Does financial literacy reduce financial fragility during COVID-19? The moderation effect of psychological, economic and social factors

Chhatwani, Malvika; Mishra, Sushanta Kumar

doi:10.1108/ijbm-11-2020-0536

Cited by 45 publications

(59 citation statements)

References 69 publications

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“…Our study extends this line of literature and finds that personality traits also play an important role in mortgage delinquency-related behavior. Finally, the present study's findings extend the current body of knowledge by examining the phenomenon during the crisis time of the pandemic (Chhatwani and Mishra, 2021;Newman et al, 2021;Zamarro and Prados, 2021).…”

Section: Theoretical Contributionssupporting

confidence: 77%

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Mortgage delinquency during COVID-19: do financial literacy and personality traits matter?

Chhatwani

2022

IJBM

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PurposeMortgage delinquency has become a major crisis following the COVID-19 pandemic. This study explored mortgage delinquency antecedents, focusing on two individual-level factors: financial literacy and personality traits.Design/methodology/approachUsing a large sample of 2,511 consumers, we examined the direct effect of financial literacy and its interaction with personality traits to predict mortgage delinquency based on logistic regression analysis. We further provide several robustness tests to validate our findings.FindingsWe find that financially literate consumers are 6% less likely to delay their mortgage repayment during the COVID-19 pandemic. Moreover, personality traits such as neuroticism and extroversion positively and conscientiousness negatively moderate the given linkage between financial literacy and mortgage delinquency.Practical implicationsBanks and financial companies may devise relevant policies to reduce mortgage repayment by knowing the interplay between financial literacy and personality traits. Personality traits can be considered one of the parameters while sanctioning mortgages to prospective customers.Originality/valueOur research examines the linkage between financial literacy, personality traits and mortgage delinquency based on a large nationally representative sample. Our findings suggest that personality traits moderate the effect of financial literacy on mortgage delinquency.

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Section: Theoretical Contributionssupporting

confidence: 77%

“…Currently, there are more than three hundred different surveys conducted by UAS. Due to the extensive nature of the data, many research studies have used this dataset (Bannier et al, 2019;Brenner et al, 2020;Chhatwani and Mishra, 2021;Chhatwani, 2022;Fulford and Stavins, 2021;Newman et al, 2021;Zamarro and Prados, 2021).…”

Section: Datamentioning

confidence: 99%

Mortgage delinquency during COVID-19: do financial literacy and personality traits matter?

Chhatwani

2022

IJBM

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“…FRT was found to have decreased during the first stages of the pandemic, mostly with young people [88]. Chhatwani and Mishra [89], however, note that FRT studies during the pandemic are limited, and that factors such as financial literacy can moderate the effect. Thus, much remains to be explored as the situation unfolds.…”

Section: Limitations and Directions For Future Researchmentioning

confidence: 99%

Do Risky Scenarios Affect Forecasts of Savings and Expenses?

2022

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Many people do not possess the necessary savings to deal with unexpected financial events. People’s biases play a significant role in their ability to forecast future financial shocks: they are typically overoptimistic, present-oriented, and generally underestimate future expenses. The purpose of this study is to investigate how varying risk information influences people’s financial awareness, in order to reduce the chance of a financial downfall. Specifically, we contribute to the literature by exploring the concept of ‘nudging’ and its value for behavioural changes in personal financial management. While of great practical importance, the role of nudging in behavioural financial forecasting research is scarce. Additionally, the study steers away from the standard default choice architecture nudge, and adds originality by focusing on eliciting implementation intentions and precommitment strategies as types of nudges. Our experimental scenarios examined how people change their financial projections in response to nudges in the form of new information on relevant risks. Participants were asked to forecast future expenses and future savings. They then received information on potential events identified as high-risk, low-risk or no-risk. We investigated whether they adjusted their predictions in response to various risk scenarios or not and how such potential adjustments were affected by the information given. Our findings suggest that the provision of risk information alters financial forecasting behaviour. Notably, we found an adjustment effect even in the no-risk category, suggesting that governments and institutions concerned with financial behaviour can increase financial awareness merely by increasing salience about possible financial risks. Another practical implication relates to splitting savings into different categories, and by using different wordings: A financial advisory institution can help people in their financial behaviour by focusing on ‘targets’, and by encouraging (nudging) people to make breakdown forecasts rather than general ones.

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“…As such, it encompasses the concepts of financial fragility (i.e. lack of preparedness to meet unexpected expenses in the near future; Chhatwani and Mishra, 2021) and fatalism (i.e. one's belief that they have little or no control over future outcomes; Shapiro and Wu, 2011).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Our work belongs to this strand of literature. Chhatwani and Mishra (2021) report evidence of increased sense of Financial vulnerability and COVID-19 financial fragility during COVID-19 and find that financial literacy increases financial confidence and lessens financial fragility. Kirk and Rifkin (2020) argued that individuals' reactions to the pandemic can be classified into three consecutive phases: rejection, coping and adapting.…”

Section: Literature Review and Hypothesis Development Covid-19 And Ho...mentioning

confidence: 99%

Households' intentions under financial vulnerability conditions: is it likely for the COVID-19 pandemic to leave a permanent scar?

Alhenawi

Yazdanparast

2021

IJBM

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PurposeThe authors draw on psychological reactance theory, collective mental programming, psychological profiles and financial vulnerability experiences to assess the possibility that the pandemic may induce transformative changes in households' behavioral intentions related to financial decisions after the pandemic is over.Design/methodology/approachUsing a unique survey data drawn from four different countries located in North America, Europe, Africa and Latin America, the authors show that the stressful conditions that accompanied the pandemic have instigated a state of financial vulnerability and stimulated instinctual defensive mechanisms among consumers.FindingsThe study results indicate that households have intentions to make defensive decisions in spending, consumption, planning and investment. Furthermore, the authors report evidence that personal psychological heterogeneity (as an individual factor) and collective mental programming (as a cultural factor) play a significant role in shaping households' postpandemic financial intentions.Research limitations/implicationsThe study findings carry important practical implications. For financial institutions, marketers and financial advisors, the authors’ work implies that individual and collective factors affect people's perception and behavioral intentions in response to financial adversities. For social planners and legislators, the authors’ work shows that they should expect not only short-term but also long-term reactions to the COVID-19 pandemic.Originality/valueMost research on the impact of COVID-19 pandemic on households' financial behavior focuses on transitional adjustments made during the pandemic, and little emphasis has been placed on potential postpandemic adjustments. The authors contend that it would be a mistake to analyze the pandemic-induced crisis as a temporary financial hardship.

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Does financial literacy reduce financial fragility during COVID-19? The moderation effect of psychological, economic and social factors

Cited by 45 publications

References 69 publications

Mortgage delinquency during COVID-19: do financial literacy and personality traits matter?

Mortgage delinquency during COVID-19: do financial literacy and personality traits matter?

Do Risky Scenarios Affect Forecasts of Savings and Expenses?

Households' intentions under financial vulnerability conditions: is it likely for the COVID-19 pandemic to leave a permanent scar?

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