Abstract

This study investigates factors affecting personal financial management behaviors by examining the
relationships among four factors including personal financial attitude, financial knowledge, locus of
control and financial management behaviors. The research model is examined by using a survey
approach on the youth in Vietnam. In the paper, Cronbach’s alpha, exploratory factor analysis and
confirmatory factor analysis were used to test measurement scale while the structural equation
modeling is used for measuring the relationships. The findings suggest that, all three key factors have
direct effects on financial management behaviors, in which they explained 62.1% of the variance of
financial management behaviors of respondents. Financial attitude and financial knowledge significantly
positive relate to financial management behaviors. Besides, the person who has more external locus of
control leads worse financial management behaviors. In addition, the results do not support for the
indirect effect of financial knowledge on financial management behavior through locus of control and
the moderated role of financial knowledge on the relationship between financial attitude and financial
management behavior. These findings could be useful references for related organizations as well as
financial institutes that are interested in developing personal financial management in a context of
emerging economies like Vietnam.

Introduction

In recent years, financial management practices of youth have received the increasing attention of a
wide range of organizations, such as government agencies, community organizations, college and
universities, etc. The youth are growing up in a culture of debt facilitated by expensive lifestyles and
easy credit (Dugas, 2001). However, young adults often begin their college careers without ever having
been solely responsible for their own personal finance (Borden et al., 2008). It was also pointed out that
the young generation rarely practiced basic financial skills, such as budgeting, developing a regular
savings plan or planning for long term requirements (Birari and Patil, 2014). They also may be
unprepared to effectively manage the psychological costs associated with high debt; for example,
increased levels of stress and decreased levels of psychological wellbeing (Norvilitis and Santa, 2002).
Known as an emerging economy, the Vietnam’s yearly per capita income has been estimated to reach
USD1.960, which is ranked at the 166 position in the world (Vietnamnet, 2013). The rate of saving on
income in Vietnam is 13 to 14 percent, which is rather low compared to other East Asian countries.
Moreover, according to the survey of Department of Education and Training, Save the Children, one
third of Vietnamese students questioned thought the amounts were less than they needed for their
daily expenditure (Vietnamnet, 2012). The survey also revealed that the most allowances were spent on
clothing, cosmetics, cinema tickets and on eating in salubrious restaurants as a way of showing how well
off they were. This situation proves that the young do not have abilities to plan for their spending in
meeting their day-to-day financial obligations. These poor financial behaviors will have consequential,
detrimental, and negative effect on their lives at home and work. In the literature, there are many
studies investigating the relationship between personal financial management behavior and personal
characteristics such as financial knowledge (Ibrahim and Alqaydi, 2013; Robb and Sharpe, 2009),
financial attitude (Dowling et al., 2009; Shime et al., 2009) and locus of control (Falahati and Paim, 2012;
Britt et al., 2013). However, such studies in the Vietnamese context is limited, particularly studies
towards young people (Le et al., 2009). Therefore, the objective of this study is to examine the
relationship among financial knowledge, financial attitudes, and locus of control in explaining personal
financial management behavior among the youth in Vietnam. The paper covers 5 sections. Section 2 is a
review of related literature. Section 3 shows methodology. Section 4 indicates results and discussion.
The final section is conclusions and recommendations.

2. Literature Review

2.1 Personal Financial Management

Behavior Financial management behavior is considered one of the key concepts on the financial
discipline. Many definitions are given with regarding to this concept, for example, Horne and Wachowicz
(2002) propose financial management behavior as the determination, acquisition, allocation, and
utilization of financial resources, usually with an overall goal in mind while Weston and Brigham (1981)
describe financial management behavior as an area of financial decision-making, harmonizing individual
motives and enterprise goals. Joo (2008) indicates that effective financial management behavior should
improve financial well-being positively and failure to manage personal finances can lead to serious long
term, negative social and societal consequences. Thus, financial management is mainly concerned with
the effective funds management. Failure in managing an individual’s finance can lead serious long-term
consequences not only for that person but also for enterprise, society (Ismail et al., 2011). Hence,
personal financial management behavior has received an increasing concern of researchers in recent
years. In the study by Deacon and Firebaugh (1988), personal financial management is defined as the set
of behaviors performed regarding the planning, implementing, and evaluating involved in the areas of
cash, credit, investments, insurance and retirement and estate planning. Xiao and Dew (2011) take into
account the personal financial management with regard to cash flow, credit, saving and investing
management. There are many studies in Vietnam before which examining only one dimension of
financial management behavior such as credit card (Nguyen and Lai, 2013; Vuong and Nguyen, 2013) or
saving (Gries and Ha, 2014). However, measuring many different domains of financial management
behavior is important because each domain has a serious role (Xiao and Dew, 2011). This study expands
on the studies before in finding out factors affecting on financial management behavior in general. The
conceptual model of this study is supported by two foundational theories including the family resources
management model and the theory of planned behavior. The family resource management model, as
given by Deacon and Firebauge (1988), shows that decision process includes connected sequences
started by inputs and continued by throughput, output and the feedback linking back to the inputs.
Parrotta and Johnson (1996) modified that model by defining financial knowledge as the input, financial
attitude and financial management behavior as two subsystems of the throughput. This is called
financial management conceptual framework to investigate effects of financial knowledge and financial
attitude on financial management behavior. In addition, the theory of planned behavior of Ajzen (2002)
concludes perceived control over performance of a behavior, which may be perceived by some as being
similar to locus of control, can account for a considerable variance in actions. In summary, combining
the financial resource management model and the theory of planned behavior gives a general view on
the relationship between financial behavior and financial attitude, financial knowledge, locus of control.
2.2 Hypothesis Development on Personal Financial Management Behaviors

In the literature, several factors are used to examine their relationships with regard to the personal
financial management behaviors; however, three critical factors are discussed in many recent studies
including financial attitude, personal financial attitude, financial knowledge, locus of control (Dowling et
al., 2009; Ibrahim and Alqaydi, 2013; Shime et al., 2009; Britt et al., 2013). As such, this paper suggests
several hypotheses on these relationships given as follows: Financial Attitude and Personal Financial
Management Behaviors Financial attitude can be considered as the psychological tendency expressed
when evaluating recommended financial management practices with some degree of agreement or
disagreement (Parrotta and Johnson, 1998). A number of researches have concluded that financial
attitudes play an important role in determining a person’s financial behavior (Davis and Schumm, 1987;
Shih and Ke, 2014). Financial attitudes shape the way people spend, save, hoard, and waste money
(Furnham, 1984). Thus, one hypothesis is suggested as follow: