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Journal of Finance & Economics Research - Volume 6, Issue 1 2021
By Sarah Subhan, Danish Ahmed Siddiqui
10.20547/jfer2106104
Keywords: Financial knowledge, locus of control, herding behavior, overconfidence, financial attitude, financial risk tolerance, financial management behavior, Pakistan.
There are numerous aspects available that play a significant portrayal in responsible financial management behavior. The research paper focused on the financial management behavior of individuals young and adults of Pakistan and the impact of financial knowledge and psychological aspects (locus of control, herding behavior, and overconfidence) on financial management behavior directly and through financial attitude as mediator. We also explored how financial risk tolerance complements both these direct and indirect relationships. We proposed a theoretical framework modifying Bapat (2020) model by including other behavioral factors like herding behavior and overconfidence. We regulate the relation between independent and dependent variables, so the research design is descriptive. The independent variables are financial knowledge, locus of control, herding behavior, and overconfidence. Financial attitude is the mediator. Financial risk tolerance is used as a moderator. The dependent variable is financial management behavior. A structured design questionnaire is used to collect data of 452 responses online. The survey form is distributed as a random sampling method and data collected through convenient sampling. The research is quantitative in nature and analysis uses a two-step approach through structural equation modeling (SEM) by Smart PLS software Findings show that herding behavior, locus of control, and overconfidence seem to acquire a momentous positive effect on financial attitude (FA). FA in turn seems to have a significant positive effect on financial management behavior (FMB). Moreover, Locus of control and overconfidence also seems to directly affect FMB. Interestingly, financial knowledge does not seem to exert any significant effect either on FA, or FMB. Hence, the effect of Overconfidence, and herding behavior on FMB is significantly and positively mediated by FA. Moreover, financial risk tolerance (FRT) seems to weaken the negative effect of heard behavior, and overconfidence on FMB. However, it also weakens the positive effect of FA and financial knowledge on FMB. It is important to analyze the pattern of financial management for good policy development and helps to initiate more relevant financial services. The study included both qualitative and quantitative data. Tested the relationship between financial knowledge, locus of control, herding behavior, and overconfidence with financial management behavior directly and through financial attitude with the moderation of financial risk tolerance of individuals (educated and 18-46 years) from Pakistan.