Development of a Money Attitude and Financial Behaviour Scale for Indians

Devlina Chatterjee1 Tanvi Keswani2 Sanjay Gupta3

ABSTRACT

In this study our objective was to develop a scale for money attitudes and financial behavioural

traits prevalent among Indians. While there have been several scales for measurement of such

traits in the US and Britain, this is the first such study in India. The tri-component model viz., the

affective, behavioral and cognitive components of attitude formation was used to generate the

original scale that was developed in both English and Hindi. It was administered using an online

survey as well as through collection of data in the field. The final data included 625 respondents

from 20 villages in North India and more than 20 cities across India. Exploratory factor analysis

of this data yielded 6 factors which were named as follows: (i) „Financial Prudence‟,

(ii)„Extravagance‟ (iii) „Financial Knowledge‟, (iv) „Financial Anxiety‟, (v) „ Importance

attached to Money‟ and (vi) „Financial Support Network‟. Confirmatory Factor Analysis (CFA)

was conducted and the statistical fit of the CFA model was good. The findings of this study are

of potential interest to social policy makers, NGOs engaged in helping people achieve financial

well-being as well as agents of financial institutions trying to market insurance and investment

products to the Indian customer.

JEL Classification Codes: D90, D91, C38, P46

1
Industrial and Management Engineering, IIT Kanpur; email: devlina@iitk.ac.in
2
Industrial and Management Engineering, IIT Kanpur; email: tanvikeswani93@gmail.com
3
Industrial and Management Engineering, IIT Kanpur; email: sygupta1993@gmail.com
Introduction

India is the second largest country in the world in terms of population and third largest economy

in terms of purchasing power parity. It is important to understand the financial behaviour of the

1.34 billion Indians because understanding the consumer (of financial services) is key to

communicating, educating, and improving their financial wellbeing. While there have been

several studies in Western countries that have tried to measure money attitude and financial

personality, there has been no such attempt for the Indian population. Given the perceived need,

we started out with the objective of developing a scale for measuring money attitudes and

financial behavioural traits of Indian consumers.

Money affects all aspects of life such as birth, childhood experiences, physical and mental

growth, education, identity, the way people live, chose their careers, their partners, the

relationships they have with friends and family and even death. In some sense, money is the one

constant factor that affects us throughout our lives, sometimes because it is needed for survival

but often because of what it represents in terms of standing in society, the freedom to pursue

one‟s dreams and to have a fulfilling and happy life. Money has historically been used as a (i)

Means of exchange, (ii) Means of storage of value, (iii) Means of insuring against future risk and

uncertainty, (iv) Means of expressing love or affection, (v) Means of doing something good for

others and so have meaning in life and (vi) as a symbol for success, achievement and character.

Several scales have been developed for measuring money attitudes and financial behaviour of

individuals as has been described in detail in the literature review below. But these were all

developed for Western societies. The populations for which these scales were developed were

more affluent, had greater access to cheap credit, more stable and more accessible financial
institutions and stronger consumer protection agencies. In addition there are also significant

cultural differences, e.g. western societies typically have more individualistic cultures which

were more egalitarian (lower power distance) and materialistic whereas oriental cultures are

more inter-dependent, more hierarchical and less materialistic (Hofstede, 2001) 4 . Since these

scales were developed for different socio-economic conditions, one may expect that these may

not be directly applicable to India. Khare (2014) applied these scales on an Indian sample and

found that the validity and applicability of these scales was low in the Indian context. Given the

fact that one in five people in the world is an Indian5, and given that the Indian economy is now

the third largest in the world by purchasing power parity6, we felt that it is necessary to develop a

scale for the financial behaviour of Indians that reflects the socio-economic, historical and

cultural factors of this country.

Literature Review

The purpose of this research is to understand the financial behaviours and money personality of

Indians. In this section, we discuss some of the studies that developed some of the common

scales that measured different aspects of financial behaviour and attitudes towards money. A

summary of some of the main studies have been given in Table 1.

Wernimont and Fitzpatrick (1972) developed a semantic differential scale consisting of forty

adjective pairs to be rated on a seven-point scale. The study was to determine how different

people view money. Their sample consisted of 533 Americans from diverse fields (e.g.

4
Hofstede, G. H., & Hofstede, G. (2001). Culture's consequences: Comparing values, behaviors, institutions and
organizations across nations. Sage.
5
Datta, P., & Mohanty, S. K. (2016). Indias future population and its socio-economic implications by 2015.
Demography India, 34(2), 167-184.
6
Benz, S., Khanna, A., & Nordås, H. K. (2017). Services and Performance of the Indian Economy.
engineers, technical advisors). Factor analysis resulted into the following interpretable factors.

The first factor named “Shameful failure” stood for the belief that lack of money is an indication

of failure, embarrassment and degradation. The second factor was named “Social Acceptability”

indicating the belief that money gives social acceptability. The third factor called the “Pooh-pooh

attitude” indicated the belief that money is not very important, satisfying or attractive. The

fourth, fifth, sixth and seventh factors were named “Moral Evil”, “Comfortable security”, “Social

Unacceptability” and “Conservative Business Values” and the names of the factors are self-

explanatory. Rubinstein (1981) conducted a study in USA with more than 20,000 respondents for

Psychology Today. The objective of their study was to understand people‟s attitudes and feelings

about money; to determine the importance of money and its role in affecting relationships. The

respondents were identified as “free-spenders”, “penny-pinchers”, the “money-contented”, and

the “money-troubled”.

Money Attitude Scale

In one of the earliest studies on attitude towards money, Yamauchi and Templer (1982) studied

the psychological aspects of money covering fundamental elements such as: “security”,

“retention”, and “power-prestige”. A seven-point Likert scale (with always and never as the end

points) consisting of sixty items was generated to cover the above three elements. The factors

were labelled as: “Power-Prestige - money could be used as a tool of power and measure of

success (nine items)”, “Retention-Time - financial planning and careful use of money (seven

items)”, “Distrust - to be hesitant, suspicious and doubtful regarding situations involving money

(seven items)”, “Quality - purchasing of quality products (five items)” and “Anxiety - to see

money as a source of anxiety as well as a source of protection from anxiety (six items)”. A 29-
items reliable Money Attitude Scale (MAS) was developed on the basis of four of these five

factors (Quality discarded as a factor).

Gresham and Fontenot (1989) investigated gender differences in the use of money by using a

slightly modified version of the MAS scale. In this study, “Distrust” and “Anxiety” factors were

collapsed and the “Quality” factor discarded by Yamauchi and Templer (1982) was retained. The

results showed that out of the four dimensions, men scored higher than women in three

dimensions (Power/Prestige, Distrust/Anxiety, and Quality). However, no significant difference

was observed between the two groups on the fourth factor (Retention/ Time).

Andersen et al. (1993) used the original MAS scale with 29 items. and found four factors:

“Power-Prestige”, “Retention-Time”, “Distrust- Anxiety” and “Compulsive-Compensatory (a

different factor from Gresham and Fontenot (1989)”. Medina et al.(1996) conducted a study with

1,132 adults to compare the money attitudes of Mexican-American and Anglo-American

consumers. The study used the 34- item MAS scale. Factor-item loadings were remarkably

similar to those reported in previous findings (Gresham and Fontenot 1989; Yamauchi and

Templer 1982). Roberts and Sepulveda (1999) used the 29- item Yamauchi and Templer's

Money Attitude Scale (MAS) to check its validity in the Mexican culture and to determine the

relationship between several demographic variables (gender, age, income, education and

occupation) and money attitudes. A total of 275 responses were collected from young Mexicans.

A principal component factor analysis with varimax rotation resulted into five factors: “Power-

Prestige”, “Retention-Time”, “Distrust”, “Anxiety”, and “Bargain-conscious/compulsive”. The

results were highly consistent with the original Yamauchi and Templer (1982) findings. Here,

the “Anxiety” factor had much more clearer interpretation than the original MAS. Although

administered across a different culture, the MAS retained much of its original structure.
Money Beliefs and Behaviour Scale

Furnham (1984) developed a “Money Beliefs and Behaviour Scale (MBBS)” using a seven point

Likert format. A total of256 respondents from different background were collected from

England, Scotland and Wales, UK. An initial sixty- item set was developed from three sources:

Yamauchi and Templer (1982), Goldberg and Lewis (1978), and Rubinstein (1981). Factor

Analysis resulted into six factors (scree test) which are: - “Obsession (eighteen items) - to be

obsessed by all aspects of money”, “Power/Spending (eight items)” - giving of money as a

means of power, “Retention (six items)” - to be careful with money, “Security/Conservative

(eight items)” - a somewhat old-fashioned approach to money, “Inadequacy (seven items)” -

feelings that one has not got enough money; and “Effort/Ability (four items)” - how one gets

money. A 47- items MBBS scale was developed on the basis of these six factors.

Hanley and Wilhelm (1992) used the 47 items Furnham‟s MBBS Scale for comparing a group of

self-reported compulsive spenders with a group of „normal‟ consumers on their self-esteem and

money attitudes. Data was collected from 43 compulsive spenders and 100 'normal' consumers in

USA by using a self-report questionnaire. The questionnaire included the Rosenberg New York

Self-Esteem Scale (Rosenberg 1979); the Money Beliefs and Behaviour Scale (Furnham 1984);

the Compulsive Buying Scale (Valence et al. 1988); and demographic variables such as age,

gender, income, education, marital status, occupation, and family size. A Hotelling‟sT^2 statistic

showed that the two groups had significant differences on five of the six dimensions under study.

They were not significantly different on the effort/ability dimension.

Christopher et al. (2004) used the MBBS scale to investigate the relationship between

materialism and money attitudes. Data was collected from 204 undergraduate American students.
The questionnaire consisted of 18-items Richins and Dawson (1992) Materialism Scale and 45-

items Furnham's MBBS Scale (1984). Demographic data pertaining to sex and socio-economic

status (SES) was also collected. A principal components analysis (varimax rotation) resulted into

four factors: - “inadequacy of money (seven items)”, “conservative approach to money (three

items)”, “self-aggrandizement (six items)” and “negative emotions (two items)”. There was a

positive correlation between materialism and feelings of inadequacy about money and the

tendency to use money as a self-aggrandizing mechanism and a negative correlation between

materialism and a conservative approach toward money.

Baker and Hagedorn (2008) conducted a study to examine the validity of the Yamauchi and

Templer‟s MAS and Furnham‟s MBBS and to develop a more reliable and valid scale to

measure attitude towards money. Data was collected from a random sample of 200 adults in

Canada through a telephonic survey conducted by a commercial survey research firm in 1988.

The questionnaire consisted of 20 MAS items (five items that loaded highest on each of the four

factors) and the 25 MBBS items (five items that loaded highest on each of the five factors) along

with some demographic variables such as age, sex, income, and education. A factor analysis was

performed on MAS and MBBS scale. The items from the MAS and MBBS scales were

combined to obtain a more reliable and meaningful 40-items YTF scale since both the scales

were used to measure money attitudes. The factors are: - “Power-prestige”, “Frugality-distrust”,

“Planning-saving” and “Anxiety”.

Money Ethic Scale (MES)

Tang (1992, 1993, 1995) have developed the Money Ethic Scale (MES) to describe the ethical

meanings that people associate with money. Tang (1992) conducted a study to develop money
ethic scale, to measure money attitudes in organizational and work-related settings and to

investigate several other work-related variables such as the Protestant Work Ethic and job

satisfaction in the study. Data was collected from 249 full time employees in USA. A seven point

Likert –type scale (disagree strongly (1), neutral (4), and strongly agree (7)) with fifty items was

used. A principal component factor analysis with varimax rotation resulted into six factors: -

“good (nine items)”, “evil (six items)”, “achievement (four items)”, “respect (four items)”,

“budget (three items)”, and “freedom/ power (four items)”. The six factors can be categorized as

an affective component (Good and Evil); a cognitive component (Achievement, Respect and

Freedom/Power) and a behavioural component (Budget). A 30 item Money Ethic Scale was

developed having satisfactory inter-item consistency and test-retest reliability. Tang (1993)

translated the MES scale and used it in Taiwan (68 undergraduate students from NTU) to further

validate, replicate, and explore the scale. Tang (1995) modified the MES and validated it in the

US. For each factor, the 2 items with the highest item-total correlations were selected. Thus, a

total of 12 items were selected for the study. Data was collected from 740 respondents in USA.

A principal component factor analysis with varimax rotation resulted into three factors (a factor

loading of 0.45 or higher): - “Success- a cognitive component (eight items)”, “Budget - a

behavioural component(two items)”, and “Evil - an affective component (two items)”.

Mitchell et al. (1998) developed a 32 items Money Importance Scale (MIS) to measure how

much money is important to an individual. The seven factors of the MIS are: - “Value

importance of money (VIM)”, “Personal involvement with money (PIM)”, “Time spent thinking

about financial affairs (TTF)”, “Knowledge of financial affairs (KFA)”, “Comfort in taking

financial risks (CFR)”, “Skill in handling money (SHM)” and “Money as a source of power and

status (MPS)”.
Gasiorowska (2003) was the only author that developed a financial behaviour scale for Poland a

country outside the US or UK. In fact, in their study, they specifically mentioned the need to

develop a different scale for Polish people that would take into account the cultural and socio-

economic differences between Poland and other Western countries. They developed a 63-items

SPP Money Attitudes Questionnaire in Poland. The seven factors are: - “Control and planning” -

thriftiness, carefulness and prudence in situations and decisions connected with money, “Power”,

“Anxiety”, “Debt aversion - reluctance to borrowing money”, “Occasion seeking” - inclination to

search for and exploit special occasions connected with money, “Money as evil” and “Cash” -

preference for liquid form of money.

Methodology

Theoretical Underpinning for Scale Development

While trying to understand the different aspects of financial behaviour, we decided to use the

ABC theory of attitude formation (Eagly, & Chaiken, 1993) 7 . Eagly and Chaiken define an

attitude as "a psychological tendency that is expressed by evaluating a particular entity with

some degree of favor or disfavor." Or, in other words, an attitude is the state of mind in which a

person views any person, animate or inanimate thing, place, event or idea (these are called the

attitude objects) positively or negatively. Attitudes structure can be described in terms of three

components: Affective (A), Behavioral (B) and Cognitive (C).

Affective component: this involves a person‟s feelings / emotions about the attitude object. In

the case of financial matters for instance, a person may “feel worried or anxious” about money

7
Eagly, Alice H., and Shelly Chaiken. 1998. "Attitude, Structure and Function." In Handbook of Social Psychology,
ed. D.T. Gilbert, Susan T. Fisk, and G. Lindsey, 269–322. New York: McGowan-Hill.
or they may “feel very happy” when they get or spend a lot of money. As can be seen from the

underlined words, each of these statements describes feelings.

Behavioral (or conative) component: the way the attitude we have influences how we act or

behave. For example people may “spend a lot of time and effort to earn a lot of money” or “give

to charity” or “spend on quality goods and services for oneself”. The underlined words describe

behaviours that are manifestations of their attitude about the importance of money (in the first

case) and the appropriate use of money (in the second and third cases).

Cognitive component: this involves a person‟s belief / knowledge about an attitude object. For

example: “I believe saving money is important for old age” or “I believe higher levels of risk

leads to earning higher returns” or “I know that saving in fixed deposits will give me x% interest

rate”. These are the aspects of attitude that are related to thinking rationally or forming beliefs

about the way one can earn, save and spend money to maximize one‟s utility.

After some brainstorming, the following aspects of financial behaviour were identified as aspects

of financial behaviour that covered the spectrum of

1. Financially responsible behaviour – supporting oneself, taking care of financial

responsibilities , saving for the future

2. Planned and organized / Unplanned and scattered

3. Financial Independence – take financial decisions independently

4. Financial Knowledge and Sophistication / Lack of Financial knowledge

5. Risk Averse / Risk Loving- the extent to which individuals are willing to take risk

6. Worried / Not worried- living a carefree life or worrying too much about the future
7. Generosity – Giving or sharing of resources with friends and family, giving to charity

8. Money for social good / money for personal use and prestige

9. Instant gratification / Delayed gratification

We initially started with a pool set of sixty items to test the aspects of financial behaviour

mentioned above. After generating the first set of sixty items, we refined them further to ensure

that the wording of the questions was unambiguous and not double-barrelled. We tried to ensure

that the questions were as short as possible and were had simple and direct wording, so that the

respondents would be able to understand them easily. We also tried to reduce the overall length

of the questionnaire keeping in mind the fact that long questionnaires may result in low response

rates and difficulty in collection of data. Thus we shortened our item set to thirty-three items;

three items per construct. While modifying the questionnaire, we identified one more construct

labelled as “Financial Support Network” with three items. So, our final survey form consisted of

thirty six items (other than the demographic and socio-economic questions).

Pilot Test, Expert Opinion and Translation of Questionnaire to Hindi

In the final survey form, items were randomly arranged to avoid biasing the responses. A pilot

study was conducted by with several post graduate students of IME Dept., IIT Kanpur to make

sure that the language used is easy to understand for the respondents. On the basis of their

reviews, wordings of few items were changed. We also consulted an expert in scale

development, viz. a professor in the Psychology Department at IIT Kanpur, to check for the

psychometric properties of the scale. Since a large proportion of our target sample was based in

North India, it was felt that they might be more comfortable with responding to a questionnaire
framed in Hindi. Hence, the original English questionnaire was translated into Hindi and the

correctness of translation was verified by an person who had a good knowledge of Hindi.

Our survey had two types of items; some questions measured on the basis of their frequency and

other questions measured on the basis of their level of agreement. A 5-point Likert type scale

was chosen based on previous studies to respond to each item. To measure frequency, the scale

used ranged from „Never‟ to „Always‟. To measure the level of agreement, the scale ranged from

„Strongly Disagree‟ to „Strongly Agree‟. We also collected data on some demographic variables

such as: „Age‟, „Gender‟, „Marital and Family Status‟, „Education‟, „Employment Status‟,

„Household monthly income‟, „Approx. monthly expenditure (for household)‟, „Earners‟,

„Dependents‟, „Village/town/city‟, „House Ownership‟, „Vehicle Ownership‟ and „Bank

Account‟. These demographic variables were included in order to be able to categorize the

respondents based on these variables and understand the segments of population that had

different financial traits. The description for the demographic variables is as follows:

Age: The variable „Age‟ had six categories, viz. , “Under 18 years old”, “18-24 years old”, “25-

34 years old”, “35-44 years old”, “45-55 years old”, and “Above 55 years old”. Our sample was

not restricted to any particular age group.

Gender: This variable was used to determine the „gender‟ of the respondent.

Marital and Family Status: This variable had four categories, viz. , “Single”, “Married without

children”, “Family with dependent children”, and “Family with independent children”.

Education: The level of education the respondent had completed was asked. The different

categories used were: “Non- Matriculate”, “High School (Matriculation/12th)”, “Bachelor‟s

Degree”, “Professional/Master‟s Degree” and “Doctorate Degree”.

Employment Status: -This variable determined the occupation of the respondent. The categories

used were: “Student”, “Looking for work”, “Homemaker”, “Employed (salaried)”, “Self-

Employed (Business / freelance / others)” and “Retired”.

Household monthly income: - This variable was used to determine the total monthly household

income of the respondent. Six categories were used, viz. , “Less than Rs. 10,000/month”, “Rs.

10,000 – Rs. 25,000/month”, “Rs. 25,001 – Rs. 50,000/month”, “Rs. 50,001-Rs. 1 lakh/month”,

“More than Rs. 1 Lakh / month” and “Would rather not say”. The category “Would rather not

say” was used because some people may not be comfortable in sharing their income information,

and we did not want this to be a barrier to collecting the main data of interest.

Approx. monthly expenditure (for household): - This is a continuous variable used to that

might be used as a proxy for household income.

Earners: This was used to determine the number of earners in the respondent‟s family.

Dependents: This variable was used to determine the number of dependents in the respondent‟s

family (including children, older parents).

Village/town/city: This variable was used to determine the city of data point collected.

House Ownership: The variable „House Ownership‟ was used to determine whether the

respondent owned a house of his own or not.

Vehicle Ownership: The variable „Vehicle Ownership‟ was used to determine whether the

respondent owned a two wheeler, a four wheeler or nothing. This was a multiple choice question.

The respondents can tick all the options that applied to them.

Bank Account: This was used to determine whether the respondent had a bank account.
Data Collection

The questionnaire was administered in two modes, namely, online and the offline mode. Google

form was used to create the online questionnaire in English. The link of the form was sent

through mails and various social media apps like Facebook, WhatsApp and LinkedIn. Reminder

mails were sent by the researcher for the online questionnaire in order to follow the respondents

for the responses. A total of 345 responses were collected online from various cities like

Allahabad, Aligarh, Gorakhpur, Kanpur, Lucknow, Varanasi (UP); Alwar, Bikaner, Jaipur,

Udaipur (Rajasthan); Ahmedabad, Surat, Mumbai, Pune, Bangalore, Hyderabad, Delhi, Gurgaon,

Kolkata, Chennai, Bhubaneswar, Bokaro and others.

The offline questionnaire was personally administered by the research team in Allahabad,

Bhimtal, Bhowali, Haldwani, Kanpur, Nainital, Rudrapur and Udaipur and 20 villages in North

India (Basuhar, Bhakhar, Bohrakun, Dhungsil, Jangaliya Gaon, Jantwal Gaon, Jathiya, Katra,

Kaushambi, Khutani, Maluataal, Naukuchiyatal, Pandey Gaon, Rawat Gaon, Sanguri Gaon etc.).

The respondents were asked about the language preference so that they can easily fill up the

survey. Hard copies of questionnaire were then given to the respondents. A total of 280

responses were collected offline. Entire data collection process was finished in about a month.

Data

A total of 345 respondents had filled the online survey form floated through gmail and various

social media apps. A total of 280 responses were collected by the researcher by personal

administration of the questionnaire. When the respondents completed the questionnaire online,

through Google forms a response file was automatically generated as a ".csv" file. The

researcher separately entered the offline responses into a .csv file. The online questionnaire was
only in English language while a large percentage of the offline responses were through the

Hindi questionnaire. A dummy variable was used in the offline questionnaire to indicate the

language in which the questionnaire was filled; whether English or Hindi. The different points of

the 5-point Likert Scale were replaced as given below in both the online and offline csv files.

The modified file was then loaded into R for further analysis.

Frequency Agreement Levels

Never Strongly Disagree 1
Rarely Disagree 2
Sometimes Neutral 3
Quite Often Agree 4
Always Strongly Agree 5

Exploratory Factor Analysis (EFA)

Exploratory Factor Analysis (EFA) is used to determine the factor structure that well explains the

possible underlying latent traits of a set of observed variables. EFA identifies the factors that

maximize the amount of variance explained within the data using Maximum Likelihood method

for estimation. From a prior understanding of the latent constructs that we wanted to measure, we

hypothesized that the factors might be correlated. Therefore we used an oblique rotation method

viz. PROMAX rotation. EFA was applied on the online dataset (English) of 36 items and 345

responses to determine the underlying latent factors.

Selection of number of factors

In order to select the number of factors to be extracted, different criteria were applied. Kaiser

(1960) proposed K1-Kaiser’s eigenvalue-greater-than-one rule that is mostly utilized method to

determine the number of factors to be extracted. The method retains only those factors that have
eigenvalues greater than one. Another commonly used method to determine the number of

factors to be retained is the Cattell‟s Scree test (Cattell, 1966). This method is a graphical

representation of the eigen- values plotted in a descending order vs. the number of factors. The

point at which the last significant drop or break occurs (an elbow is made) is used to determine

the number of factors. Horn (1965) proposed Parallel Analysis method to determine the number

of factors to be retained. The observed eigen-values extracted from the correlation matrix to be

analyzed are compared with those obtained from uncorrelated normal variables. It is

recommended to retain a factor if the eigen-value associated with it is greater than 95th percentile

of the distribution of eigen-values derived from the random data. This is the most appropriate

and accurate method for determining the number of factors to retain.

R provides us with a function nScree( ) that gives non graphical solutions to the subjective scree

test which include an acceleration factor (af) and the optimal coordinates index oc. The

acceleration factor corresponds to the second derivative of the curve. The elbow of the scree plot

is indicated by the acceleration factor. The optimal coordinates correspond to the extrapolated

coordinates of the previous eigen-value that allow the observed eigen-value to go beyond this

extrapolation. The number of factors to be retained were obtained from all the above mentioned

methods. Finally the result from Parallel Analysis was chosen to build the factor model.

Factor Loading Cut-off

Many studies have recommended to use a factor loading cut-off of 0.4 or more to retain any item

loading on a given factor (for instance see Hinkin et al. 1997). In the present study also we have

chosen a factor loading cut-off of 0.4.

Identifying the factors

The purpose of the study was to identify the underlying financial latent traits. Different factor

models (7 factors, 8 factors and 9 factors) were built by taking factor loading cut-off of 0.4. By

comparing the different stats obtained for the factor model and the resulting interpretability, we

selected a 7 Factor Model. Once the model was obtained, the naming of the underlying latent

traits was done.. However, it was somewhat difficult to interpret and name Factor 4.

Cronbach's Alpha

Cronbach‟s alpha measures how well a set of related items explain the underlying construct. It

determines the internal consistency or convergent validity. We looked at several papers on scale

Development and on Cronbach's alpha to understand acceptable levels of Cronbach's alpha.

Acceptable levels of Cronbach's alpha is reproduced from Peterson (1994) (below).

Exploratory Factor Analysis (EFA) Results

First of all, the KMO stats was determined for the online dataset. A KMO value of 0.75 indicated

that Factor Analysis can be performed on the online dataset.

Selection of number of factors

As can be seen from Table 8, the Parallel Analysis method resulted in 7 factors to be extracted

and Kaiser Method resulted in 11 factors to be extracted, we built different factor models with 7,

8, 9, 10 and 11 factors. However 9, 10 and 11 factor models were not clearly interpretable. We

selected the 7 factor model for our analysis, which was highly parsimonious.

Graph 1: Scree Plot for the online sample

Graph 2: Non Graphical Solutions to Scree Test for the online sample
Table A: Number of factors to retain as determined by different methods

Scree plot noc naf nparallel nkaiser

3 3 1 7 11

Table A above shows the number of factors to retain as determined by different methods.

Pruning of the questionnaire

After arriving at the initial factor loading matrix with seven factors, we checked the Cronbach's

alpha to check for internal consistency. In order to arrive at a set of items that had a greater level

of internal consistency, the inter-item correlations were checked for all items loading on the

same factors. This was done to see whether there were any items that seemed to have only a low

correlation with the underlying construct. Based on this, any item having inter-item correlation

of less than 0.3 with all other items loading on the same factor was removed. In order to improve

the internal consistency of the scale we removed i) the items that didn‟t load on any factor, ii)

item 17 and item 21 as they had inter-item correlation of less than 0.3 with all other items that

loaded on the same factor. All items loading on Factor 4 had inter-item correlation less than 0.3.

Thus when we pruned the questionnaire, we found that Factor 4 was no longer a factor. We then

arrived to a 6 factor model with 18 items. All the factors had good interpretability.

Confirmatory Factor Analysis (CFA)

Confirmatory Factor Analysis (CFA) was performed to verify the factor structure that is obtained

through Exploratory Factor Analysis (EFA). In EFA, there is no need to specify any factor model

in advance. But in CFA, we specify the factor structure consisting of the number of factors and

the items loading on that the factors. Once we arrived at our final factor model with 18 items
loading on 6 factors, we performed confirmatory factor analysis on the 214 Hindi responses

obtained by offline administration. Different statistical measures such as the Root Mean Square

Error of Approximation (RMSEA), the comparative fit index (CFI), the Tucker-Lewis Index

(TLI) and the standardised root mean square residual (SRMR) were calculated to evaluate the

model fit.

RESULTS

Primary data was collected in two modes viz., online mode and offline mode. The online sample

consisted of 345 responses collected from various cities like Allahabad, Aligarh, Gorakhpur,

Kanpur, Lucknow, Varanasi (UP); Alwar, Bikaner, Jaipur, Udaipur (Rajasthan); Ahmedabad,

Surat, Mumbai, Pune, Bangalore, Hyderabad, Delhi, Gurgaon, Kolkata, Chennai, Bhubaneswar,

Bokaro and others. The offline sample consisted of 280 responses out of which 214 were in

Hindi and were hence further used for the Confirmatory Factor Analysis.The offline

questionnaire was personally administered by the researcher in Allahabad, Bhimtal, Bhowali,

Haldwani, Kanpur, Nainital, Rudrapur and Udaipur and 20 villages in North India (Basuhar,

Bhakhar, Bohrakun,Dhungsil, JangaliyaGaon, JantwalGaon, Jathiya, Katra, Kaushambi,

Khutani,Maluataal, Naukuchiyatal, Pandey Gaon,RawatGaon, SanguriGaon etc.). This chapter

consists of the descriptive analysis of our online and offline sample, results of the exploratory

and confirmatory factor analysis methods applied.

Descriptive Statistics: Analysis for different demographic variables is given below.

Age: Majority of the online population lie in the age group of 18-24 years old and 25-34 years

old (40.29%). The offline sample had majority of population in the age group of 25-34 years old
(32.14%). This may be due to a large number of online questionnaires were filled up by students,

while a large number of offline questionnaires were administered to heads of households.

Table 1: Distribution of different age groups in the online, offline and merged sample

Online Offline Merged

Age Freq. % Freq. % Freq. %
Under 18 years old 1 0.29% 1 0.36% 2 0.32%
18-24 years old 139 40.29% 35 12.50% 174 27.84%
25-34 years old 139 40.29% 90 32.14% 229 36.64%
35-44 years old 34 9.86% 67 23.93% 101 16.16%
45-55 years old 28 8.12% 47 16.79% 75 12%
Above 55 years old 4 1.16% 40 14.29% 44 7.04%
Total 345 100.00% 280 100.00% 625 100.00%

Gender: As can be seen from Table 2, the online sample consisted of 252 men (73.04%) and 93

women (26.96%); the offline sample consisted of 227 men (81.07%) and 53 women (18.93%).

Table 2: Distribution of gender in the online, offline and merged sample

Online Offline Merged

Gender Freq. % Freq. % Freq. %
Male 252 73.04% 227 81.07% 479 76.64%
Female 93 26.96% 53 18.93% 146 23.36
Total 345 100.00% 280 100.00% 625 100%

Education: As can be seen from Table 3, the majority of the online and offline population

constituted of Professional/ Master‟s Degree holders; 42.03% and 31.43% respectively.

Table 3: Distribution of education level in the online, offline and merged sample

Online Offline Merged

Education Freq. % Freq. % Freq. %
Non-matriculate 1 0.29% 31 11.07% 32 5.12%
High School (Matriculation/ 12th) 34 9.86% 66 23.57% 100 16%
Bachelor’s Degree 138 40.00% 87 31.07% 225 36%
Professional/Master’s Degree 145 42.03% 88 31.43% 233 37.28%
Doctorate Degree 27 7.83% 8 2.86% 35 5.60%
Total 345 100.00% 280 100.00% 625 100%
Income: The differences in the online and offline samples is particularly significant, if one looks

at the income distribution. As can be seen from Table 4, the majority of the people in the online

sample had income in the range of Rs. 25,001 – Rs. 50,000/month (27.25%), while that in the

offline sample had income less than Rs. 10,000/month (32.50%).

Table 4: Distribution of income in the online, offline and merged sample

Online Offline Merged

Income Freq. % Freq. % Freq. %
Less than Rs. 10,000/month 13 3.77% 91 32.50% 104 16.64%
Rs. 10,000 – Rs. 25,000/month 56 16.23% 80 28.57% 136 21.76%
Rs. 25,001 – Rs. 50,000/month 94 27.25% 56 20.00% 150 24%
Rs. 50,001-Rs. 1 lakh/month 81 23.48% 28 10.00% 109 17.44%
More than Rs. 1 Lakh / month 71 20.58% 11 3.93% 82 13.12%
Would rather not say 30 8.70% 14 5.00% 44 7.04%
Total 345 100.00% 280 100.00% 625 100%

Employment Status: The differences in the employment status varied a lot across different

categories in the online and the offline sample. As can be seen from Table 5, the majority of the

online and offline population constituted of employed respondents; 44.93%and

46.43%respectively. The online sample also consisted of a large number of students (43.77%),

while the offline sample consisted of a large number of people who were self-employed (20%)

or looking for employment (13.93%).

Table 5: Distribution of employment status in the online, offline and merged sample

Online Offline Merged

Employment Status Freq. % Freq. % Freq. %
Student 151 43.77% 24 8.57% 175 28%
Looking for work 11 3.19% 39 13.93% 50 8%
Homemaker 9 2.61% 14 5.00% 23 3.68%
Employed (salaried) 155 44.93% 130 46.43% 285 45.60%
 Self-Employed (Business / freelance / others) 19 5.51% 56 20.00% 75 12%
Retired 0 0.00% 17 6.07% 17 6.07%
Total 345 100.00% 280 100.00% 625 100%

Marital and Family Status: Table 6 shows the majority of the online population was single

(64.64%) while a majority of the offline sample had families with dependent children (57.14%).

Table 6: Distribution of marital and family status in the online, offline and merged sample

Online Offline Merged

Marital and Family Status Freq. % Freq. % Freq. %
Single 223 64.64% 70 25.00% 293 46.88%
Married without children 36 10.43% 22 7.86% 58 9.28%
Family with dependent children 80 23.19% 160 57.14% 240 38.40%
Family with dependent children 6 1.74% 28 10.00% 34 5.44%
Total 345 100.00% 280 100.00% 625 100%

House Ownership: As can be seen from Table 7, the majority of the online and offline

population people had their own houses. This is very interesting in the effect it may have on the

financial security of the individuals in our sample.

Table 7: Distribution of house ownership in the online, offline and merged sample

Online Offline Merged

House Ownership Freq. % Freq. % Freq. %
Yes 218 63.19% 241 86.07% 459 73.44%
No 127 36.81% 39 13.93% 166 26.56%
Total 345 100.00% 280 100.00% 625 100%

Factor Loading Matrices

Most of the research that has been conducted in the field of scale development has used a factor

loading cut-off of 0.4 or more to retain any item loading on a given factor. The present study has
therefore chosen a factor loading cut-off of 0.4. The 7 factors explained 38.5% of the total

variance present in our online dataset. The cumulative percentage of variances explained by the

factors is given below in Table 8.

Table 8: Cumulative percentage of variances explained by the factors

Factor1 Factor2 Factor3 Factor4 Factor5 Factor6 Factor7

SS loadings 2.741 2.567 2.327 1.842 1.635 1.397 1.358

Proportion Variance 0.076 0.071 0.065 0.051 0.045 0.039 0.038

Cumulative Variance 0.076 0.147 0.212 0.263 0.309 0.347 0.385

A 22 item scale with 7 factors was developed. However, it was somewhat difficult to interpret

and name Factor 4.

Factor 1

Q7: I weigh all the pros and cons and analyse all the facts before taking financial decisions.

Q9: I watch my expenses carefully to see that I stay within my means.

Q2: I keep detailed account of my expenses.

Q3: I take advice from my friends or relatives when taking financial decisions.

Q1: I read all the terms and conditions before investing buying renting something.

The first factor was named as ‘Financial Prudence’. It accounted for 7.6% of the total variance.

The factor includes items Q1, Q2, Q3, Q7 and Q9. The items denote how careful an individual is

when it comes to financial matters, and whether they keep detailed accounts of their expenses.
Table 9:Factor loading matrix for a seven factor model

F1 F2 F3 F4 F5 F6 F7
I weigh all the pros and cons and analyse all the
7 0.758
facts before taking financial decisions.
I watch my expenses carefully to see that I stay
9 0.731
within my means.
I keep detailed account of my expenses. 2 0.672
I take advice from my friends or relatives when
3 0.499
taking financial decisions.
I read all the terms and conditions before
1 0.417
investing buying renting something.
I worry that I may not have enough money to
26 0.753
deal with my future expenses.
I worry that my family may face financial
25 0.731
difficulties if something happens to me.
I take primary responsibility for meeting the
31 0.552
financial needs of my family.
When it comes to my daily spending, I try to
21 0.441
save as much as I can.
I like to bargain and get the best deal for
17 0.414
everything, even if the original price is not high.
I give expensive gifts to my friends and relatives
8 0.667
on special occasions.
On shopping trips, I have sometimes bought
10 0.595
some things that I have never used later.
I host parties at home or pay for my friends if we
6 0.586
go out for dinner.
When I go shopping or go out to restaurants, I
5 0.58
spend more than I had planned.
I purchase expensive items for personal use, e.g.,
12 0.551
jewellery, branded clothes, mobile phones.
I am very good at managing my financial
35 0.651
matters.
I am content with my current financial condition. 15 0.604
I like to make my financial choices
independently, without too much influence from 14 0.491
others.
I know how to invest in the stock market. 34 0.886
Even though it is a little risky, I prefer to invest
in the stock market because of the possibility of 33 0.771
getting high returns.
I can depend on my close friends for financial
29 0.713
support if I have need for money.
I can depend on my family members for
27 0.423
financial support if I have need for money.
Money is the most important factor I look at
28 0.776
when choosing a career/job.
I believe that a person can only be considered
30 0.633
successful when he has a lot of money.
Factor 2

Q26: I worry that I may not have enough money to deal with my future expenses.

Q25: I worry that my family may face financial difficulties if something happens to me.

Q31: I take primary responsibility for meeting the financial needs of my family.

Q21: When it comes to my daily spending, I try to save as much as I can.

Q17: I like to bargain and get the best deal for everything, even if the original price is not high.

The second factor was named as ‘Financial Anxiety’ that accounted for 7.1% of the total

variance. The factor includes items Q17, Q21, Q25, Q26 and Q31. The items denote the worries

that one goes through due to some financial situations.

Factor 3

Q8: I give expensive gifts to my friends and relatives on special occasions.

Q10: On shopping trips, I have sometimes bought some things that I have never used later.

Q6: I host parties at home or pay for my friends if we go out for dinner.

Q5: When I go shopping or go out to restaurants, I spend more than I had planned.

Q12: I purchase expensive items for personal use, e.g., jewellery, branded clothes, mobile

phones.

This factor was named as ‘Extravagance’ that accounted for 6.5% of the total variance and

included five items: Q5, Q6, Q8, Q10 and Q12. These items indicate the spending habits of
different people. They denote the tendency among people to spend a lot of money, sometimes on

unnecessary things.

Factor 4

Q35: I am very good at managing my financial matters.

Q15: I am content with my current financial condition.

Q14: I like to make my financial choices independently, without too much influence from others.

This factor was named as ‘Financial Contentment’ that accounted for 5.1% of the total variance.

The factor includes items Q14, Q15, and Q35. These items measure how well an individual

manages finances and level of contentment associated with their financial decisions.

Factor 5

Q34: I know how to invest in the stock market.

Q33: Even though it is a little risky, I prefer to invest in the stock market because of the

possibility of getting high returns.

The fifth factor was named as ‘Financial Knowledge’ that accounted for 4.5% of the total

variance. The factor includes two items Q33 and Q34. The items denote the knowledge that one

has about financial markets.

Factor 6

Q29: I can depend on my close friends for financial support if I have need for money.

Q27: I can depend on my family members for financial support if I have need for money.
This factor was named as ‘Financial Inter-Connectedness’ that accounted for 3.9% of the total

variance. The factor includes two items Q27 and Q29. The items denote the support network on

which an individual can depend financially.

Factor 7

Q28: Money is the most important factor I look at when choosing a career job.

Q30: I believe that a person can only be considered successful when he has a lot of money.

The seventh factor was named as ‘Importance attached to Money' that accounted for 3.8% of

the total variance. The factor includes two items Q33 and Q34. These items denote the

importance that money has in an individual‟s life.

Cronbach’s Alpha for all the factors

Once the factor model was obtained, the Cronbach‟s alpha was calculated to check for internal

consistency. The Cronbach‟s alpha for each subscale is given in the table below. As can be seen

from Table 10, most of the factors had Cronbach‟s alpha value greater than 0.6 except „Financial

Contentment‟ and „Financial Support Network‟. A low value of Cronbach‟s alpha denotes low

internal consistency.

Table 10: Cronbach Alpha’s for the 7 Factor Model

Factors Cronbach’s Alpha

Financial Prudence 0.75
Financial Anxiety 0.65
Extravagance 0.68
Financial Contentment 0.52
Financial Knowledge 0.82
Financial Inter-Connectedness 0.52
Money as Priority 0.69
Deleting items with low inter-item correlation

Some of the factors in the seven factor model had low values of Cronbach‟s alpha. To achieve a

greater level of internal consistency, we checked the inter-item correlations for all items loading

on the same factors. Any item having inter-item correlations of less than 0.3 with all other items

loading on the same factor was removed. This resulted in removing an entire factor. Thus we

were left with a six factor model that met the criteria for internal consistency.

Based on the inter-item correlations of less than 0.3 with other items loading on same factor,

items 14,15,17,21 and 35 were removed from further analysis. We also pruned our questionnaire

by removing the items that didn‟t load any factor. We again performed factor analysis on the

pruned item set. Parallel Analysis showed that 6 factors to be extracted as shown in Graph 3.

Graph 3: Non Graphical Solutions to Scree Test for the second Factor Analysis

Final Model- 6 Factor Model

A 6 factor model was built using the 19 items. The factor loading cut-off was taken to be 0.4.

The factor loading matrix generated is shown below in Table 13. As can be seen from Table 13,
all most the same items loaded on the same factors as the 7 factor model obtained earlier except

Q3 that didn‟t load on any factor.

Thus, an eighteen items scale was developed with six factors viz., „Prudence (being financially

careful)‟, „extravagant (being spendthrift)‟, „Financial Knowledge (knowing about financial

markets)‟, „Anxiety (worrying about finances)‟, „Money as Priority (importance given to

money)‟ and „Financial Inter-Connectedness (the level of financial support network)‟.

Table 12: Factor correlations for a six factor model

Money
Financial Financial Financial as Financial Inter-
Prudence Extravagant Knowledge Anxiety Priority Connectedness
Financial Prudence 1
Extravagant -0.18 1
Financial Knowledge 0.23 -0.10 1
Financial Anxiety 0.29 -0.16 0.04 1
Money as Priority -0.07 0.11 -0.17 -0.16 1
Financial Inter-Connectedness -0.03 -0.25 0.22 0.10 -0.39 1

Table 13 shows the correlations between the factors of the six factor model. As can be seen,

Financial Prudence is negatively correlated with Extravagant. A person who is financially careful

would not spend money carelessly on unnecessary items. A financially prudent person has good

financial knowledge as indicated by a positive correlation between Financial Prudence and

Financial Knowledge.
Table 13: Factor loading matrix for a six factor model

F1 F2 F3 F4 F5 F6
I watch my expenses carefully to see that I stay
within my means. 9 0.80
I weigh all the pros and cons and analyse all the facts
before taking financial decisions. 7 0.75
I keep detailed account of my expenses. 2 0.67
I read all the terms and conditions before investing
buying renting something. 1 0.40
I give expensive gifts to my friends and relatives on
special occasions. 8 0.69
When I go shopping or go out to restaurants, I spend
more than I had planned. 5 0.54
I host parties at home or pay for my friends if we go
out for dinner. 6 0.54
On shopping trips, I have sometimes bought some
things that I have never used later. 10 0.53
I purchase expensive items for personal use, e.g.,
jewellery, branded clothes, mobile phones. 12 0.48
I know how to invest in the stock market. 34 1.01
Even though it is a little risky, I prefer to invest in
the stock market because of the possibility of getting
high returns. 33 0.67
I worry that my family may face financial difficulties
if something happens to me. 25 1.03
I worry that I may not have enough money to deal
with my future expenses. 26 0.41
I take primary responsibility for meeting the
financial needs of my family. 31 0.40
Money is the most important factor I look at when
choosing a career/job. 28 0.86
I believe that a person can only be considered
successful when he has a lot of money. 30 0.63
I can depend on my close friends for financial
support if I have need for money. 29 0.62
I can depend on my family members for financial
support if I have need for money. 27 0.59

Confirmatory Factor Analysis

After obtaining the six factor model with eighteen items, we conducted a confirmatory factor

analysis of this model with the sample of individuals who had been administered the Hindi

questionnaire. This sample was considered to be quite different from the sample that had

answered the questionnaire in English. In India, the ability to understand English usually
indicates access to English medium education and urban settings. Hence the two samples were

considered to be somewhat heterogeneous. Thus if our EFA model worked well with this distinct

sample, it would indicate the external validity of the 6 factor model across the population.

Confirmatory factor Analysis (CFA) was performed on the 214 Hindi responses obtained by

offline administration, once the factor model was obtained through EFA. Different statistical

measures shown in Table 14 below were calculated to evaluate the model fit.

Table 14: Measures of fit for CFA Model

User model versus baseline model

Comparative Fit Index (CFI) 0.90

Tucker-Lewis Index (TLI) 0.87

Root Mean Square Error of Approximation

RMSEA 0.04

90 Percent Confidence Interval 0.02 0.06

P-value RMSEA <= 0.05 0.84

Standardized Root Mean Square Residual

SRMR 0.06

As can be seen from Table 14, the Comparative Fit Index (CFI) value of 0.90 indicates an

acceptable model fit. The Root Mean Square Error of Approximation value of 0.04 and the

Standardized Root Mean Square Residual (SRMR) value of 0.06 indicates a good fit.

Conclusions

In this study, our aim was to develop a Financial Behaviour Scale for a cross-section of the

Indian population. Our interest was in identifying some of the main traits that characterize
Indians in terms of their attitude towards money as well as their financial behaviour. The

theoretical framework on which this scale was based was the three component model (or ABC

model) of attitude formation (Eagly, & Chaiken, 1993). Based on focus interviews and expert

consultation and initial questionnaire consisting of 36 items was developed. This questionnaire

was developed initially in English and then it was also translated to Hindi - so that we could

target those people who were more comfortable in understanding Hindi and answering questions

in that language. The questionnaire was administered in two modes - online mode using Google

forms and offline mode (where the questionnaire was administered in person). A total of 625

responses were collected of which 345 responses were through the online mode, and 280

responses were collected through administering the questionnaires physically (and recording the

responses through personal interviews). The sample included respondents from different socio-

economic strata, from cities as well as villages, from men as well as women and from people of

different ages and different stage of their lives in terms of having marital or family

responsibilities. Thus our data had a large amount of heterogeneity and was representative of a

large cross-section of the Indian population.

After collection of the primary data, exploratory factor analysis was conducted on the data

collected through the English questionnaires. Using several criteria such as scree tests and

parallel analysis, a seven factor model was chosen to be the one that had the highest explanatory

power. However, some of these seven factors had somewhat low internal consistency measured

through Cronbach's alpha. Thus we removed some of the items which had low inter-item

correlation and some item which did not load on any factor and arrived at a final list of 18 items.

After this, we again conducted EFA with the reduced scale and arrived at a set of six factors.

Based on the items that loaded on these factors, these were named "Financial Prudence",
"Extravagance", "Financial Knowledge", "Financial Anxiety", "Importance Attached to Money"

and "Financial Support Network". Confirmatory factor analysis was performed with the

questionnaires that were filled in Hindi. Based on statistical measures such as Root Mean Square

Error or Approximation (RMSEA), and CFI and TLI, we found that our factor analysis model

had acceptable fit in the test sample.

Some of the six factors in our model are similar to some of the factor in other Money Attitude

Scales. For instance the factors "Financial Prudence" found in this study is similar to the

"Retention-time" and "Retention" factor in Yamayuchi and Templer (1982) and Furnham (1984)

scales as well as the "Budget" item of the Money Ethic Scale. The factor "Financial Anxiety" in

this study was similar to the "Distrust-Anxiety" factor in the Money Attitude Scale and the

"Anxiety" factor in the Money Behavior and Belief Scale. This factor was also found in Baker

and Hagedorn's scale and Gasirowska's scale. The two factors "Importance attached to Money"

and "Extravagance" are together similar to some factors such as "Power-prestige" in MAS,

"Power-spending" and "Obsession" in MBBS, "Achievement" and "Respect" in the Money Ethic

Scale and "Value Importance of Money" and "Time spent thinking about Financial Affairs" in

the Money Importance Scale. Finally the "Financial Knowledge" factor is simila to the

"knowledge factor" in the Money Importance Scale.

However, we uncover one new dimension of money attitude in India which is given by the

"Financial Support Network" or the extent to which individuals can depend on friends and family

for financial support. Given the collectivistic nature of Indian culture, this is an important and

expected aspect of the financial lives of Indians.

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