Management Research Review

Demystifying financial literacy: a behavioral perspective analysis

Ani Caroline Grigion Potrich, Kelmara Mendes Vieira,
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Ani Caroline Grigion Potrich, Kelmara Mendes Vieira, (2018) "Demystifying financial literacy:
a behavioral perspective analysis", Management Research Review, https://doi.org/10.1108/
MRR-08-2017-0263
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Demystifying financial literacy: a Demystifying

financial
behavioral perspective analysis literacy
Ani Caroline Grigion Potrich
Department of Business Administration, Federal University of Santa Catarina,
Florianopolis, Brazil, and
Kelmara Mendes Vieira Received 21 August 2017
Revised 20 December 2017
Post Graduation Program in Management of Public Organizations, 6 February 2018
Federal University of Santa Maria, Santa Maria, Brazil Accepted 14 March 2018
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Abstract
Purpose – Financial literacy has been recognized as a key competency. However, there are some gaps such
as the relationship with other behavioral factors. Thus, this paper aims to develop a model that would be able
to identify the integrate effect of financial literacy on the behavioral factors: materialism, compulsive buying
and propensity to indebtedness.
Design/methodology/approach – The study investigated 2,487 individuals in Brazil. For an analysis,
the authors used confirmatory factorial analysis and structural equations modeling and six research
hypotheses.
Findings – The main findings showed that the impact of financial literacy on compulsive buying behavior
was the greatest of the direct relationships proposed, as well as the total effects of financial literacy on
behavioral aspects.
Practical implications – The outcomes of this study are important for the development of public policies
and to other interested agents, as financial literacy goes beyond the fact that it impacts on the individuals’
financial health only and also helps those who suffer from other psychosocial behaviors.
Originality/value – This study is unique and innovative, to the extent that it measures the actual direct
and indirect impact of financial literacy on other behavioral factors, which have been so far analyzed in
separate. It concluded that financial literacy has much more significant impacts than other academic studies
have shown, because under the academic point of view, the central focus up to now has been identifying only
its impact on other behaviors.
Keywords Materialism, Compulsive buying, Financial literacy, Other management-related topics,
Behavioral factors, Integrate effect, Propensity to indebtedness
Paper type Research paper

Introduction
The complexity of financial products and services available to society requires that
individuals be able to take maximum advantage of the opportunities that they offer, but it is
also virtually important to understand the inherent risks and uncertainties of their choices.
For this reason, financial literacy became a key competency for full participation in the
society (OECD, 2015; Potrich et al., 2016a). Complementarily, Messy and Monticone (2016)
state that financial literacy is a critical competency in the twenty-first century, and there
must be efforts to improve it to support the economic growth in any global economy.
However, despite its importance, various studies around the world point out that most of
the world’s population still suffers from financial illiteracy, so actions to solve this problem Management Research Review
are urgent (OECD, 2015; Messy and Monticone, 2016). Furthermore, both governments of © Emerald Publishing Limited
2040-8269
developed and emerging countries are concerned with the levels of financial literacy of their DOI 10.1108/MRR-08-2017-0263
 MRR populations, especially because of the difficult economic and financial context that exists
and by recognizing that the lack of financial literacy is one of the factors that has
contributed to poorly accurate financial decisions with enormous negative effects (Gerardi
et al., 2010).
Organisation for Economic Co-operation and Development (OECD, 2015) defines
financial literacy as a combination of conscientiousness, knowledge, skills, attitudes and
behaviors that are necessary to make sound financial decisions and ultimately achieve
individual financial well-being. In addition, Huston (2010) argues that financial literacy has
two dimensions: understanding, which represents the individual’s financial knowledge, also
called financial education, and its use, i.e. the application of such knowledge on personal
money management. Therefore, an individual may have financial knowledge, but to be
considered financially literate he/she must have the ability and confidence that are
necessary to apply this knowledge on any decision made (Huston, 2010).
Financial literacy brings benefits to both individuals and their families, because there is
increasing evidence that people with higher levels of financial education can manage their
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money better, participate in the stocks market and achieve better outcomes from their
investments (Allgood and Walstad, 2016). Added to the direct effect on investment
decisions, financial literacy acts as an antecedent to behavioral factors such as materialism,
compulsive buying and propensity to indebtedness (Alemis and Yap, 2013; Gardarsdottir
and Dittmar, 2012; Tatzel, 2002).
Specifically, Tatzel (2002) suggests that financial management practices can moderate
the relation between materialism and compulsive buying behavior. Alemis and Yap (2013)
underline that the role of mediation of financial management practices on compulsive
buying behavior gives support to training on financial management skills to prevent and
treat compulsive buying. Disney and Gathergood (2013), in turn, argue that individuals with
lower financial literacy levels tend to underestimate the cost of credit, being more prone to
indebtedness. In addition, low levels of financial literacy can damage the ability to
accumulate wealth, as these individuals will likely take on debts when they are young
(Lusardi et al., 2010).
However, these influences are not isolated as there are direct and indirect effects
permeating these relations (Kilbourne and Laforge, 2010). Specifically, a materialistic
behavior affects the compulsive buying behavior, considering that the consequences of
materialism are related to massive consumerism. On the other hand, compulsive buying
behavior has a direct impact on propensity to indebtedness. Koram et al. (2006) found that
when consumers lose their ability to control buying, they will buy things that probably will
not use, are more than needed or more than can be afforded, leading to financial problems.
In this context, Pham et al. (2012) suggest that besides counteracting materialistic values,
financial education may also have a considerable impact on the prevention of compulsive
buying behaviors. In addition, according to Richins (2011), preventing consumers’ credit
problems is much more effective than attempting to remedy them later, and financial
literacy is designed to do just that. With the recent increase in loans acquisition and
delinquency rates on credit cards loans, financial literacy has received considerable
attention.
Specifically, in the Brazilian scenario, studies deal with financial literacy in various
contexts. Santos et al. (2018), based on 2,023 observations about financial behavior of
Brazilian families, examined the impacts of financial literacy on borrowing in informal
markets. Silva et al. (2017) determine the level of financial education of high school
students from public schools, according to individual, demographic and socializing
aspects, with 4,698 high school students from 14 public schools. The research of
 Norvilitis and Mendes-Da-Silva (2013) explored the utility of a theory of planned Demystifying
behavior as a predictor of credit card debt and student loans among college students, as financial
well as perceived financial well-being, comparing college students from Brazil and from
the USA.
literacy
In addition, Braun Santos et al. (2016) examined predictors of the financial well-being of
female college students (784) living in São Paulo or New York, focusing upon the
relationship with their credit card use behavior, by using structural equation models; they
suggest that financial self-confidence and social comparison have an impact on the use of
credit cards and exercise an influence on financial well-being. Mendes-Da-Silva et al. (2012)
evaluated university students from the city of São Paulo and we find associations between
personal characteristics and habits of credit card utilization involving risky financial
behavior. Finally, the study of Potrich et al. (2016b) develops and compares models for
evaluating the financial literacy of college students.
Thus, evidence indicates that financial literary is a complex, multifaceted phenomenon,
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direct and indirect determinant of other behavioral factors. However, there are no studies yet
to prove the integrated effects that financial literacy can have on an individual with
compulsive buying and materialistic behaviors and how much this has a joint impact on
their propensity to indebtedness. So, the development and validation of a model for
assessing the direct and indirect effects of financial literacy on materialism, compulsive
buying and propensity to indebtedness allows us to more fully evaluate the form and weight
of financial literacy in these behavioral factors. As the literature on this topic argues that
financial literacy would be a multidimensional concept and there is still no consolidated
model for assessing how much financial literacy, when associated with other behavioral
factors, can result in propensity to debt, seeking to prove that the effect of this may be even
greater than when we measure it alone.
Therefore, this study innovates by seeking to develop a model that allows to identify the
integrate effect of financial literacy on behavioral factors such as materialism, compulsive
buying and propensity to indebtedness. To achieve this, the construction and validation of a
structural equations model is proposed to estimate simultaneously a series of direct or
indirect dependency relations.
So, developing models that are able to identify the role of financial literacy on behavior
and decisions is crucial to understand the importance and possible impacts of adopting
national strategies toward financial literacy. Models of this kind may help financial agents
to develop products to suit different customer profiles. Also, under the behavior point of
view, any possible evidence of the impacts of financial literacy on materialistic, compulsive
buying behaviors and propensity to indebtedness may help construct treatments.
Especially in Brazil, where a large part of the population uses credit cards, interest rates
are high and the government usually encourages development through consumption. The
percentage of Brazilian families with debts reached 62.2 per cent in November 2017 (CNC,
2017), while the basic interest rate of the economy (SELIC rate) for the same period was 7.5
per cent per year and the interest on the credit card came to 221.4 per cent per year (BCB,
2017). In this context, understanding the direct and indirect impacts of financial literacy on
the propensity for indebtedness becomes essential for the development of national financial
literacy strategies for the definition of credit policies by the different financial agents and for
the management of non-payment.

Development of the theoretical model

The term financial literacy does not have a single, simple definition, because it is a complex
topic and encompasses a wide range of aspects, starting with the understanding of key
 MRR financial concepts going through the ability and confidence to effectively manage one’s
finances to finally attain an efficient behavior. Although there are various definitions and
dimensions for financial literacy, those developed by the OECD draw attention for their
representativeness, which defines financial literacy as a combination of conscientiousness,
knowledge, skill, attitude and behavior that are necessary to make sound financial decisions
and ultimately attain individual financial well-being (OECD, 2015). Corroborating this,
Messy and Monticone (2016) state that financial illiteracy leads people to make inefficient
decisions in view of the great number of financial products offered, and consequently, they
will more likely experience indebtedness (Mitchell and Lusardi, 2015). Given that, the first
hypothesis of the research to be supported relates financial literacy and propensity to
indebtedness.
A research about the relationship of financial literacy with overindebtedness was
conducted by Lusardi and Tufano (2015). The results showed low levels of financial literacy,
as only one-third of the interviewees succeeded in applying financial concepts to understand
daily financial decisions, such as how credit cards work. So, these people would probably
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negotiate with high costs involved, subject to higher lending charges. Therefore, the authors
suggest that financial competencies are reasons for concern, because the lack of these skills
may jeopardize a household financial health and increase the likelihood of indebtedness. As
poor financial literacy in decision-making makes individuals to become vulnerable to the
diverse financial products offered in the market, unable to distinguish between a good
investment from one that might be very risky, they will likely have financial difficulties
such as indebtedness and default (Lyons, 2004).
Ratifying this perspective, Disney and Gathergood (2013) point out that individuals with
low levels of financial literacy tend to underestimate the cost of credit and become more
susceptible to accumulate debt, i.e. families that are less financially literate usually assume a
higher level of debts and may even reach overindebtedness. Thus, low levels of financial
literacy may impair people’s ability to save money and accumulate wealth, because these
individuals have a higher propensity to accumulate debts when they are young (Lusardi
et al., 2010).
Added to this hypothesis with direct effects, we have the indirect ones. Because of the
fact that financial literacy helps individuals to develop better financial management
practices, this in turn helps individuals or households to keep control of their earnings and
expenses to improve their financial condition. These practices involve appropriate financial
behaviors such as budgeting, making payments on time, saving money, managing credit
card debts and having an idea of their own net worth (Parrotta and Johnson, 1998).
Such financial management practices, obtained through financial education, are
recommended as a way to put an end to overspending, and individuals who are compulsive
shoppers probably are unaware of these practices or are not engaged with them. Those who
are big spenders are predisposed to have a high degree of materialism and low engagement
with good money management practices (Tatzel, 2002).
It is also worth noting that financially literate individuals, who practice money
management properly, are an indicator of money preservation, and as a result, this behavior
can moderate the relationship between materialism and compulsive buying behavior
(Tatzel, 2002). As a consequence, many researchers have suggested that financial education
for compulsive shoppers may improve their money management practices and effectively
interrupt the vicious cycle of buying compulsively and consequently incurring debts
(Roberts, 1998).
A research conducted by Richins (2011) identified that materialism, through attitudes
related to money borrowing, may influence an excessive use of credit and, consequently,
 lead to indebtedness. This happens because materialistic individuals are more likely to Demystifying
believe than others that borrowing money for some kinds of purchase are appropriate and financial
acceptable. This made the author conclude that another route to reduce propensity to
indebtedness would be a shift in the attitude toward finances, and this would be one of the
literacy
elements linked to financial literacy. Pham et al. (2012) also found that financial
management practices predicted significantly the compulsive buying behavior after
controlling materialism, and these practices also reduced the influence of materialistic
values on compulsive buying behavior. These outcomes support the inclusion of money
management components, achievable through financial literacy, to current psychosocial
interventions and indicate that highly materialistic individuals with inadequate financial
management practices will more likely have compulsive buying problems.
Confirming these evidence, Donnelly et al. (2012) found that money management is
significantly positively related with increased savings and negatively with compulsive
buying, even after controlling for numerous socio-demographic variables. Alemis and Yap
(2013) also found that compulsive buying is negatively correlated with the money
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management practiced by financially literate individuals, where the role of financial literacy,
by mediating money management practices with compulsive buying, provides support to
the training of money management skills to prevent and treat compulsive buying. In
addition, previous studies have successfully demonstrated the efficacy of cognitive-
behavioral interventions in groups, which include instructions on cash management to
reduce compulsive buying behavior (Mitchell et al., 2006).
In addition, Gardarsdottir and Dittmar (2012) point out that materialism is a strong
predictor of money management skills, and a full understanding of financial literacy is
necessary. In this regard, financial literacy is much more comprehensive than merely
building money management skills and certainly for an individual to be considered
financially literate it is necessary to be aware of the effects that cultural values and
materialism have on his/her life. Specifically, Gardarsdottir and Dittmar (2012) point to the
importance of financial literacy courses, especially for young people who are frequently
bombarded with materialistic messages from commercial media, which conveys the idea
that happiness, beauty and popularity can be bought. In addition, materialistic individuals
may experience the “pain of knowing” about their financial situation, because money
management can highlight the dismaying implications of their shopping behaviors
(Donnelly et al., 2012).
In this context, Disney and Gathergood (2013), by analyzing the relationship between
financial literacy and consumer credit, also found evidence that individuals who acquire
credit at higher costs are those who have a lower level of financial education and also are
those who have more propensity to debt accumulation. Thus, an indirect relation between
financial literacy and propensity to indebtedness mediated by materialism and compulsive
buying behavior is expected.
Based on these aspects, we have this relationship: the higher the financial literacy level,
the lower the propensity to indebtedness. What follows is the first hypothesis of this study:
H1. Financial literacy impacts negatively on propensity to indebtedness.

The expansion of money and financial services resulted in an easier access to money, which
in turn increased people’s propensity to indebtedness (Falahati and Sabri, 2015). Connected
with this, the individual’s devotion to material desires, the urge to possess more material
things and the attachment to material possessions to achieve the desired conditions end up
determining and fostering materialism in individuals (Omar et al., 2014). Given the above,
the second hypothesis is built, which deals with the concept that more materialistic
 MRR individuals are more inclined to contract consumer credits, with much stronger positive
attitudes toward indebtedness, that is, the higher is the materialism level, the higher is the
propensity to indebtedness (Ponchio, 2006).
In this regard, Gardarsdottir and Dittmar (2012) found that materialism is a determinant
factor for an individual’s propensity to indebtedness, and that more materialistic individuals
tend to have a more positive attitude toward acquiring debts than non-materialistic
individuals. In the Brazilian context, Ponchio (2006) concluded that materialistic people have
a more favorable attitude toward the use of credit and are more prone to debt accumulation.
Cakarnis and D’Alessandro (2015) confirm this by stating that individuals with higher levels
of materialism will more likely allocate their resources badly; so, they have more propensity
to indebtedness.
Highly materialistic individuals, according to Richins and Dawson (1992), have as
reference to individuals in higher socioeconomic levels, which indicate that to meet
consumption demands, they become more inclined to exhibit favorable behaviors toward
debt. Based on this, it is expected that this study supports this relationship, in which
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materialism impacts on propensity to debt through a positive relation, i.e. the higher is the
materialism level, the higher is the propensity to incur debt. Thus, we have:
H2. Materialism impacts positively on propensity to indebtedness.
The main consequence of a compulsive buying behavior is a higher propensity to
accumulate debt (Achtziger et al., 2015). Purchasing material goods is a normal and routine
process (O’Guinn and Faber, 1989); however, in specific situations, the purchase can be
sudden, unplanned and associated with an uncontrolled urge to buy and a feeling of
pleasure and excitement. In these cases, there is a special kind of buying behavior, called
compulsive buying (Lejoyeux and Weinstein, 2010).
Compulsive acquisition of products, very often unnecessary, causes budgetary
constraints; thus, in the future, the undertaken financial obligations will not be settled,
which maximizes the debt problem, because the individual will possibly continue to
consume compulsively without having financial conditions to do so (Carvalho and Alves,
2010). O’Guinn and Faber (1989) corroborates this conception by identifying that compulsive
shoppers have low self-esteem, a high degree of impulsivity and high tendency to
imagination and fantasy, aspects that contribute to high consumption, which have as
consequences high debt levels, depression and family discord. (Kunkel et al., 2015)
confirmed that compulsive buying behavior leads an individual to incur a great number of
debts. Thus, we have the following hypothesis:
H3. Compulsive buying impacts positively on propensity to indebtedness.
Materialism has also been associated with compulsive buying, which is considered a
psychiatric disorder, whereby individuals lose control over their buying urges and continue
to buy excessively despite the adverse consequences (Dittmar, 2004). Compulsive buyers,
who are considered more emotional and, particularly, more prone to experience negative
emotions, tend to subscribe materialistic values in such a way that their identity and self-
esteem become dependent on the quantity and kind of material goods that they own. Under
this perspective, materialistic individuals who believe that they have low self-esteem and
have not found their ideal personal identity would be more prone to exhibit compulsive
buying behaviors as a way to minimize negative feelings and achieve higher personal well-
being (Dittmar, 2004).
So, many studies found a correlation between materialism and compulsive buying
(Dittmar, 2004; Gardarsdottir and Dittmar, 2012; Omar et al., 2014). For example, Kunkel
 et al. (2015) found a positive relation between compulsive buying and materialism, and the Demystifying
latter explains 51 per cent of the variance of the first factor. Likewise, Dittmar (2004); financial
Gardarsdottir and Dittmar (2012) and Omar et al. (2014) found that materialism is positively
correlated with compulsive buying, suggesting that the higher the level of materialism, the
literacy
higher the likelihood of an individual to be a compulsive buyer. The association between
materialism and compulsive buying has also been supported by studies that show that a
higher frequency of favorable attitudes toward spending and consumerism is found in
individuals with strong materialistic values (Richins, 2004). In this regard, a positive
relationship between materialism and compulsive buying is expected.
H4. Materialism impacts positively on compulsive buying behavior.
Financial literacy has been recognized as being vital for individuals to develop adequate
financial practices, which can be affected by other behaviors such as compulsive buying and
materialism. Accordingly, specialists recommend the adoption of financial management
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practices as a precautionary manner to prevent overspending (Roberts, 1998) so that

individuals with appropriate financial attitudes and behaviors will unlikely develop a
materialistic behavior. Pham et al. (2012) suggest that besides reducing materialistic values,
financial literacy can also have a considerable impact on the prevention of compulsive
buying behavior.
Specifically, financial literacy and training on basic financial practices, such as money
management, budgeting and saving, could be part of practical teaching units in the
secondary school to help prevent compulsive buying behaviors (Pham et al., 2012). Studies
have supported the inclusion of financial education in school programs, and it is also
expected that these programs may have an impact on compulsive buying (Russell et al.,
2006):
H5. Financial literacy impacts negatively on materialism.
H6. Financial literacy impacts negatively on compulsive buying.
The conjunction of the constructs and hypotheses as herein described led to the construction
of the proposed model, which is illustrated in Figure 1.

Figure 1.
Proposed theoretical
model and respective
hypotheses
 MRR Method
The study’s target population consisted of Brazilian residents, and at the end of the
collection period (December 2015), 2,487 valid instruments were obtained in 31 cities in
southern Brazil. The survey was conducted randomly, in external environment, by
contacting residents who were ready to participate. The instruments were applied
personally, through hard copy forms, by ten interviewers previously trained to apply the
survey in different public places (squares, malls, road terminals, parks and airport).
The collection instrument (Appendix) has multiple choice questions, which evaluated the
profile of the respondents and their financial knowledge, as well as five-point Likert-type
questions to determine propensity to indebtedness, materialism, compulsive buying,
financial attitude and financial behavior. It should be noted that financial literacy, the
central topic of this study, was measured in three dimensions: financial attitude, financial
behavior and financial knowledge, as suggested by OECD (2013).
To measure financial attitude, an instrument adapted from a study by Parrotta and
Johnson (1998) evaluates the individual’s financial management. Except for the last eight
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questions, which are reversed, the more the individuals agree, the better are their financial
attitudes. The financial behavior scale consists of adapted questions from a study by
Shockey (2002); O’Neill and Xiao (2012) and OECD(2013). The scale, with 13 questions,
evaluates the individuals’ level of financial behavior through two groups of questions
(money saving behavior and control behavior), and the higher the frequency of the
respondent to the statements made, the better will be their behavior in finances
management.
To evaluate the level of financial knowledge, a factor from the average punctuation of
two groups of multiple choice questions adapted from a study by Van Rooij et al. (2011);
OECD (2013); Klapper et al. (2013) and National Financial Capability Study (NFCS, 2013)
was constructed. The first group (basic knowledge) is composed of five questions and aims
to measure basic financial abilities with questions related to inflation, tax rates and the
value of money in time. The second group (advanced knowledge) is composed of five
questions that explore the level of knowledge in relation to complex financial instruments,
such as shares, public bonds and risk diversification. Thus, the financial knowledge index
varies from 0.0 (score obtained if the individual answered all questions wrong) to 10.0 (score
obtained if the individual answered all questions right). So, if we add all questions on
financial attitude (15), financial behavior (13) and financial knowledge (10), then financial
literacy is measured by a total of 38 questions.
Subsequently, there are scale questions to measure propensity to indebtedness, as
originally developed by Lea et al. (1995). The scale encompasses 17 questions aiming to
identify how individuals behave with respect to money, how they plan their acquisitions and
if they consider adequate to buy forward, among other issues. So, except for the ten last
questions that are reversed, the more the individual agrees, the higher is his/her propensity
to indebtedness.
To identify materialism, we used the nine-item scale indicated by Richins (2004). In this
scale, except for the first question, the more the individual agrees, the more materialist he/
she is. Under this same perspective, we aimed to understand the individuals’ compulsive
buying behavior. To achieve this, we used the scale which was adapted and reapplied in
Brazil by Leite et al. (2011), which uses seven questions to visualize how consumerism-
oriented the respondents are, i.e. how they behave toward the diversity of products and
services offered if they buy only when needed or buy by simply having pleasure in
consuming. So, the more the respondents agree with the described information, the higher
their compulsive buying behavior is.
 To analyze the data, confirmatory factor analysis (CFA) and structural equation Demystifying
modeling (SEM) were used with SPSS 20.0® and AmosTM software. First, the CFA has been financial
made to validate the constructs, through the verification of the convergent validity,
unidimensionality and construct reliability, following a recommendation by Hair et al.
literacy
(2010). The convergent validity of each construct was analyzed according to the magnitude
and meaningful statistics of its standardized coefficients, as well as the absolute fit indices:
chi-square statistics ( x 2), root mean square residual (RMSR), root mean square error of
approximation (RMSEA), goodness-of-fit index (GFI) and the comparatives fit indices: the
comparative fit index (CFI), normed fit index (NFI) and Tucker–Lewis Index (TLI). There is
no consensus in the extant literature regarding acceptable values for these indices. However,
for the x 2/df, recommendations are of values less than five. For CFI, GFI, NFI and TLI, it is
suggested their values be greater than 0.95, and for RMSR and RMSA, the recommendations
suggest that they be less than 0.08 and 0.06, respectively (Hu and Bentler, 1999).
To verify if the factor coefficients or loads were significant, the statistical test of the
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values was performed. In CFA, it is also necessary to observe the magnitude of the factorial
load, and the variables with low loadings are candidates for deletion from the model. To
measure the construct reliability, Cronbach’s alpha (Cronbach, 1951) was used, with values
higher than 0.7 being accepted. The construct unidimensionality is verified through the
evaluation of standardized residuals.
After validation of the constructs, an indicator was created to evaluate the individual
financial literacy. To achieve this, we followed the guidelines proposed by Potrich et al.
(2016b), who developed a method to calculate the financial literacy level by scoring the
criteria for measurement and development of a first-order construct with three variables,
each one representing the factors that comprise financial literacy: financial attitude,
financial knowledge and financial behavior.
Finally, the integrated model was built and evaluated by means of SEM, and the
statistical significance of the estimated coefficients of regression was verified to assess the
hypothesized theoretical structure and the adjustment indices of the model. The adjustment
indices were the same as those already used to validate the measurement model. From effect
decomposition, we estimated direct, indirect and total effects (Kline, 2011).
To provide robustness to the analysis, the bootstrapping estimation was used to access
the stability of parameter estimates and thereby report their values with a greater degree of
accuracy (Byrne, 2010). According to Hair et al. (2010), this technique validates a
multivariate model by drawing a large number of subsamples, estimating models for each
subsample and then determining the values for the parameter estimates from the set of
models by calculating the mean of each estimated coefficient across all the subsample. As
suggested by Cheung and Lau (2008), the bootstrapping process was estimated with a
sample size of 1,000.

Analysis and discussion of results

In the sample of 2,487 individuals, 57.3 per cent were female, 46.4 per cent were single and
45.8 per cent married; 54.3 per cent did not have dependents, and mean age was 35 years.
With respect to education levels, 44.2 per cent graduated in high school, 26.1 per cent
completed higher education and 9 per cent had a post graduate degree, and the highest level
of education achieved by most of the individuals’ parents was primary school (53.7 per cent).
Concerning occupation, 38.3 per cent were employed in formal jobs. The majority of the
respondents had a monthly income of up to R$1,738.00 (64.5 per cent), and most of them had
a household monthly income between R$868.01 and R$2,604.00 (40.7 per cent).
 MRR After the profile of the respondents was known, we developed the first objective of the
paper to validate the constructs used by factorial confirmatory analysis. Financial
knowledge was not adjusted because it is not possible to adjust constructs formed by
nominal variables (right or wrong answer). Thus, the measurement model of the constructs
was adjusted (Table I).
For the five constructs, the models proposed are those with all variables in the original
scale, and the results indicate that both models are inadequate because the x 2/df is greater
than 5 and some fit indices did not reach the minimum values. Therefore, in the search for
adequate models, two main measures were adopted, removal of non-significant variables
and insertion of correlations between variables errors, which were suggested by the
software and that made theoretical sense.
After these changes, both models presented adequate adjustment: convergent validity because
the CFI, GFI, NFI and TLI indices were higher than 0.95 and the RMSR and RMSEA indices were
lower than 0.08 and 0.06, respectively; reliability, considering that the reliabilities were higher than
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0.7; and unidimensionality, as evidenced by all standardized residuals falling below 2.58.
By analyzing the final constructs, it can be seen that 7 of the 15 variables that were initially
established for financial attitude were maintained, and the ones with the highest impact on this
aspect are those that question whether the individuals consider absolutely important for a
successful financial management to have a written budget and a plan for a possible loss of salary
by any family member. The model for measuring financial behavior comprised 11 of the 13
variables, of which 5 measured the financial behavior control dimension and 6 measured the
money-saving financial behavior. The fact of having a frequency of behavior of planning
expenditures/budget and saving part of the monthly earnings to cover a future shortfall or
emergency are the variables with the greatest impact on the individuals’ good financial
performance.
The model for materialism was built with seven of the nine proposed variables, and those who
agreed with the idea of possessing more things in their lives are more prone to behave
materialistically. With respect to compulsive buying, it was found that of the seven proposed
questions, five integrate the final model, and the individuals who agreed with the fact of buying,
even knowing that they could not afford it, are those with the highest propensity to compulsive
consumption behavior. Propensity to indebtedness was the construct with the greatest instability
in the scale, as in their final model, only 6 of the 17 variables remained, and those who consider
positive to acquire loans are those with more propensity to becoming indebted.
Subsequently, the indicators of financial attitude, behavior and knowledge were built,
which will make up the financial literacy construct and will be included in the integrated
model. For each construct, the weight of factorial loads was obtained, and then, the weighted
average was calculated by the factorial loads weights. So, for each respondent, the financial
attitude and financial behavior constructs were calculated, the latter being made up of
financial control and savings behavior.
The financial knowledge construct comprised ten multiple choice questions, five of them on
basic financial knowledge and five on advanced financial knowledge. For each of the questions,
it was assigned a value equal to 1.0 for a correct answer and 0.0 for the others. In addition, for
the purpose of analysis, the same were standardized according to the weights that they
represent in the financial knowledge construct. So, the three variables comprising financial
literacy were obtained: financial attitude, financial behavior and financial knowledge.
Finally, based on the validated constructs, the integrate model was developed, which
joins the measurement models and the structural model. The integrate model was assessed
based on the fit indices and the statistical significance of the estimated coefficients of
regression (Table II).
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Financial Compulsive Propensity to

attitude Financial behavior Materialism buying indebtedness
Appropriate levels for
Fit indices fit indicesa Proposed ! final Proposed ! final Proposed ! final Proposed ! final Proposed ! final

x 2 (value) – 2,758.78 ! 34.61 1,109.78 ! 129.55 1,045.86 !13.60 216.92 ! 8.60 2,164.35 ! 6.51
x 2 (probability) >0.05 0.000 ! 0.054 0.000 ! 0.055 0.000 ! 0.034 0.000 ! 0.035 0.000 ! 0.260
degrees of freedom – 90 ! 10 64 ! 28 27 ! 6 14 ! 3 119 ! 5
x 2/degrees of
freedom <5.00 30.653 ! 3.461 17.340 ! 4.627 38.736 ! 2.266 15.494 ! 2.865 18.188 ! 1.302
GFI >0.95 0.821 ! 0.996 0.932 ! 0.991 0.898 ! 0.998 0.975 ! 0.999 0.888 ! 0.999
CFI >0.95 0.738 ! 0.996 0.928 ! 0.992 0.791 ! 0.998 0.939 ! 0.998 0.623 ! 0.999
NFI >0.95 0.732 ! 0.995 0.924 ! 0.990 0.788 ! 0.997 0.935 ! 0.996 0.611 ! 0.997
TLI >0.95 0.695 ! 0.992 0.912 ! 0.985 0.722 ! 0.994 0.908 ! 0.992 0.569 ! 0.998
RMSR <0.08 0.077 ! 0.009 0.064 ! 0.029 0.078 ! 0.012 0.040 ! 0.009 0.061 ! 0.008
RMSEA <0.06 0.109 ! 0.031 0.081 ! 0.038 0.123 ! 0.023 0.076 ! 0.027 0.083 ! 0.011
Cronbach’s alpha >0.70 0.814 ! 0.850 0.894 ! 0.897 0.740 ! 0.793 0.751 ! 0.742 0.704 ! 0.700
Note: aAppropriate levels for fit indices recommended by Hu and Bentler (1999)

indebtedness
financial attitude,

and propensity to
compulsive buying
financial behavior,
constructs of

materialism,
Fit indices for the
financial
literacy

Table I.
Demystifying
 MRR The model initially proposed presented inadequate fit indices. As a result, it was adopted the
strategy of disregarding the non-significant relationships and including correlations between
the variables errors that had theoretical sense. The final model presented adequate adjustment,
except for NFI and TLI, which were only marginally adequate. Thus, Figure 2 illustrates the
final integrate model with standardized coefficients and relations significances.
The analysis of the model shows that only H2 was not significant, which was based on
the conception that more materialistic individuals are more prone to contract consumer
credit and have more positive attitudes towards debts, i.e. the higher the level of materialism
of these individuals, the higher is their propensity to debt (Ponchio, 2006). These outcomes
may be corroborated by the fact that there has been a lack of consensus on when
materialistic values weigh more heavily on consumption decisions and at which stage they
effectively influence the consumption behavior (Cakarnis and D’Alessandro, 2015).
Thus, except for the cited relationship (H2), all other proposed hypotheses were significant
and were supported in the same theoretical sense stated. Thus, and to better explain the direct,
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indirect and total effects of the relationships of the integrate model, Table III is presented.
H1 was confirmed, because financial literacy had an inverse impact on propensity to
indebtedness. Specifically, regarding financial literacy, it can be seen that financial behavior
(coefficient 0.65) was the variable with the greatest impact on financial literacy, followed by
financial attitude (coefficient 0.36) and financial knowledge (lowest impact; coefficient 0.29).
These results corroborate the findings by OECD (2015), that stated that financial behavior
was revealed as the last dimension of financial literacy, being a key element and
undoubtedly the most important of the three ones, because it is the behavior that leads to
financial balance or imbalance. Besides that, as Pietras (2014) stated, financial knowledge
and attitudes are not sufficient for an individual to achieve financial stability, because to put
them into practice, learning the concepts and being ready to act are not enough; it is also
vital to recognize the financial condition.
H3, which states that compulsive buying impacts positively on propensity to indebtedness,
was also confirmed. Achtziger et al. (2015) argue that the main consequence of the compulsive
buying behavior is a higher propensity to indebtedness. Other relationship in the theoretical
model, which defines the positive impact of materialism on compulsive buying, was also
confirmed in the final model (H4), corroborating other studies that found an existing
relationship between materialism and compulsive buying (Gardarsdottir and Dittmar, 2012;
Omar et al., 2014 and Kunkel et al., 2015).

Integrate model
Fit indices Appropriate levels for fit indicesa Proposed ! final

x 2 (value) – 11,98.456 ! 797.117

x 2 (probability) >0.05 p = 0.000 ! p = 0.000
Degrees of freedom – 167 ! 161
x 2/degrees of freedom <5.00 7.176 ! 4.951
GFI >0.95 0.953 ! 0.968
CFI >0.95 0.912 ! 0.946
NFI >0.95 0.900 ! 0.933
TLI >0.95 0.890 ! 0.929
RMSR <0.08 0.046 ! 0.034
Table II. RMSEA <0.06 0.050 ! 0.040
Fit indices for the
integrate model Note: aAppropriate levels for fit indices recommended by Hu and Bentler (1999)
 Demystifying
financial
literacy
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Figure 2.
Final model with
standardized
relationships
coefficients and
significance

The two last direct relationships proposed, which determine that financial literacy impacts
negatively on materialism and compulsive buying behavior, were confirmed (H5 and H6). The
impact on materialism exhibited a coefficient of 0.389, and the impact of financial literacy on
compulsive buying exhibited the greatest coefficient (0.671) of all relationships initially
proposed, showing that financial literacy is a strong predictor for individuals to have better
compulsive buying behaviors. This supports the argument that by means of financial literacy
and training on basic personal financial practices, practical programs should be created and
included in the curriculum of secondary education and therefore help prevent compulsive buying
behaviors (Pham et al., 2012).
With respect to the indirect effects in the constructs, two hypotheses were confirmed, which
stated that financial literacy has an indirect impact on propensity to indebtedness, being
mediated by compulsive buying or jointly by materialism and compulsive buying. So, the
impact of financial literacy on propensity to indebtedness had a coefficient of 0.270, being
mediated only by compulsive buying behavior. On the other hand, the impact of this
relationship, having as mediators the materialism and compulsive buying constructs, had a
negative impact of only 0.042. So, it can be seen that the indirect impact of financial literacy on
propensity to indebtedness is higher when it has only the compulsive buying behavior in this
relationship. Alemis and Yap (2013) also affirmed that the role of financial literacy is key in the
prevention and treatment of buying compulsively.
Finally, when the total effects that financial literacy have on the behavioral factors were
examined, it could be seen that the greatest impact of financial literacy was on compulsive
buying, followed by the impact on propensity to indebtedness and, finally, on materialism.
 MRR Hypothesis- Mediators Situation of
effect Relationship (!) constructs hypothesis Impact

H1-Direct Financial literacy Propensity to Confirmed 0.272*

indebtedness
H2-Direct Materialism Propensity to Rejected Not sig.
indebtedness
H3-Direct Compulsive Propensity to Confirmed 0.402*
buying indebtedness
H4-Direct Materialism Compulsive buying Confirmed 0.267*
H5-Direct Financial Materialism Confirmed 0.389*
literacy
H6-Direct Financial Compulsive buying Confirmed 0.671*
literacy
Indirect Financial Propensity to Materialism Rejected Not sig.
literacy indebtedness
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Indirect Financial Propensity to Compulsive Confirmed 0.270*

literacy indebtedness buying
Indirect Financial Propensity to Materialism Confirmed 0.042*
literacy indebtedness and compulsive
buying
Total Financial Materialism 0.389*
Table III. literacy
Relationships Total Financial Compulsive buying Materialism 0.775*
between the integrate literacy
Total Financial Propensity to Materialism 0.584*
model constructs literacy indebtedness and compulsive
with the impact of buying
direct, indirect and
total effects Note: *p < 0.01

Thus, these findings are important to understand the importance of financial literacy, which
goes beyond helping individuals’ finances and also other behavioral problems that affect the
financial health of a society. Mitchell et al. (2006) also reported that cognitive-behavioral
interventions in groups, which included instructions on cash management and other
mechanisms used by individual considered financially literate, effectively reduced their
compulsive buying behaviors, and, consequently, their debts.
The present research becomes even more important with the publication by OECD, in October
2016, of the OECD-INFE report “International Survey of Adult Financial Literacy Competencies”,
which includes the results of a study on financial knowledge, financial attitude and financial
behavior of 51,650 adult individuals aged 18 and 79 years, from 30 countries, including Brazil for
the first time. In this regard, although the results indicated that the financial literacy level is low
worldwide, the Brazilian score was even lower, with 1.2 percentage points below the world
average (OECD, 2016), which calls for urgent and more effective actions to minimize the effects
that low levels of financial literacy may have on individuals’ lives and, consequently, on the
economy.

Conclusions
Financial literacy has become a key element for the economic and financial stability of both an
individual and the economy. However, evidence have shown that financial literacy is a complex
phenomenon and can be a determinant of other behavioral factors. So, this research aimed to
 develop a model that was able to identify the integrated effect of financial literacy on Demystifying
materialism, compulsive buying and propensity to indebtedness by means of the construction financial
and validation of a model of structural equations.
Because of the lack of consolidated constructs, validation of the proposed constructs was
literacy
carried out, and as a result, 36 of 61 questions were validated, indicating some instability in the
scoring scales. Subsequently, an integrate model was developed, which joins the validated
measurement models and the structural model with six research hypotheses, which exhibited
inadequate adjustment indices in the initial model, requiring some adjustments. Among these
adjustments, some correlations between the errors were included, and the hypothesized statement
that materialism would impact positively and directly on propensity to indebtedness was not
supported and was excluded; consequently, the statement that financial literacy would impact
indirectly on propensity to indebtedness by means of materialism was also discarded.
Of the supported hypotheses, the impact of financial literacy on compulsive buying
behavior was the major direct relationship among those initially proposed, showing that
financial literacy has a positive impact on individuals, improving their compulsive buying
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behaviors. Furthermore, it was found that the indirect impact of financial literacy on propensity
to debt accumulation is greater when there is only the compulsive buying behavior in this
relationship. Finally, with respect to the total effects of financial literacy on the behaviors
investigated, it was found that the greater impact was on the compulsive buying behavior,
followed by propensity to indebtedness and, finally, materialism.
Given the above, this study is unique and innovative, to the extent that it measures the
actual direct and indirect impact of financial literacy on other behavioral factors, which have
been so far analyzed in separate. The study concluded that financial literacy has much more
significant impacts than other academic studies have shown, because under the academic point
of view, the central focus up to now has been in identifying only its impact on other behaviors.
Such outcomes are important for the development of public policies and to other agents
interested on this topic, considering that financial literacy goes beyond the fact that it impacts
on the financial health of those who have it and also that it can help even more widely those
who suffer from other psychosocial behaviors, such as compulsive buying. In addition, it can
help in the development of treatments for individuals with materialistic behaviors, compulsive
shoppers and those with high propensity to indebtedness. Financial institutions may also have
the opportunity to use this information to understand better the financial literacy of their clients
and build products that would fit each customer profile. Specifically, the findings of this study
indicate that the expansion and consolidation of a national financial education strategy could
impact on an individual’s better financial management and contribute effectively to minimize
compulsive buying behaviors and propensity to indebtedness.

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Appendix. Translated instrument

Financial attitude (1: strongly disagree; 2: disagree; 3: indifferent; 4: agree; 5: completely agree)
Questions adapted from Parrotta and Johnson (1998):
Q1. It is important for a family to develop a regular pattern of saving and stick to it**.
Q2. Families should have written financial goals that help them determine priorities in
spending**.
Q3. A written budget is absolutely essential for successful financial management**.
Q4. It is really essential to plan for the possible disability of a family wage earner**.
Q5. Planning for spending money is essential to successfully managing one’s life**.
 Q6. Planning for the future is the best way of getting ahead**. Demystifying
Q7. Thinking about where you will be financially in 5 or 10 years in the future is
financial
essential for financial success. literacy
Q8. Families should really concentrate on the present when managing their finances.

Q9. Financial planning for retirement is not really necessary for assuring one’s
security during old age.
Q10. Having a financial plan makes it difficult to make financial investment decisions.

Q11. Having a savings plan is not really necessary in today’s world to meet one’s
financial needs.
Q12. Planning is an unnecessary distraction when families are just trying to get by today.
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Q13. Keeping records of financial matters is too time-consuming to worry about.

Q14. Saving is not really important.

Q15. As long as one meets monthly payments there is no need to worry about the
length. of time it will take to pay off outstanding debts.

Financial behavior (1: never; 2: almost never; 3: sometimes; 4: almost always; 5: always)
Questions adapted from Shockey (2002), O’Neill and Xiao (2012) and OECD (2013):
Q16. I take notes and control my personal expenses (e.g., expense and revenue
spreadsheet)**.
Q17. I compare prices when buying something.

Q18. I save some of the money I get each month for a future need**.

Q19. I have a plan for expenses/budget**.

Q20. I can identify how much I pay when using credit**.

Q21. I pay my bills without delay**.

Q22. I save monthly**.

Q23. I analyze my financial situation before a major purchase**.

Q24. I always pay my credit cards on time to avoid extra charges.

Q25. I save regularly to achieve financial targets in the long term**.

Q26. I save more when I get a pay rise**.

Q27. I have a financial reserve at least three times my monthly earnings, which can be
used in unexpected moments**.
Q28. In the last 12 months, I have been able to save money**.
 MRR Financial knowledge (multiple-choice questions)
Questions adapted from studies by Van Rooij et al. (2011), OECD (2013), Klapper et al. (2013) and
National Financial Capability Study (NFCS, 2013):
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Propensity to indebtedness (1: strongly disagree; 2: disagree; 3: indifferent; 4: agree; 5: completely agree)
Questions adapted from Lea et al. (1995):
Q39. Taking out a loan is a good thing because it allows you to enjoy life**.
Q40. It is a good idea to have something now and pay for it later**.
Q41. Credit is an essential part of today’s lifestyle.
Q42. It is better to go into debt than to let children go without Christmas presents**.
 Q43. Borrowing money is sometimes a good thing**. Demystifying
Q44. I am rather adventurous with my money. financial
literacy
Q45. It is ok to borrow money to pay for children’s clothes**.
Q46. It is important to live within one’s means.
Q47. Even on a low income, one should save a little regularly.
Q48. Borrowed money should be repaid as soon as possible.
Q49. Most people run up too much debt.
Q50. It is too easy for people to get credit cards.
Q51. I do not like borrowing money**.
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Q52. Using credit is basically wrong.

Q53. I’d rather go hungry than buy food “on tick”’.
Q54. I plan ahead for larger purchases.
Q55. Being in debt is never a good thing.

Materialism (1: strongly disagree; 2: disagree; 3: indifferent; 4: agree; 5: completely agree)

Questions adapted from Richins (2004):
Q56. I try to keep my life simple, as far as possessions are concerned.
Q57. The things I own say a lot about how well I’m doing in life.
Q58. I like to own things that impress people**.
Q59. I admire people who own expensive homes, cars, and clothes**.
Q60. Buying things gives me a lot of pleasure**.
Q61. I like a lot of luxury in my life**.
Q62. My life would be better if I owned certain things I don’t have**.
Q63. I’d be happier if I could afford to buy more things**.
Q64. It sometimes bothers me quite a bit that I can’t afford to buy all the things I’d
like**.

Compulsive buying (1: strongly disagree; 2: disagree; 3: indifferent; 4: agree; 5: completely agree)
Questions adapted from a study by Leite et al. (2011):
Q65. If there is any money left at the end of the month I must spend it**.
Q66. I feel others could be shocked if they knew about my shopping habits.
Q67. I buy things even when I can¨t afford them**.
 MRR Q68. I write checks knowing that I have insufficient funds in my bank account to honor
them**.
Q69. I buy things to make myself feel good.
Q70. I feel anxious or nervous when I spend a day without buying something**.
Q71. I only pay the minimum amount due of my credit card invoices**.
Note: *Correct answer; **validated questions.

About the authors

Ani Caroline Grigion Potrich (PhD, Federal University of Santa Maria) is Professor at the Graduation
Program in Business Administration at Federal University of Santa Catarina, Brazil. Her research
interests are behavioral finances, with emphasis on financial literacy. Ani Caroline Grigion Potrich is
the corresponding author and can be contacted at: anipotrich@gmail.com
Kelmara Mendes Vieira (PhD, Federal University of Rio Grande do Sul) is Professor at the
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Post Graduation Program in Management of Public Organizations at Federal University of

Santa Maria, Brazil. She is CNPq Research Productivity, and her research interests are
behavioral finances, capital markets and financial management.

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