CONCEPTUAL FRAMEWORK

THEORY OF PLANNED BEHAVIOUR

Exploring the attitude of students towards saving involves also understanding the concept of attitude that
results in student saving behavior. The Theory of Planned Behavior (TBP) by Ajzen which is an extension
of the Theory of Reasoned Action (TRA) developed by Fisbein and Ajzen (1975) is of the best theories that
serve this purpose amongst many others. According to Fisbein and Ajzen (1975), The Theory of Reasoned
Action (TRA) was designed to determine a person’s behavior which is determined by their intentions which
are a result of a person’s attitude and subjective norm surrounding this behavior. In a bid to expand this
theory and its applicative relevance, Ajzen introduced the third determinant of intention called Perceived
control to the two determinants initially used in the Theory of Reasoned Action. Upon the Addition of
perceived control, the Theory of Reasoned Action becomes popularly regarded as the Theory of Planned
Behavior which becomes a model to determine a person’s actual choice of decision.

Given the need to understand what informs ones’ choice of decision, Ajzen through the Theory of Planned
Behavior did a Bottom-up review by explaining the 3 influential factors that determine intentions which
then determines behavior. He posits that one’s ATTITUDE (positive or negative) towards a behavior (i.e.
one’s appraisal of the behavior to be taken) is based on the salient belief on the possible outcome of the
behavior. For example, to form a habit of saving, one’s belief on the possible outcome of saving affects
one’s appraisal of the saving behavior. This position is reinforced by the works of Sifunjo (2014) which
found that MSEs in Kenya exhibit a positive attitude towards saving in more traditional instruments than
in the formal systems. A behavior informed by their strong belief in the traditional informal system.

Ajzen (1975) explains the second influential determinant SUBJECTIVE NORM as a person’s perception of
what the society thinks about the particular behavior to be carried out. Does society approve or
disapproves of such behavior? Is one key question to answer before performing a behavior as there has
been evidence of societal influence on ones’ behavior according to the works of East (1993) who performs
a study on investment decisions and the Theory of Planned Behavior. The final influential factor is the
Perceived Behavioral Control norm. it refers to how difficult it is to perform a particular behavior based
on past experiences as well as possible difficulties likely to encounter. East (1993) believes that “perceived
control has a circumstantial contribution to the determination of Actions (Behavior) given that it can have
a direct effect or indirect effect on Actions”. He further claims that to measure perceived control two key
factors must be taken into consideration as regards Investment decisions. First is the resource access that
can aid the performance of Action e.g. The Knowledge potential investors have as well as the monetary
resources available to them about buying and selling shares will aid their application for shares. And the
second key factor is described as the control access measure which refers to how available these
accessible resources are to potential investors. Thus, East (1993) concludes that the summation of
perceived access and control access measures determines perceived control.

To further assert the validity of the 3 determinants of Behavior, Ajzen (1975) followed up with a general
rule “The more favorable the attitude towards performing a behavior, the greater the perceived societal
approval and the easier it is to perform the behavior”. Over time, the Theory of Planned Behavior has
been applied to different fields such as Marketing and Advertisement study, Electoral process study,
Energy savings, Addictions, Consumer behavior, and many more. Worthy of note are the works of East
(1993) titled “Investment decisions and the Theory of Planned Behavior” which is a study aimed at
studying the psychological aspect of investment decisions. He applied this theory to investigate the
investment decisions of some selected British consumers. The result of his study came out to be consistent
with the theory of planned behavior as shown in the following statement, “Specifically, friends and
relatives (Subjective Norm) and access to fund (Perceived control) coupled with the fact that the
consumers are aware of their decisions to invest in other instruments are strong determinants for the
investment decision of the sampled consumers”. Though East alluded to the fact that subjective norm is
a weak measure of intentions he believes it combines well with the other 2 to determine intentions. This
position is shown in the study by Xiao and Wu (2006) on consumer behavior in completing a debt
management plan. They found that attitude towards behavior and perceived control affects actual
behavior while subjective norms do not. Also, Fortin (2000) proposed a theoretical framework to explain
consumer coupon and e-coupon behavior based on the theory of planned behavior. Kang, Hahn, Fortin,
Hyun, and Eom (2006) compared the theory of reasoned behavior and the theory of planned behavior in
the context of e-coupon use intentions and found that the theory of planned behavior explained the
intention better.

EXPECTANCY-VALUE THEORY

A number of psychology researchers agree that attitude is the totality of the assessment or evaluations
of beliefs one holds about a concept or object or action (Fishbein, 1963; Ostrom, 1969; Ajzen, 1991; Petty,
2001). These belief-based determinants are captured as the cognitive factors influencing one’s attitude.
One the theories built on this viewpoint is the Expectancy-Value Model. This school of belief-based models
has been challenged by researchers and its validity has been defended in the work of Fishbein &
Middlestadt (1995). The authors argued that the non-cognitive effects (or determinants) of attitude are
as a result of methodological inconsistencies in the application of the belief-based models.

The Expectancy-Value Model adopted for this study was developed by Fishbein (1963). The framework of
this model is built on the underlying cognitive structure of attitude. According to the model, to examine
or predict the attitude of an individual towards an object (or behavior), it is imperative to examine the
salient beliefs the individual holds about the object (or behavior) and how the individual evaluates those
beliefs. In order to apply this theory correctly, Fishbein & Ajzen (1975) differentiated between beliefs,
attitude, intention and behavior because of its wrong use as implying the same term. They corrected this
misconception by explaining that behavior is determined by the intention to perform that behavior, these
intentions are in turn jointly influenced by the attitude towards the behavior and the subjective norms,
and as already stated the attitude is then a function of the evaluation of the beliefs relating to the
behavior. Hence, the only correct predictor of attitude towards an object (or behavior) is the evaluation
of the beliefs held towards that object (or behavior). By implication, as this paper seeks to investigate the
attitude of economics undergraduate students towards saving, their beliefs about saving and how they
assess saving as being a favorable or unfavorable behavior is necessary to be examined.

Attitude and Behavior relationship

In order to have a correct predictor of attitude, Ajzen & Fishbein (1977) noted that there must be a
correspondence between behavioral predictor and the behavioral criteria on four grounds: target, action,
context and time. The authors explained variations of combinations of these elements on which the
correspondence would be adequate depending on what type of behavior is to be predicted, a single act
or a group of single acts (behavioral category) (see Ajzen & Fishbein, 1980). For a single act (e.g saving),
correspondence with the target and action elements were proposed as sufficient by the authors and a
measure of attitude towards the action would also be accurate. Following the already established
relationship between beliefs, attitude, intention and behavior, this correspondence requirement also
holds for beliefs and attitude. An absence of this correspondence will lead to an inaccurate measure of
the attitude and in turn intention and behavior.

Obtaining the Expectancy-Value measure of Attitude

The beliefs about an object are the characteristics, attributes, qualities of that object and the beliefs about
a behavior are the possible outcomes of performing the said behavior. The evaluation involves analyzing
pr assessing those attributes (or outcomes) if they are good or bad. It is how a person values a particular
belief about an object, issue, situation or behavior (Fishbein, 1995). An algebraic representation of
Fisbein’s (1963) expectancy value model is given as;

𝑨 = ∑ 𝑩𝒊 𝒂𝒊 [_]

where 𝑨 represents the predicted attitude towards an object (or behavior), 𝑩𝒊 represents the belief ‘i’
about an object (or behavior) and 𝒂𝒊 represents the evaluation of the belief 𝑩𝒊 .

To obtain the expectancy-value measure of attitude, once the salient outcomes of the behavior have been
identified, the strength of the person’s belief that the outcomes of the behavior are likely or unlikely to
occur should be accessed. Each belief-strength is then multiplied by its corresponding evaluative aspect
as provided by the person and the resulting products are summed to get the predicted attitude (Fishbein,
1995). To get a theoretically valid estimate of the expectancy-value, any attitude measurement scale, one
for each of the measurement of the belief strength and the evaluative aspect can be employed (Ajzen,
2008, p.532). Consistent with Fishbein (1995) & Ajzen (1991) a 7-point attitude measurement scale is
considered optimal.

The Expectancy Value Model explains attitude as an aggregate assessment of likely outcomes of
performing a said behavior through cognitive process. This model provides a theoretical framework within
which the saving attitude among economics undergraduate students is explained as we consider saving
to be a reasoned act taken after evaluating its associated costs and benefits.

THEORECTICAL REVIEW

ECONOMIC THEORIES OF SAVINGS

Savings is a concept that is of interest to the field of economics. Many studies have tried to describe
savings, particularly its relationship with income. Thus different theories have emerged from this many
attempt. Of the earliest studies in the relationship between income and consumption is the Absolute
Income Hypothesis proposed by Keynes (1936).

Keynes (1936) General Theory is agreed to be where the earliest consumption function was developed.
From intuition, Keynes postulated that current consumption is a function of current disposable income.
He described a positive relationship between consumption and income, that is, consumption increases as
income increases. This incremental relationship between consumption and income was referred to as the
marginal propensity to consume (MPC). Conversely, the incremental relationship between savings and
income is the marginal propensity to save (MPS).
“The fundamental psychological law, upon which we are entitled to depend with great confidence both a
priori from our knowledge of human nature and from the detailed facts of experience, is that men are
disposed, as a rule and on the average, to increase their consumption as their income increases, but not
by as much as the increase in their income.” (Keynes 1936, p. 96)

He explained that as the income of an individual increases, the percentage of his income that he is willing
to spend for consumption would be lesser in proportion to the increase in income, once his basic needs
have been met (Keynes, p.66). The consumer would be willing to save more as income increases rather
than consume (MPS > MPC). This implies that high income earners would have higher level of savings
compared to lower income earners. This scenario is logically applicable to a rational individual as an
increase in one’s source of income would tend towards increased savings rather than increased
consumption.

The Relative Income Hypothesis was developed by James Duesenberry (1949). In contrast to the Absolute
Income Hypothesis, the Relative Income Hypothesis introduced psychological factors and social influences
as they affect income related decisions (Khan, 2014). Relative Income Hypothesis argues that an
individual’s consumption is not dependent on his absolute income but rather on the consumption pattern
of others with whom one associates with or on his income relative to others (Turvey, 1950). One reason
for this is the “demonstration effect”, which Turvey (1950) explained as one’s actions or desires (e.g
consumption or standard of living) being influenced by that of your social group.
“Cet. par. the propensity to save of an individual can be regarded as a rising function of his percentile
position in the income distribution.” (Duesenberry, p.45)

Duesenberry (1949) proposed that as people became high income earners compared to those in their
community, they had more tendencies to forgo consumption and instead save more proportions of their
income as it increased as long as those whom they considered as their “peers” had stable level of
consumption.

Friedman’s (1957) Permanent Income Hypothesis explains that the consumption decision of a person is
not dependent on his immediate current income but on his expected income over a long period of time.
Individuals who expected high incomes in the future were expected to have increased consumption levels.
The author divided income into two components, permanent income and transitory income. The
permanent income component included the factors that had an effect on income or capital value over the
longer time period or beyond the “consumer unit’s horizon”. Such factors included ability, education, job
location, nature of job, etc. The transitory income on the other hand specified factors that resulted into
unexpected additions or deductions in the income of a person brought about by chance. Factors such as
fluctuations in economic activity could be responsible for the transitory income (Friedman, 1957, p.21,
221). The transitory income was the difference between the permanent and the current income level of
the individual. Empirically, it constituted errors in measurements of income during the data collection
process. Three equations describe the Permanent Income Hypothesis (Friedman, p.222):

𝑐 = 𝑐𝑝 + 𝑐𝑡 [_]

𝑦 = 𝑦𝑝 + 𝑦𝑡 [_]

𝑐𝑝 = 𝑘 (𝑖, 𝑤, 𝑢)𝑦𝑝 [_]

𝑦𝑝 and 𝑐𝑝 are the permanent components of measured income and measured consumption respectively
as 𝑦𝑡 and 𝑐𝑡 are the corresponding transitory components. The last equation describes that permanent
consumption is a fraction(𝑘) of permanent income( 𝑦𝑝 ) not the total measured income (𝑦) and is
determined by interest rate(𝑖), wealth(𝑤), and other factors that could affect the individual’s
consumption(𝑢). The permanent income component was what determined permanent consumption. As
part of the definition of the equations, he also included that there was no correlation among the
permanent and transitory components of income and consumption as well as between the transitory
income and the transitory consumption. In essence, unexpected income fluctuations do not change the
level of consumption but rather increase capital accumulations (or savings) (Friedman, 1957).

An alternative theory similar to the Permanent income hypothesis is Modigliani’s Life Cycle Hypothesis
(1954). However, the Life Cycle Hypothesis departs from the Permanent Income Hypothesis as it assumes
that the lifespan of the saving unit (household or individual) is not indefinite (Modgliani, 1986). The Life
Cycle Hypothesis poses that saving or consumption decision of an individual is not determined by just his
current income but also his life resources, which are future earnings over his lifetime discounted in
present terms. The age of the individual plays a crucial role in the Life Cycle Hypothesis. Young people are
expected to have longer years to live and so their future earnings are larger unlike older people. Therefore,
younger people would have increased savings compared to older persons (Ando & Modgliani, 1963).
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