Suhal Kusairi,

Universiti Malaysia Terengganu, Malaysia

E-mail: suhal@umt.edu.my

Financial households’ efficacy, risk preference and saving behaviour: Lessons from lower-income households in Malaysia

Nur Azura Sanusi,

Universiti Malaysia Terengganu, Malaysia

E-mail: nurazura@umt.edu.my

Suriyani Muhamad,

Universiti Malaysia Terengganu, Malaysia

E-mail: suriyani_md@umt.edu.my

Madihah Shukri,

Universiti Malaysia Terengganu, Malaysia

E-mail: madihah@umt.edu.my

Nadia Zamri,

Universiti Malaysia Terengganu, Malaysia

E-mail: nadyaazamryvv@gmail.com

Abstract. Many government policies contain recommendations how to improve financial literacy, particularly through programmes of financial education and personal finance. However, personal financial management is not solely related to knowledge and financial literacy; individual confidence level in own financial abilities and household differences need to be considered in this regard. This paper investigates household financial efficacy through application of psychometric instruments, financial literacy, risk preference and demographic characteristics towards saving decision behaviour. The sample covers 404 households in Peninsular Malaysia and utilises the logistic and probit empirical model. The results show that household’s financial efficacy is essential for household’s saving decision behaviour and choice of saving instrument. Financial literacy, race, education and dependence ratio and location (rural or urban) of the household also play a role in saving instruments selection. More specifically, households with higher levels of financial efficacy are more likely to use bank-based or other lower risk saving instruments as compared to non-banking-based instruments.

Received: January, 2019

1st Revision: March, 2019

Accepted: May, 2019

DOI: 10.14254/2071-789X.2019/12-2/18

JEL Classification: G41, D12, D14

Keywords: behavioural finance, saving behaviour, and psychometrics methods