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Financial Satisfaction and the Influence of Financial Literacy in Malaysia

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Abstract

Achieving a state of being financially satisfied is a more feasible aim than becoming debt-free, which requires well strategized economic behaviors over one’s life cycle. Furthermore, financial satisfaction can describe an individual’s perception concerning his/her current financial situation. In this study, we developed and tested a conceptual model to predict the level of financial satisfaction among Malaysian working individuals. Specifically, the model explains how financial planning (FP) directly affects financial satisfaction and mediates the effects of financial literacy (FL) and basic money management (BMM). The hypotheses were tested using survey data from 1,957 respondents who attended investment seminars across Malaysia. The results from partial least squares analyses suggest that FP is an important determinant of financial satisfaction, whereas BMM does not affect satisfaction directly. In addition, FL and attitude towards money were found to be significant antecedent variables of FP. The study also found that the current FL level in Malaysia is moderately high at 66.7 % based on tier one financial quiz questions. From the findings, with the increasingly complex financial systems, we conclude that everyone should manage and plan their financial activities well ahead because people will face many differing financial commitments at certain points in their lives.

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Acknowledgments

The authors would like to thank Permodalan Nasional Berhad for its cooperation in administering the survey. Conflict of interest: No conflict of interest has been declared by the authors. Funding source: This research was supported in part by the Ministry of Higher Education of Malaysia under the Fundamental Research Grant Scheme.

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Authors and Affiliations

  1. School of Maritime Business and Management, Universiti Malaysia Terengganu, 21030, Kuala Terengganu, Malaysia

    Azwadi Ali, Mohd Shaari Abd Rahman & Alif Bakar

Authors
  1. Azwadi Ali
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  2. Mohd Shaari Abd Rahman
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  3. Alif Bakar
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Correspondence to Azwadi Ali.

Appendices

Appendix 1

The following FL tier one questions appeared in the first section of the survey. Correct answers carried 1 point, while wrong and no answers scored zero points. The literacy level ranges between 0 and 10.

 

Your answer

1. If you spent RM13 on lunch on day 1 but only RM8 the next day, how much did you spend on lunch over the 2 days?

RM________

2. If a prize draw win of RM18,000 is shared equally between six people, how much will each person receive?

RM________

3. If a person takes home RM1,400 a month and 50 % of this goes on rent, what is their monthly rent?

 

 A. RM700

□ A

 B. RM500

□ B

 C. RM1,000

□ C

4. If a refrigerator priced at RM1,000 is discounted by 10 % at a sale, how much would it cost?

 

 A. RM1,000

□ A

 B. RM100

□ B

 C. RM900

□ C

5. A deposit of RM200 in a savings account earning an interest of 10 % annually will become RM________ after 2 years

 

 A. RM220

□ A

 B. RM242

□ B

 C. RM240

□ C

6. Suppose that the interest rate on your savings account is less than the inflation rate. Using the money in the account after 1 year, you would be able to buy goods less than the amount you could get today

□ TRUE

□ FALSE

7. If a person pays the minimum sum of his outstanding credit card balance, he will not have to pay any interest charge

□ TRUE

□ FALSE

8. Commonly, the outstanding balance on a credit card is subject to a financial charge (interest charge) of ____  %

 

 A. 1 % per month or 12 % per annum

□ A

 B. 1.85 % per month or 18 % per annum

□ B

 C. 2 % per month or 24 % per annum

□ C

9. In hire purchase financing, the owner of the car is ______

 

 A. The hirer

□ A

 B. The banking institution

□ B

 C. Jointly between the banking institution and the hirer

□ C

10. The role of this institution is to provide advice on money management and assistance to deal with debt

 

 A. Financial Mediation Bureau

□ A

 B. Agensi Kaunseling dan Pengurusan Kredit

□ B

 C. Credit Bureau

□ C

Appendix 2

Measures of latent variables appeared in the second section of the questionnaire.

Basic money management (first order reflective)

BMM1

I always pay bills before the due date

BMM2

I always read the details of my bills to compare monthly usage or rate changes

BMM3

I normally budget my monthly expenses

BMM4

I keep track of my expenses

BMM5

Before I buy something, I carefully consider whether I can afford it

BMM6

On any day, I would know how much money I have to meet the daily living costs

Financial planning (first order formative)

FP1

I save money for retirement

FP2

My monthly pension/EPF contribution is sufficient for my retirement days

FP3

At any time, I have some money saved for emergencies

FP4

I ensure that with every pay, I would save some

FP5

I plan for long-term goals including children’s education fund, houses and vehicles

FP6

My insurance/takaful coverage is sufficient to meet costs related to emergency events

FP7

I invest regularly in unit trust schemes

FP8

I actively invest in shares

FP9

I do not need assistance in filing my tax forms

FP10

I have the right estate properties for my needs

FP11

I have proper estate planning for my heirs

FP12a

I am currently following my long term financial plan

Attitude towards money (first order reflective)

AM1

Money brings happiness in life

AM2

At any time, I always know how much money I have in my purse/wallet/pocket

AM3

On any day, I always know how much I have in my savings account

AM4

I feel compelled to argue or bargain about the cost of almost everything that I buy

AM5

In making any purchase, for any purpose, my first consideration is cost

AM6

After buying something, I wonder if I could have gotten the same for less

AM7

I prefer not to lend people money

AM8

I often fantasize about money and what could I do with it

Financial satisfaction (first order reflective)

FS1

I am satisfied with my current financial situation

FS2

I can do little to improve my current financial situation

FS3

I rarely run short of money

FS4b

Sometimes I feel that my income does not quite cover my living costs

FS5

If I had a major loss of income I could manage for a period of time (e.g., for 3 months)

FS6

Based on my current financial situation, I could easily obtain a loan if I needed one (e.g., car loans, personal loans)

  1. aThis was used as a dependent variable to assess the collinearity issue among the formative indicators
  2. bReversed item

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Ali, A., Rahman, M.S.A. & Bakar, A. Financial Satisfaction and the Influence of Financial Literacy in Malaysia. Soc Indic Res 120, 137–156 (2015). https://doi.org/10.1007/s11205-014-0583-0

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