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=∑ B i a i [_]

where A represents the predicted attitude towards an object (or behavior), Bi represents the belief ‘i’

about an object (or behavior) and a i 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=c p+ c t [_]

y= y p+ y t [_]

c p=k (i , w , u ) y p [_]

y p and c p are the permanent components of measured income and measured consumption respectively
as y t and c t are the corresponding transitory components. The last equation describes that permanent

consumption is a fraction( k ) of permanent income( y p ) 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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