73 to .85. The alpha reliability for perceived

financial well-being indicators (three items) was .80.

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Results

Correlations among Observed Variables

Table 2 presents the zero order correlations among observed variables. The results

were consistent with many of the associations predicted in the conceptual model. For

example, financial knowledge was significantly correlated with money saved (r = .07),

current financial situation (r = .06), and financial management skills (r = .09). The highest

correlations were found between items that were used to indicate the same latent variable

(perceived financial well-being). For example, there was a stronger correlation between the

money saved and current financial situation (r = .72).Taken together, the pattern and strength

of the correlations among the observed variables provide a good basis for conducting

additional tests related to the theoretical model.

Structural Model Testing

Statistical testing of the initially proposed structural model yielded the following

indicators of the overall model: (χ2(43) = 742.140, p < 0.001, CFI = .824; IFI = .826; RMSEA

= .086) suggesting that the model could be improved. During data analyses, the modification

indices pointed to adding the path between parents’ residual and religion’s residual. It is

reasonable to expect this relationship because parents and religion may have significant

influence on each other. Among other things for example, parents use religion to teach values

and exert social control. Myers (1996) found parental religiosity to be the strongest influence

on the religiosity of their children. Smith, Faris, and Lundquist (2003) also reported that

parental religiosity has a significant impact on their adolescent’s religious attachment. Such

findings suggest a relationship between parental religiosity and adolescent religiosity.

 73

After adding this path, the fit of the adjusted model was better and deemed an

acceptable fit (χ2(42) = 135.506, p < 0.001, CFI = .972; IFI = .972; RMSEA = .036).

Compared to the initial model, the overall fit of the adjusted model was improved as

indicated by a significant reduction in Chi-Square (∆ P χ2 = 608.634, ∆ df   1, p < 0.001).

Consequently, this version was accepted as the final model. There are two significant paths

in the initial model (i.e., gender--religion; GPA--parents) that become insignificant in the

final model: religion was not a significant predictor of financial socialization for male or

female students, and parents were not significant in the financial socialization of students’

with lower or higher academic achievement. The results also indicated that one path,

insignificant in the initial model, became significant in the final model (i.e., savings--

perceived financial well-being).

The paths that were significant in predicting the influence of religion on financial

socialization were ethnicity and students’ residence. The negative and larger coefficient for

ethnicity indicates that Chinese students (β = -.28) were less likely to report having gained

financial knowledge from religious sources. However, students who lived on campus were

more likely to report having learned financial knowledge from religious sources than students

who lived off campus. Ethnicity was found to be positive and significant in predicting

parental influence on financial socialization. The results suggest that parents were a more

significant source of financial information among Chinese students compared to their Malay

counterparts.

Ethnicity and GPA were significant in predicting the influence of peers on financial

socialization. The negative coefficient for Chinese ethnicity indicated that they were less

likely to learn financial knowledge from peers compared to Malay respondents. Since
 74

Chinese students were more likely to learn financial knowledge from their parents, perhaps

this explains why they learned less from peers compared to their Malay counterparts. It

seems that when it comes to financial matters, Chinese students were more likely to learn

from their parents than friends. Those students who had greater academic achievement

(higher GPAs) were more likely to have gained financial knowledge from peers than students

with lower GPAs.

Ethnicity and students’ residence were linked directly and negatively to financial

knowledge (β = -.17 for Chinese and β = -.08 for on campus). The results indicated that

Chinese students and those students who stayed on campus were less knowledgeable about

personal finance. Chinese ethnicity had twice the effect of students’ residence on financial

knowledge. However, none of the financial socialization agents had direct effects on

financial knowledge.

The paths in the model that are significant in predicting perceived financial well-

being are financial knowledge, parents, religion, savings, gender, ethnicity, place of origin,

and students’ residence. The direct effect of financial knowledge (β = .08) on perceived

financial well-being suggests that those students who had greater knowledge in personal

finance were more likely to report satisfaction with their perceived financial well-being. The

significant positive relationship between parent and religion as socialization agents suggest

that the more students learned about finances (financial knowledge) from their parents and

from religious sources, the more likely students were to report they were satisfied with their

perceived financial well-being. The influence of religion (β = .13) suggests that religion

could be a more important source of learning about personal finance than parents (β = .08).

Those who had savings accounts as children were more satisfied with their current perceived
 75

financial well-being compared to those who did not have that early experience. The results

also indicate that having earlier experience in managing money could result in higher current

perceived financial well-being. Among the significant personal and family background

variables, students’ residence had the strongest and largest effect on perceived financial well-

being (β = .12) compared to ethnicity (β = .03). The results suggest that on-campus students

tended to report they were more satisfied with their perceived financial well-being compared

to off-campus students. Other significant paths revealed that being a female, of Chinese

ethnicity, and a student from the city positively affected perceived financial well-being.

Discussion

The most revealing findings of our study are that those students of Chinese ethnicity

had a unique process of financial socialization as compared to those of Malay ethnicity. For

example, students of Chinese ethnicity reported that their parents were more influential than

peers or religion as financial socialization agents, regardless of the fact that previous research

showed Chinese students (secondary school) were less likely to interact with their parents

and peers compared to their counterparts (Kamaruddin & Mokhlis, 2003). One possible

explanation is that most of the Chinese students come from financially well-off families and

study at private colleges. Thus, they are more dependent on their parents for financial support

and information. The results also imply that peers become a significant source of financial

information among those students who have better academic records. There is no obvious

reason to explain this relationship. It might be that these students spent most of their time

with friends compared to other socialization agents; consequently, their peers become a more

important source of help with financial decision making. Xiao, Shim, Barber, and Lyons
 76

(2007) suggested that college peers may play an important role in students’ financial

practices. They found that students were more likely to engage in positive financial practices

(e.g., cash management, credit management, and saving behavior) if the behaviors were

approved by their peers.

The results of this investigation shed light on the influence of students’ residence and

ethnicity on financial knowledge. It is apparent that Chinese students had a low level of

financial knowledge compared to their Malay counterparts. The result was unexpected

because previous studies have shown that Chinese students have higher mathematical

achievement (Ismail & Awang, 2008) and that they know more about educational loans (Abu

Bakar, Masud, & Md. Jusoh, 2006). On the other hand, those students who lived on-campus

had less financial knowledge than those who lived off-campus. One possible explanation is

that on-campus students have less financial responsibilities and liabilities compared to those

who live off-campus.

It appears that gender, ethnicity, students’ residence, and place of origin were

associated with students’ perceived financial well-being. Our findings show that female

students were more likely to report satisfaction with their perceived financial well-being.

Perhaps different socialization or personal expectations regarding money saved, current

financial situation, and financial management skills explain the differences between male and

female students in their reports of perceived financial well-being. Gender differences in

attitudes about money may occur because parents socialize sons and daughters differently

(Edwards, Allen, & Hayhoe, 2007). Edwards et al. (2007) indicated that daughters were more

open with their parents about their spending behaviors, more dependent on their parents for

support, and more likely to talk with parents about their own financial situation. They
 77

suggested that parents may socialize daughters to be more dependent in two ways: (1) parents

may provide more real financial support to daughters than sons and (2) parents may provide

social support by listening to daughters who are more open with them about their financial

situation, compared to sons. Past research supports the theory that the differences between

college men and women in perceived economic well-being may be due to gender role

socialization (Leach, Hayhoe, & Turner, 1999).

Chinese students were more likely to report feeling good about their perceived

financial well-being compared to Malay students. One possible explanation is that most

Chinese students were children of fairly well-off parents. Census data confirm that the mean

monthly gross household income of Chinese Malaysians ($1,387) is slightly higher than

Indian ($1,080), and Bumiputera including Malays ($847) (Malaysian Ninth Plan, 2006b).

Lai, Chong, Sia, and Ooi (2010) examined culture and consumer behaviors of Malays and

Chinese students in Malaysia using Hofstede’s Cultural Dimension Index. Their findings

revealed that Chinese students were more concerned with social status and personal well-

being than were their Malay counterparts. Perhaps this explains why Chinese students tended

to report they were satisfied with current perceived financial well-being in this investigation.

College students who lived on-campus were more satisfied with their perceived

financial well-being then their off-campus counterparts. It is reasonable to suggest that this is

because on-campus students probably have fewer financial responsibilities and liabilities than

students living off-campus. For example, the costs associated with on-campus living (rent

and utilities) are typically deducted from students’ educational loans or scholarships whereas

students living off-campus pay rent and utilities each month. A prior study by Masud, Abdul

Rahim, Paim, and Britt (2004) found that students living off-campus spent more money on
 78

living expenses such as rent, utilities, and gas compared to students on campus. The study

also found that a higher percentage of students who live off campus reported experiencing

greater financial problems compared to on-campus students.

Those students who come to college from the city also reported they were more

satisfied with their perceived financial well-being than those students from rural areas. One

possible explanation could be that those students are from families that are more financially

well-off. Well-off parents may provide their children with more financial support compared

to less well-off parents. Past research shows that individual well-being is interdependent

within a family; well-being reported by children, for example, is strongly correlated with

parents’ well-being (Winkelman, 2005).

Contrary to our initial expectation, GPA and class rank had no direct effect on

students’ perceived financial well-being. This fits with the current literature, which has

shown that GPA and class rank were not significant predictors of college students’ financial

well-being (Shim et al., 2009; Xiao et al., 2009). The results suggest that one’s academic

ability does not necessarily determine satisfaction with one’s financial situation. Other

factors such as behavioral/cognitive biases, level of self-control, and financial socialization

influences (e.g., peer, family, economic, community, and institutional) also can affect

financial behaviors and financial well-being (Huston, 2010).

The influence of early childhood consumer experience on perceived financial well-

being is not mediated by financial socialization and financial knowledge. As shown in Figure

2, there is no direct effect of savings on either financial socialization (parents, peers, and

religion) or financial knowledge. However, savings did positively and significantly impact

college students’ perceived financial well-being (direct effect). In this study, there is
 79

evidence that experiences in managing money at a young age contributes to perceived

financial well-being later in life. The results suggest that students’ should start getting

involved in financial activities early, and the earlier the better. This fits with the literature,

which has shown that having financial experiences such as bank accounts and investment

accounts had a positive effect on saving behavior (Kotlikoff & Bernheim, 2001). High school

students with more financial experiences had higher savings rates than those with less

experience (Peng et al., 2007).

Religion and parents were significant financial socialization agents for college

students. Religion was a very important source of financial information or financial

knowledge for college students. The present study adds credence to the notion that financial

well-being can be improved or increased through social institutions such as churches. This is

consistent with Shweder’s (1991) assertion that religion is one of the most universal and

influential social institutions and that it exerts a significant influence on people’s attitudes,

values, and behaviors at both individual and societal levels. Perhaps religious background

conveys values, beliefs, and faith about money. In other words, how a person reacts with his

or her money in a given situation often is fundamentally tied to whether or not he or she is

actively following religious practices. Therefore, it follows that religious beliefs will

significantly impact how people handle their finances.

Consistent with previous studies, our results also revealed that parents are a

significant source of financial information for college students (Pinto et al., 2005; Lyons et

al., 2006; Peng et al., 2007). The results suggest that students who learned about family

finance from their parents improved and increased their satisfaction with money saved,

current financial situation, and financial management skills. Equally important is the finding
 80

that financial socialization agents such as religion and parents specifically had direct effects

on perceived financial well-being; financial socialization did not mediate this impact. In

other words, these financial socialization agents have their own unique direct influence.

Similar to past research, we found that financial knowledge significantly influenced

students’ perceived financial well-being. For example, Joo and Grable (2004) indicated that

financial knowledge had a direct effect on financial satisfaction. Other studies by O’Neill,

Xiao, Bristow, Brennan, and Kerbel (2000) also noted that if consumers receive education in

basic personal finance they may be in a better position to manage their finances, thereby

resulting in improved financial satisfaction. Our results suggest that more knowledge of

personal finances among students results in greater satisfaction with money saved, current

financial situation, and financial management skills.

There is no evidence that the influence of financial socialization on perceived

financial well-being is mediated by financial knowledge. None of the financial socialization

agents (parents, media, peers, school, and religion) had a direct effect on financial

knowledge. The results were unexpected because previous studies have shown that children

or students learned financial knowledge from at least their parents (Pinto et al., 2005; Lyons

et al., 2006; Peng et al., 2007) even when no other agents were identified. In this study, only

parents and religion had direct effects on perceived financial well-being; financial knowledge

also had a significant impact on financial well-being. The results suggest that the influence of

financial socialization on financial well-being was not dependent on students’ knowledge of

personal finance. The independent and unique influence of each socialization agent could

explain why there was no mediation effect detected.

 81

Limitations

This study was not without its limitation and these need to be considered when

interpreting the results. First, for all constructs, we relied exclusively on students’ self-

report, so the associations we have found might be in part due to a shared reporter variance.

For this reason, future research should use multiple informants such as parents to achieve a

better understanding of students’ financial backgrounds. Parents could provide insights into

the process by which they passed on knowledge and skills regarding financial issues during

their child’s early years. Second, this study relied on one item to assess the influence of

socialization agents (parents, peers, school, media, and religion) on college students’

financial awareness. While the question was similar to items used in other research, it is

nonetheless important that more complete assessments be developed and used in future

studies to tease out the influences of various socialization agents separately. For example,

how frequently students discussed or observed their parents involved in money management

activities would be an interesting topic. Third, we cannot confirm causal relationships among

the variables because this study was based on cross-sectional data, not longitudinal data. We

consider this study to be explanatory in nature. Furthermore, there may be unobservable

factors not specified in our model, which account for some of the moderation effects. Fourth,

we assessed perceived financial well-being by using a subjective measure of the level of

students’ well-being. This cannot capture the complete or actual financial well-being of

students. Objective measures of financial well-being do exist; thus, future study should

include both objective and subjective measures such as sources of income, amount of

income, and students’ debt to determine college students’ actual financial well-being. Finally,

the explanatory power of the model was quite low. However, the model fits rather well by
 82

most standard SEM, and high R-squared values might happen in different models. The

present study tested specific theoretical propositions and thus was not motivated to find the

model with the highest value of R-squared but rather was estimating a model to test the

theory. 

Conclusion and Implications

This study explored the determinants of perceived financial well-being among college

students. The study was based on data from a survey collected during 2005-2006 from eleven

public and private universities across Malaysia to explore these relationships. Structural

equation modeling was used to test hypotheses and validate an empirical model. The results

of this study suggest several important conclusions.

First, it is apparent that positive early childhood consumer experiences improve

college students’ perceived financial well-being. This should create awareness among

parents, family, and students themselves about the importance of practicing good financial

habits at home; specifically, at the appropriate age when children are ready to learn about

money related activities. Second, financial knowledge can be increased through social

institutions such as mosques and churches. Nowadays financial education can be accessed

easily through online (website) sources, as well as through printed materials such as

magazine, books, and flyers. Students should be encouraged by parents, teachers, and

university instructors to learn about money management and practice good financial behavior

in their daily lives. Providing basic knowledge on personal finance to school-aged children

through the school systems would seem to be an effective approach to educating students to

become responsible and prudent consumers. Third, the most revealing results of this study

and those most consistent with previous studies are that perceived financial well-being can be
 83

increased through financial knowledge. In other words, to ensure financial well-being,

financial education should be made available to all school aged-children, college students,

and parents.

These findings have implications for parents, university administrators, financial

counselors, financial planners, educators, and students themselves. These findings could be

used to develop financial education programs that would provide students with the

knowledge and skills to better manage their finances and improve their financial well-being.

Past research confirms that financial education is the best single method available for

practitioners, educators, and policy makers to improve financial satisfaction and overall

consumer well-being of individuals and families (Berheim, Garrett, & Maki, 1997; Joo &

Grable, 2000). Parents should begin discussing sound money-management practices with

their children at a young age, continue it through adolescence, and reinforce with them that

financial education is a life-long pursuit.

It is clear from the results that perceived financial well-being differs by gender and

ethnicity. This is important information for financial counselors and planners. Understanding

these differences will help practitioners tailor advice and planning to the different needs of

males and females, Chinese and Malay college students. Educators and university

administrators should make sure that financial educational programs not only improve

financial knowledge and promote responsible financial behaviors among college students,

but also establish support structures that will help students increase their financial well-being.
 84

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Figure 1. The Proposed Conceptual Framework

 94

Figure 2. The Student Perceived Financial Well-Being Model: The Final Structure Equation
Model (Standardized Estimates)

χ2(42)= 135.506 (p= .000)

NFI= .960
IFI= .972
CFI= .972
RMSEA = .036
 95

Table 1. Sample Characteristics

Characteristic (N=2199) Percentage

Gender
Male 899 40.9
Female 1300 59.1
Ethnicity
Malay 1663 75.6
Chinese 536 24.4
Place of origin
Rural 1129 51.7
Urban 1055 48.3
Type of college
Public 1340 60.9
Private 859 39.1
Students Residence
On-campus 1585 72.5
Off-campus 600 27.5
Fathers’ Education
No formal education 45 2.2
Elementary 403 19.3
Secondary 918 44.0
College degree 601 28.8
Graduate 118 5.7
GPA
<2.50 525 23.9
2.50-2.99 1590 72.4
>2.99 81 3.7
Mean: 3.00
Class Rank
Freshman 620 29.4
Sophomore 683 32.4
Junior 560 26.5
Senior 247 11.7
Table 2. Correlations among Observed Variables in Model

1 2 3 4 5 6 7 8 9 10
1. Gender (1=Female) --
2. Ethnicity (1=Chinese) -.05** --
3. Place of origin (1=Urban) -.00 .21** --
4. College types (1=Public) .08** -.33** -.17** --
5. Residence (1=On-campus) .07** -.47** -.12** .46** --
6. Father’ education -.01 -.10** .24** -.11** .10* --
7. GPA -.09** .09** .02 .06** .03 .06** --
8. Class rank -.07** -.12** -.04 .11** .04 -.00 .34** --
9. Allowance (1=Yes) .07** -.01 -.00 -.01 .02 .06** .01 .03 --
10. Savings (1=Yes) -.00 .05* -.03 .02 .07** .03 -.00 .05* .07** --
11. Discuss (1=Yes) .01 -.07 -.02 .06 .08 .03 .06 .08 .09 .04
12. Parents -.03 .09** .06** .02 -.01 .06** .07** -.03 -.00 .01
13. Media .02 -.07** .02 .04 .01 .04* .02 .01 -.01 .03

96
14. Peers -.01 -.11** -.04 .07** .08** .03 .07** .05* -.00 .04
15. School .02 -.11** -.06** .10** .06** -.05* -.06** -.01 -.01 .05*
16. Religion -.02 -.30** -.07** .15** .20** .05* .03 .08** -.03 .05*
17. Financial knowledge .02 -.13** -.04 .07** .02 -.00 -.00 .03 .03 .04
18. Money saved .03 -.01 .04 .04 .10** .10** .03 .00 .02 .04
19. Current financial situation .08** -.01 .04 .03 .08** .07** .03 -.02 .00 .04
20. Financial management -.01 -.02 .04 .06** .07** .02 .01 .03 .04 .00
skills
Mean .60 .24 .48 .61 .73 2.17 2.40 3.70 .96 .99
Standard deviation .50 .43 .50 .49 .45 .88 1.31 2.11 .21 .10
N 2199 2199 2184 2199 2185 2085 2198 2118 2090 2121
Table 2. (Continued)

11 12 13 14 15 16 17 18 19 20
11. Discuss (1=Yes) --
12. Parents .08** --
13. Media .05* .13** --
14. Peers .03 .17** .38** --
15. School .02 .28** .35** .22** --
16. Religion .06** .46** .22** .17** .42** --
17. Financial knowledge .09** -.01 .09** .02 .08** .07** --
18. Money saved .02 .13** .07** .02 .02 .14** .07** --
19. Current financial situation .03 .11** .04 -.01 .02 .15** .06** .72* --
20. Financial management skills .03 .11** .01 -.04 .06** .14** .09** .47** .50** --
Mean .70 5.40 3.91 4.98 4.70 4.45 11.77 4.06 4.31 4.55
Standard deviation .46 2.74 2.38 2.42 2.60 2.91 3.57 2.27 2.23 2.12
N 2051 2082 2089 2074 2062 2067 1826 2087 2083 2065

97
Notes: *p < .05. **p < .01.
 98

Table 3. Estimated Path Coefficients in the Final Structural Model (Standardized)

Path Total Effect Direct Effect Indirect

effect
Religion – GPA .00 .00 .00
Religion – Residence .06 .06 .00
Religion – Ethnicity -.28 -.28 .00
Religion – Gender -.04 -.04 .00
Religion – Savings .00 .00 .00
Religion – Origin .00 .00 .00
Religion – Parents .00 .00 .00
Religion – Financial knowledge .00 .00 .00
Religion – Financial Well-Being .00 .00 .00

Parents – GPA .02 .02 .00

Parents – Residence .00 .00 .00
Parents – Ethnicity .09 .09 .00
Parents – Gender .00 .00 .00
Parents – Savings .00 .00 .00
Parents – Origin .00 .00 .00
Parents – Religion .00 .00 .00
Parents – Financial knowledge .00 .00 .00
Parents – Financial Well-Being .00 .00 .00

Peers – GPA .07 .07 .00

Peers – Residence .00 .00 .00
Peers – Ethnicity -.12 -.12 .00
Peers – Gender .00 .00 .00
Peers – Savings .00 .00 .00
Peers – Origin .00 .00 .00
Peers – Religion .00 .00 .00
Peers – Parents .00 .00 .00
Peers – Financial knowledge .00 .00 .00
Peers – Financial Well-Being .00 .00 .00

Financial knowledge – GPA .00 .00 .00

Financial knowledge – Residence -.08 -.08 .00
Financial knowledge – Ethnicity -.17 -.17 .00
Financial knowledge – Gender .00 .00 .00
Financial knowledge – Savings .00 .00 .00
Financial knowledge – Origin .00 .00 .00
Financial knowledge – Religion .00 .00 .00
Financial knowledge – Parents .00 .00 .00
Financial knowledge – Financial Well-Being .00 .00 .00
 99

Table 3. (Continued)

Path Total Effect Direct Effect Indirect

effect
Financial Well-Being – GPA .00 .00 .00
Financial Well-Being – Residence .12 .12 .00
Financial Well-Being – Ethnicity .03 .07 -.04
Financial Well-Being – Gender .06 .07 -.01
Financial Well-Being – Savings .07 .07 .00
Financial Well-Being – Origin .06 .06 .00
Financial Well-Being – Religion .13 .13 .00
Financial Well-Being – Parents .08 .08 .00
Financial Well-Being – Financial knowledge .08 .08 .00

χ2(42)= 135.506 (p= .000)

NFI= .960
IFI= .972
CFI= .972
RMSEA = .036
 100

CHAPTER 4: OVERALL SUMMARY

General Discussion

Two research articles were prepared and presented in this dissertation. In addition, the

introductory chapter examined current research in the field of financial literacy and financial

well-being, highlighting definitions and measurement of important concepts such as financial

literacy, financial knowledge, financial wellness, financial well-being, and financial

satisfaction. Standardized measures are emerging but have not yet been accepted in the field.

Terms are often used interchangeably in the literature; e.g. financial literacy and financial

knowledge; financial wellness, financial satisfaction, and financial well-being. Two articles

were prepared, based on research undertaken to specifically investigate the financial literacy

and perceived financial well-being of college students. The research contributes to existing

literature by focusing on cultural elements such as the effects of ethnicity and religion, as

well as the effects of early childhood consumer experience on financial literacy and

perceived financial well-being.

The first article reports the results of data analysis investigating the impact of

personal and family backgrounds, academic ability, and childhood consumer experience on

financial literacy among college students. Ethnicity, students’ residence, and type of college

were found to be significantly associated with financial literacy. Surprisingly, financial

literacy among Chinese college students was lower compared to their Malay and Indian

counterparts and others. Although previous findings have shown that Chinese students are

better in mathematic achievement (Ismail & Awang, 2008) and also have greater knowledge

about educational loans (Abu Bakar, Masud, & Md. Jusoh, 2006), the findings of this study
 101

show that Chinese students’ financial literacy (knowledge) was poorer than that of Malay

students. College students who lived off-campus tended to have greater financial knowledge

and public college students had greater financial literacy than private college students. In

addition, neither of the academic ability variables (GPA and class rank) were found to

significantly contribute to greater financial literacy among college students. Finally,

childhood consumer experience variables positively influenced financial literacy. The

findings suggest that children’s early involvement with personal and family finance results in

better knowledge about money management in later life.

The second article tests a conceptual model of college students’ perceived financial

well-being using structural equation modeling (SEM). Relationships between personal and

family backgrounds, academic ability, and financial knowledge and perceived financial well-

being were tested as was whether financial knowledge mediated the influence of financial

socialization on perceived financial well-being. Analysis showed that female students,

students of Chinese ethnicity, those students who lived on-campus, and students from urban

communities were more satisfied with their perceived financial well-being than their

counterparts. Contrary to initial expectations, neither of the academic ability variables (GPA

and class rank) had direct effects on perceived financial well-being. Also, the effect of early

childhood consumer experience on perceived financial well-being was not mediated by

financial socialization and financial knowledge. However, savings (one of the early

childhood consumer variables) was found to have a direct effect on perceived financial well-

being. As expected, financial knowledge significantly and positively impacted students’

perceived financial well-being. Unexpectedly, none of the financial socialization agents

(parents, media, peers, school, or religion) had any direct effects on financial knowledge.
 102

Findings also showed no mediation effect of financial knowledge on the influence of

financial socialization on perceived financial well-being.

In summary, findings from both articles revealed that students of Chinese ethnicity

and college students who lived on-campus have less financial knowledge. Childhood

consumer experiences, such as having a savings account increased college students’ financial

literacy and perceived financial well-being. Discussing finances with parents was a positive

influence on financial literacy and both parents and religion were significant financial

socialization agents for college students.

Limitations

There are several limitations that should be kept in mind when interpreting the results

of this investigation. First, the financial literacy instrument was developed primarily for

Malaysian students, which makes it difficult to compare the results directly to tests of

financial knowledge undertaken with non-Malaysian students. Second, self-report variables

such as the childhood consumer experience variables in the present study (owned a savings

account, received an allowance, and discussed finances with parents), may be unreliable

since accuracy is dependent on the respondent’s memory. Future investigations could

improve the specification of two other variables: financial socialization agents and financial

well-being. The measurement of financial socialization agents was based on a single item

(e.g., “Based on a scale from zero (no influence) to nine (very much influence), how much do

peers influence your personal finances and money management while you are in college?”).

The measure cannot, therefore, capture the full extent to which financial socialization agents

influence young adults’ financial literacy and perceived financial well-being. Financial well-
 103

being of college students also was measured based on subjective rather than objective

measures of well-being. Another concern is that the explanatory power of the financial

literacy regression model in the first article was quite low (R2= .04), as was the measure of

perceived financial well-being in the second article (R2= .06). Arguably, however, the models

were well fitted to the data and the low explanatory power was perhaps due to the

exploratory nature of the investigations. Finally, as with all research, there may be

unobservable factors not specified in the model that account for some direct or mediating

associations not measured in these studies.

Education Implications

The first article provides evidence that financial illiteracy is a problem among college

students. The results demonstrated that financial illiteracy among college students in

Malaysia is concentrated among Chinese students, those who live on campus, and students at

private colleges. These results may help to identify student population subgroups that would

benefit the most from financial education programs. Thus, college administrators and faculty

leaders (at both public and private colleges) should consider how to monitor and improve

financial knowledge for their students.

The results may also be beneficial to financial counselors who work with students on

a one-to-one basis to help them acquire money management knowledge and skills. It is clear

from the results in the second article that perceived financial well-being differs by gender and

ethnicity. This also is important information for financial counselors and planners.

Understanding these differences will help practitioners tailor their advice and plan for the

different needs of males and females as well as based on ethnic differences, such as between
 104

Chinese and Malay college students in Malaysia. Taken together, the findings should be used

to develop financial education programs that would provide students with the knowledge and

skills to better manage their finances and improve their financial well-being.

Both studies revealed that early childhood consumer experiences such as having a

savings account (first and second article) and discussing finances with parents (first article)

have significant and positive effects on students’ financial literacy (knowledge) and

perceived financial well-being. The results indicate that parents who involve their children at

an early age in family financial activities improve the likelihood that they will later make

good financial decisions on their own. It is recommended that parents model and cultivate

positive financial behaviors and provide or encourage financial education at home. Parents

should begin discussing sound money-management practices with their children at a young

age, continue the discussions as they grow, and reinforce the idea that financial education is a

life-long process.

There is evidence from the current study that parents are important financial

socialization agents. Providing parents themselves with additional financial education would

enhance their knowledge and skills, and help them understand how to involve their children

in family financial decision-making. Previous studies indicate that parents are not always

well prepared to be financial education mentors due to their own lack of financial knowledge

(Danes, Huddleston-Casas, & Boyce, 1999; Beverly & Clancy, 2001). Educating parents

about personal finance means they are armed with the knowledge and skills needed to

educate their children. This preparation may lead to greater financial knowledge and more

effective financial management practices for the next generation of children as well as for

their parents (Danes et al., 1999). According to Shim, Barber, Card, Xiao, and Serido (2010),
 105

parents tend to demonstrate positive financial behaviors and encourage financial education at

home if they have a better understanding of how financial literacy contributes to children’s

success in later life. Financial education can also be provided through social institutions such

as mosques and churches; offering their congregation financial counseling and organizing

seminars and workshops related to money management topics would be worthwhile

endeavors.

The current study revealed that peers become a significant source of financial

information among those students who have better academic achievement. Some evidence

suggests that peers also influence the financial practices of college students (Xiao, Shim,

Barber, & Lyons, 2007). Peer financial education for example can encourage college students

to discuss financial matters with each other and this could help develop positive financial

habits. Universities might consider initiating peer mentoring programs on personal finance.

Financial educators should work with college and university administrators to support

making financial education course accessible and available to all students. Together,

financial educators and university administrators could help providing appropriate materials

or curriculum for parents and their children and encouraging both groups to develop positive

financial behaviors that will ensure current and future financial well-being. To make

financial education more effective and beneficial, financial educators need to develop

programs to engage parents and their children. Educators need to encourage parents to

discuss finances with their children and get them involved in family financially related

decisions and activities. These could include, for example, anything from a simple activity

such as eating out in a restaurant, to a complex activity such as planning for a vacation or

buying a house or car.

 106

Future Research

These studies were based on cross-sectional data and each can be considered

exploratory in nature. In order to develop education programs that positively impact all

college students, longitudinal data must be collected to better understand the cause and effect

of financial literacy and financial well-being. Past research has shown that there is a link

between financial knowledge and financial behavior (Chen & Volpe, 1998; Hilgert, Hogarth,

& Beverly, 2003; Robb & Sharpe, 2009); and financial attitudes, financial behaviors, and

financial well-being (Shim, Xiao, Barber, & Lyons, 2009; Xiao, Tang, & Shim, 2009; Shim

et al., 2010). Future studies should include measures of financial attitudes and financial

behaviors to better understand college students’ financial literacy and financial well-being. In

the studies completed for this dissertation, data contained only students’ self- reports of early

childhood consumer experiences and financial socialization agents; and the associations

found might be in part due to shared reporter variance. Future research should use multiple

informants such as parents, siblings, and teachers. The current study relied on a single item to

assess the influence of each financial socialization agent, but the importance of financial

socialization suggested that children learn about personal finance from within the family and

from outside of the family. More complete assessments therefore need to be developed and

used in future studies to fully understand the financial socialization of college students.

Future studies also could use both objective and subjective measures of financial well-being

to capture a more complete picture of students’ financial circumstances.

 107

Public Policy

Students’ financial literacy and well-being is a vitally important field of study due to

the complexity of economic knowledge and because it directly affects later (adult) financial

literacy and well-being. Misinformation on financial products and services, for example,

could lead young adults (college students) to be financially at-risk because of poor financial

decisions and financial behaviors. Thus, college students’ financial literacy and well-being

should be a major concern among policy makers, consumer advocates, consumer researchers,

and educators. The importance of financial literacy has reached the national agenda in the

United States with the establishment of the President’s Advisory Council on Financial

Literacy (January, 2008). The Council recommended 15 steps that should be taken to

improve the financial literacy of Americans of all ages. Two recommendations specifically

emphasized college students’ financial literacy: 1) that college students take a comprehensive

course in financial literacy or pass a competency test, 2) that colleges, universities, and other

research entities should undertake research on the state of financial literacy among U.S.

citizens and identify effective measures to increase financial literacy among the population

(President’s Advisory Council on Financial Literacy, 2008).

To date Malaysia has no public policy specifically concerning financial literacy of its

citizens. Curriculum or coursework related to personal finance has not been developed or

taught at preschool or primary school levels. Malaysian students can learn about household

economics, general economics, accounting, and entrepreneurship during secondary school

(age 13-17 years), but this subject matter is not available to all students due to budgetary

constraints and too few teachers capable of teaching this content. In addition, personal

finance topics are still considered minimal important by advocates and financial counselors
 108

and educators. Most of the programs or activities related to this topic also never address

young consumers (such as those aged 18-24 years), specifically (Ibrahim, Harun, &

Mohamed Isa, 2009).

The Central Bank of Malaysia (CBM) has played a pivotal role in promoting and

enhancing financial literacy in the country by launching “The Financial Sector Master Plan”

in 2001, which includes a 10-year consumer education program. This initiative is a

partnership between government ministries, non-governmental organizations (NGOs), and

the financial industry (Aziz, 2005). CBM also has developed comprehensive strategies to

enhance the financial capability of consumers through: (1) developing and disseminating

educational materials on financial products and services through booklets and websites, (2)

collaborating with the Ministry of Education and financial institutions in promoting financial

education to students, and (3) conducting financial education outreach programs including

public and university students (Swee Lian, 2008).

Since 1997, several programs on financial education in schools have been established

in collaboration with the Ministry of Education and financial institutions such as “School

Adoption Programs,” “Student Financial Club”, and “Lesson Plans and Workshops for

Teachers.” Seminars and workshops on personal money management discussing educational

loans, credit cards, insurance, and investments also have been delivered specifically for

college and university students. In addition, the Credit Counseling and Debt Management

Agency (a subsidiary of CBM) has collaborated with public universities to incorporate the

subject of personal finance into existing curricula (Swee Lian, 2008). In Malaysia, as in the

United States, a concerted effort among various agencies including government, financial

institution, colleges, researchers, educators, parents, schools, media, and social institutions
 109

has led to additional opportunities for young adults to improve their financial knowledge.

More is still needed, however, to ensure that students’ financial literacy is increased, thus

contributing to the overall future financial well-being of young adults.

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APPENDIX: IRB LETTER