Full size book cover of A Research Agenda for Consumer Financial Behavior}

A Research Agenda for Consumer Financial Behavior

Satish Kumar, Jing J. Xiao

Elgar Research Agendas outline the future of research in a given area. Leading scholars are given the space to explore their subject in provocative ways, and map out the potential directions of travel. They are relevant but also visionary.

With contributions from an international range of active researchers, this Research Agenda provides a timely literature review on core topics related to consumer financial behavior. Chapters cover financial management behavior, desirable financial behavior and any financial behavior that helps improve financial wellbeing.

The Research Agenda is split into two parts, first covering determinants of financial behavior and then outcomes. Top scholars in the field explore a broad range of determinants, including financial literacy, education, socialization, access, technology, retirement policies, trading and investment, and neuroscience. The book moves on to explore financial capability, wellbeing, fragility and vulnerability, offering a comprehensive examination of the topic.

Economics and financial behavior researchers and students will benefit from the thorough and incisive literature reviews in this Research Agenda. It will also be a valuable resource for business practitioners looking for an up-to-date insight on research in the field.

Publisher

Edward Elgar Publishing

Publication Date

6/10/2023

ISBN

9781803922645

Pages

348

Categories

Economics

Questions & Answers

Financial literacy and education significantly influence consumer financial behavior and capability. Financial literacy, encompassing knowledge and skills, enables consumers to make informed financial decisions, manage risks, and achieve financial goals. Education fosters financial capability by promoting behaviors like budgeting, saving, and investing. It also enhances financial self-efficacy, the belief in one's ability to manage finances effectively. However, the impact of financial education can vary due to factors like individual characteristics, social context, and external economic conditions. Research indicates that while financial education is beneficial, its effectiveness can be enhanced by tailoring interventions to different demographics and incorporating behavioral insights.

The key determinants of financial behavior include background factors (economic, demographic, and psychological), intervention factors (family, school, community, government, NGOs, and commercial companies), and environment factors (pandemic, macroeconomy, and culture). These factors interact in complex ways:

  1. Background Factors: Income and wealth are crucial, with higher levels influencing financial behavior. Age, gender, education, and children's presence also play roles, affecting life stage-specific financial demands.

  2. Intervention Factors: Family, schools, and communities significantly influence financial behavior through direct teaching, modeling, and socialization. Government and NGOs can also promote financial education and access to services.

  3. Environment Factors: Economic conditions, such as the pandemic or recession, can alter financial behavior. Culture and technology advancements also shape behavior, with digital finance impacting both behavior and wellbeing.

These determinants often act as mediators or moderators in research, influencing financial behavior through various pathways. For instance, financial literacy, a cognitive ability, can mediate the relationship between education and financial behavior. Similarly, financial education can moderate the impact of family financial socialization on financial behavior.

Financial technology (FinTech) and mobile banking can significantly impact consumer financial behavior and wellbeing. FinTech offers innovative tools and services that streamline financial management, while mobile banking allows for convenient access to these services. These technologies can:

  1. Improve Financial Literacy: By providing easy access to financial information and tools, FinTech and mobile banking can enhance financial literacy, leading to better decision-making and financial behaviors.

  2. Enhance Access to Financial Services: They make financial services more accessible to underserved populations, including those in remote areas or with limited resources.

  3. Promote Financial Inclusion: By offering low-cost or free services, FinTech and mobile banking can help unbanked or underbanked individuals gain access to financial services, fostering financial inclusion.

  4. Facilitate Budgeting and Savings: Mobile banking apps often include features for budgeting and tracking expenses, encouraging better financial management and savings habits.

  5. Increase Financial Wellbeing: By reducing financial stress and improving financial security, these technologies can contribute to overall wellbeing.

  6. Encourage Responsible Borrowing: With better access to financial information, consumers can make more informed borrowing decisions, potentially reducing the risk of overborrowing.

  7. Enhance Security: Advanced security features in FinTech and mobile banking can protect consumers from financial fraud and theft, contributing to their peace of mind and wellbeing.

Desirable financial behaviors lead to improved financial wellbeing, which encompasses multiple dimensions. Key outcomes include increased income, expenditure, and savings, which are positively correlated with financial wellbeing. Financial behaviors like budgeting, saving, and investing contribute to financial stability and security. They also reduce financial fragility, as evidenced by lower debt ratios and improved credit scores. Beyond financial aspects, these behaviors enhance overall wellbeing by fostering life satisfaction, academic success, and better health outcomes. Financial wellbeing is also linked to psychological well-being, as managing finances effectively can lead to reduced stress and improved mental health.

The current gaps in research on consumer financial behavior include the lack of a standardized definition and measurement of financial literacy, the complexity of understanding the interaction between financial literacy and other factors like behavioral biases and socialization, and the limited research on specific financial behaviors like borrowing, insuring, and donating. Future research directions should focus on developing a consistent definition of financial capability, exploring the effectiveness of financial education programs tailored to different demographics, and investigating the impact of environmental factors like the pandemic and culture on financial behaviors. Additionally, research should delve into the interaction between financial behavior and other life domain behaviors, the role of financial behavior in overall wellbeing, and international comparisons to understand similarities and differences in financial behaviors across countries.

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