The direct and indirect effects of financial socialization and psychological characteristics on young professionals' personal financial management behavior

Abstract

Purpose

Prior work expresses concern about young people's rising debt and lack of financial preparedness. This study focuses on how financial socialization and psychological characteristics affect the personal financial management behavior (PFMB) of young professionals in India. The authors examine both the direct effect of these factors and the indirect effects through financial literacy and aforementioned psychological characteristics as mediators.

Design/methodology/approach

The authors develop a conceptual framework based on the extant literature and empirically test its hypotheses employing partial least squares structural equation modelling (PLS-SEM).

Findings

Attitude towards money, financial self-efficacy, financial risk tolerance, financial socialization through parental direct teaching and peers, and media are all positively associated with young professionals' PFMB, whereas external locus of control and procrastination are negatively associated with their PFMB. Almost all psychological characteristics partially mediate the association between financial socialization and PFMB. Finally, financial literacy plays a partially mediating role in the association between procrastination and PFMB as well as between financial socialization and PFMB.

Practical implications

This study helps regulators and policymakers understand PFMB among young professionals. Interventions should build on the positive role of financial socialization, cultivating a good attitude towards money and financial self-efficacy, and reducing reliance on an external locus of control and procrastination. This study also helps policymakers and financial educators develop societally beneficial personal finance programs.

Originality/value

This research investigates social, psychological and cognitive characteristics in a comprehensive framework to further the authors’ understanding of the topic of PFMB.

Citation

Goyal, K., Kumar, S. and Hoffmann, A. (2023), "The direct and indirect effects of financial socialization and psychological characteristics on young professionals' personal financial management behavior", International Journal of Bank Marketing, Vol. 41 No. 7, pp. 1550-1584. https://doi.org/10.1108/IJBM-09-2022-0419