Validation of Scales to Research the Personal Financial Management.

AutorVeiga, Ricardo Teixeira

1 Introduction

Consumers make decisions about purchases, payments, and the management of their financial resources. Their quality of life and that of their family members are strongly affected by their competence in financial management. But they are often ill-informed and prone to making mistakes that have heavy individual and social consequences, such as not saving enough for retirement, overspending, not paying bills on time, and regretting purchases (Lynch, 2011; Stromback, Lind, Skagerlund, Vastfjall, & Tinghog, 2017).

The rise in Brazilians' indebtedness seems to be linked to factors such as the increase in the population's optimism and ease of getting credit (Campara, Vieira, & Ceretta, 2016; Figueira & Pereira, 2014). Moreira and Carvalho (2013) showed that factors such as inflation control and the opening up of the economy, which made the entrance of new products into the national market possible, together with the credit expansion, boosted the rise in consumption and personal indebtedness. According to a survey by the National Confederation of Trade in Goods, Services, and Tourism (CNC, as abbreviated in Portuguese), in October of 2017, more than 60% of Brazilian families had debts (credit card, pre-dated checks, personal loans, or car payments etc.), and 26% of these families had overdue bills.

As possible results of bad personal finance management, indebtedness and default may cause negative effects both at the macroeconomic level, by increasing the risk of financial operations and products, and individually, by affecting social relations, psychological state, and family life (Falahati, Sabri, & Paim, 2012; Servico de Protecao ao Credito [SPC] & Confederacao Nacional de Dirigentes Lojistas [CNDL], 2017; Trindade, Righi, & Vieira, 2012; Zimmerman, 1995).

According to Mills, Grasmick, Morgan, and Wenk (1992), financial strain (abbreviated as FS), that is, the personal perception of maladjustments, financial problems, and worries, is an important indicator of a lack of psychological well-being. Indeed, a high level of financial strain is often associated with high levels of physical and psychological stress (Mendes-da-Silva, Nakamura, & Moraes, 2012), which diminish the population's financial satisfaction (Zimmerman, 1995).

Proper personal financial management (or merely financial management or PFM) may prevent or diminish financial strain. Because of this, financial education to improve PFM practices should raise the population's financial satisfaction and quality of life.

The emergent interest of marketing academics in topics concerning PFM (Figueira & Pereira, 2014; Lynch, 2011; Miotto & Parente, 2015) highlights the importance of their research. For example, Figueira and Pereira (2016) found an influence of attitudes towards credit cards on proclivity to indebtedness. Miotto and Parente (2015) researched how Sao Paulo families manage their finances, revealing unique behaviors of Class C female consumers: an inadequate focus on financial control, a lack of attention to short and mid-range planning, an overall absence of saving, and the influence of critical events in cases of default.

Despite the increase in specific Brazilian publications, the scales used in most studies have not encompassed sufficient factors to evaluate the behavior of financial management in its complexity, i.e., behaviors regarding savings and investments, insurance purchases, cash flow management, and credit management, all of which can characterize appropriate financial resource management.

In order to increase the research on PFM, it is necessary to use proper research instruments. Scale constructs regarding financial management are necessary to evaluate models and develop theories. However, the validation of scales is fundamental, and should involve studying independent samples, instead of being limited to the secondary result of testing models with the same sample in a cross-sectional study, as is usually done. Employing the same sample to achieve both exploratory goals (assessment and improvement of measures) and conclusive ones (test of hypotheses) might produce illusory results, known as statistical artifacts.

Although Dew and Xiao (2011) created a scale to operationalize the behavior of PFM (see Table 1), new studies must confirm their results and, to use the scale in Portuguese, it must be translated and its psychometric properties tested.

The pivotal objective of this paper is to describe the empirical test of the PFM behavior scale (Dew & Xiao, 2011), by evaluating its factor structure, reliability, and validity. Due to this objective and to the overall interest in providing useful scales to perform research on PFM, we translated the scale into Portuguese and back-translated it into English to ensure congruence, and we validated two constructs associated with this behavior -- Purchase Impulsiveness and Financial Strain -- that were based on pre-existing scales, respectively proposed by Weun, Jones, and Beatty (1997) and Mills et al. (1992). The empirical test of the scales employed statistical procedures briefly presented in the chapter about the research method.

In short, the contribution sought in this paper is twofold: 1) to describe the scale validation procedures, presenting the most usual statistical indexes, in order to support the development of competence in research; and 2) to offer to Brazilian researchers three validated scales, one of them unprecedented in Portuguese, with high potential for application in personal financial management studies.

In social terms, investigating the antecedents and consequents of PFM is important because competence in this field might reduce the negative effects of a lack of money. Moreover, knowledge of the characteristics of financial behavior may help in the development of financial education programs aimed at increasing the population's quality of life. For example, such knowledge could support programs that help in the wise use of credit, management of cash flows, and savings behavior to improve PFM, thus reducing financial problems and the resulting stress. Knowledge of the dimensions of the behavior of PFM may also be useful for financial institutions, by providing information for segmenting consumers according to their profile and behavioral pattern. Therefore, knowledge of PFM behavior is of interest to academics, managers, and people involved with wellbeing-oriented public policies (Lynch, 2011).

2 Theoretical Framework

2.1 Personal financial management

Lynch (2011) explains that consumers' decisions about their finances are related to aspects such as (1) patterns of spending and resource allocation for either simple or complex purchases, (2) credit use, indebtedness, and debt payment behaviors, and (3) behaviors concerning saving and investments. Imbalances between revenue generation and spending in a specific period produce savings, money for investments, or debts.

PFM behaviors concern purchase decisions and practices, investments, loans management etc. Dew and Xiao (2011) say that people tend to adopt effective financial management behaviors in an interrelated way, for example, cash flow management and credit habits. However, when revenue is insufficient, individuals may not save or keep a financial reserve for emergencies or retirement, nor have proper insurance. It must be stressed that besides social factors such as an abundance of credit, consumerism, and materialism, individual personality characteristics and education favor inappropriate behaviors in PFM, resulting in undesired consequences such as hasty decisions, waste, and indebtedness.

Many studies show that consumer financial decisions are influenced by factors such as skills and personal traits, situational factors, and social motivations. In addition to the previously quoted research, studies regarding topics in PFM and financial satisfaction (e.g., Amar, Ariely, Ayal, Cryder, & Rick, 2011; Archuleta, Britt, Tonn, & Grable, 2011; Joo & Grable, 2004; Kamleitner, Hoelzl, & Kirchler, 2012; Norvilitis et al. 2006) have been published abroad. The Journal of Marketing Research issued a special edition about consumer financial decisions in November 2011.

Results based on representative American adult data, presented by Tang and Baker (2016), suggest that self-esteem is significantly correlated with individual financial behavior, after controlling for financial knowledge and other socioeconomic factors. Farrel, Fry, and Risse (2015) found that financial self-efficacy is one of the strongest predictors of the type and number of financial products that an Australian woman has. According to the authors, Australian women with more financial self-efficacy are more inclined towards financial investments and savings and less prone to keeping products that foster indebtedness.

Recently in Brazil, research publications about PFM have increased. Campara et al. (2016) identified the influence of behavioral and socioeconomic variables on a positive attitude towards indebtedness among residents of cities in the Brazilian state of Rio Grande do Sul. Faleiro, Furh, and Kronbauer (2015) studied the financial behavior of public and private high-school students in Rio Grande do Sul. Piccoli and Silva (2015) measured the level of employees' financial education at higher education institutions in the Brazilian state of Santa Catarina. Figueira and Pereira (2014) analyzed the conditioning factors (attitude towards money, attitude towards credit cards, self-control, impulsive buying) of consumer indebtedness. Norvilitis and Mendes-da-Silva (2013) compared Brazilian students to American ones, aiming to use the theory of planned behavior to forecast debts caused by credit card use and the self-perception of financial well-being. In addition to the aforementioned studies, the research on PFM by Medeiros, Diniz, Costa, and Pereira (2015), Medeiros and Lopes (2014), Mendes-daSilva et al. (2012), Moreira and...

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