Determinants of Indebtedness: Influence of Behavioral and Demographic Factors

Abstract

This study aims to examine the influence of behavioral and demographic factors on indebtedness by constructing a model using specific determinants. The exploratory method is used through the partial least square (SmartPLS) technique, by surveying 320 respondents in Kuala Lumpur, Malaysia. A self-administered questionnaire was administered to respondents, addressing both demographic and behavioral factors. The results confirmed four of the eight hypotheses stated. Among the determinants, risk perception had a highly significant relationship with both materialism and emotion, while indebtedness had a relationship with emotion and materialism. The findings also indicated that significant differences exist between indebtedness and behavioral factors on the basis of gender, marital status, age, income, and dependence on credit cards and loans. The results may assist various economic players to design better models for credit offerings and address the credit problem in the long term.

Effect of Psychological Factors on Credit Risk: A Case Study of the Microlending Service in Mongolia

“…These findings support previous research that psychological factors can predict loan repayment [1,9,21]. In addition, the fact that neuroticism was not related to loan repayment [21] is associated with the results of this study.…”

“…From our results, we conclude that the difference in loan repayment behavior is caused mostly by personal and internal characteristics rather than by demographic and financial characteristics. These findings support previous research that psychological factors can predict loan repayment [1,9,21]. In addition, the fact that neuroticism was not related to loan repayment [21] is associated with the results of this study.…”

“…In previous studies, personality factors such as effective financial decision-making [1], self-control [9], conscientiousness [1,21], selflessness and giving (charitable) attitude, neuroticism [21], and money attitude have come out as predominant factors influencing repayment behavior.…”

“…If there is no provisional reason, the decision-making relates to the individual's personality, self-control, and emotion. It is an important determinant of whether an individual has good personal financial behavior such as having sufficient savings for future consumption [9].…”

“…As defined by Daniel Kahneman and Amos Tversky, the founders of behavioral economics, rational decision-making enables effective financial decision making [8]. Mahfuzur Rahman et al (2020) found that self-control is important to avoid indebtedness [9]. In addition, conscientiousness is a protective factor in high-risk borrowing behavior, and it is associated with lower levels of unsecured borrowing [10].…”