Chapter 2

THEORETICAL AND CONCEPTUAL FRAMEWORK

This chapter presents a review of related literature and studies both from local and

foreign sources. It also includes the synthesis of the state-of-the-art and the theoretical

and conceptual frameworks. The synthesis of the state-of-the-art describes the

correlation of all the related literature and studies propounded that were grouped

according to their similarities and differences. The theoretical framework presents the

theories that are fully relevant to the present study and is discussed to provide a basis for

the variables being tested. The conceptual framework presents the diagrammatic

presentation of the study to visually summarize its entire process. The paradigm used is

the IPO (Input-ProcessOutput) model

Financial literacy

According to Wagner, J. (2019) this study estimates whether financial education in

high school, college, or through an employer, is associated with a person's financial

literacy score. Results show that people who received any financial education are likely

to have higher financial literacy scores compared to those without financial education.

Financial education has larger predicted probabilities for those with lower education and

income, suggesting that financial education is especially important for this demographic

group.

This research was conducted by Elma, E. J. et, al. (2019) to address the

predicament on financial literary of different professionals to promote sound decision-

making and ensure sustained economic growth and stability. This descriptive study

identified factors that affect the respondents‟ finances, determined their financial literacy

level, and the relationship between the factors affecting finances and the financial literacy

level.
 The study conducted by Baker, H. K. et, al. (2019) the purpose of this paper is to

examine how financial literacy and demographic variables (gender, age, income level,

education, occupation, marital status and investment experience) related to behavioral

biases.

As stated by Karakurum-Ozdemir, K. et, al. (2019) this study focusing on different

façades of financial well-being such as wealth accumulation and retirement planning,

various determinants of financial well-being have been unearthed, and financial literacy

has emerged as a crucial factor that increases financial well-being. Hence, financial

literacy has been an important policy instrument to increase the financial well-being of

individuals, particularly given that it is relatively easy to implement. This paper is an

attempt to pave the way for such policies in a group of middle-income countries, namely

Mexico, Lebanon, Uruguay, Colombia and Turkey.

According to Eloriaga, E. F. et, al. (2022) this study aims to determine the direction

and the strength of the relationship that exists

between financial literacy and financial behavior amongst the sample population.

Spending habits

The study conducted of Thobejane, K. et, al. (2019) the aim of this study was to

investigate the budgeting and spending habits of university students at a South African

university. In addition, the study examined if there is a significant gender difference in the

budgeting and spending habits of university students. The study adopted a quantitative

research approach with a descriptive design.

As stated by Karlson, K. (2019) this study looked at the financial behavior of college

students and recent alumni as it relates to economic theory and the life-cycle hypothesis.

With student loans increasing dramatically and credit card debt becoming more of a

reality, it is critical to understand what drives financial stability or instability after

graduation.
 As cited by Manapol, M. L. et, al. (2022) this study on spending and savings

pattern of Overseas Filipino Families (OFWs) and their left behind families is an attempt

to understand the social and economic context of Filipino migration. Specifically, the study

hopes to describe where the hard-earned money of OFWs goes and on whether or not

they are able to save. Patterns of spending and saving of their left behind families were

also investigated.

The study conducted of Mohd Rasid, M. F. et, al. (2023) the study of food spending

habits has become extremely important. There is a lack of comprehensive studies on the

financial constraints faced by students and how these limitations impact on their food

spending choices. This study examines the underlying factors and determinants that

influence the food spending habits of students within the context of higher education. The

main objective of this study was to examine the antecedents of students’ food spending

habits. A set of questionnaires was distributed to 107 students at Universiti Teknologi

MARA (UiTM) Puncak Alam and analyzed.

According to Katz, M. (2023) an activity focused on reflective spending and the

creation of a consumption diary, as students track their spending habits in order to analyze

how their personal choices interact with external factors to shape their consumption

habits.

Financial knowledge

As stated by Kadoya, Y. et, al. (2020) we investigate the effect of group

characteristics and educational interventions on young respondents' objective financial

knowledge level. We examine six questions about personal finance and covariates

selected from the 2015 National Financial Capability Study.

The study conducted of Atlas, S. A. et, al. (2019) this study examines the

relationship between the demographic and socio-economic factors and financial literacy

in Japan by segregating financial literacy into financial knowledge, attitude, and behavior,

and providing a deeper understanding of the relationships. The methodology included

using data from the Financial Literacy Survey 2016 by the Central Council for Financial
Services Information of Japan. We used a linear regression model to explain how

demographic and socio-economic factors relate to financial knowledge, attitude, and

behavior. Results show that education, the balance of financial assets, and the use of

financial information are positively related, while the experience of financial trouble is

negatively related to financial knowledge, attitude, and behavior. We show that males are

more financially knowledgeable than females, but females are more positive than males

with regard to financial behavior and financial attitude.

As cited by Deenanath, V. et, al. (2019) this article investigates associations

between confidence about financial knowledge and two outcome variables, financial

behaviors and financial satisfaction. On one hand, subjective financial knowledge

(confidence) is necessary to make proactive decisions, yet overconfidence has been

associated with a range of negative financial behaviors and outcomes.

According to Adiputra, I. G. et, al. (2021) this study investigated the financial

knowledge and behavior of high school students' contextualizing unintentional and

purposive family financial socialization. The sample of 4,473 high school students were

51% females, 45% seniors, and ethnically diverse.

As stated by Prayuda, R. Z. et, al. (2024) this study aims to analyze the influence

of financial knowledge, financial attitude and locus of control on financial behavior. This

study uses primary data obtained through a questionnaire that has been distributed

directly and indirectly (via social media). The population in this study is the community of

server-based electronic money users or commonly known as e-wallets who already have

personal income, and are domiciled in Jakarta. The sample of this study is 201

respondents who are collected using non- probability methods with convenience sampling

technique.

The study conducted of Farías, P. (2021) the aim of this research is to analyze the

relationship between Locus of Control and Financial Management behavior. Financial

Knowledge on Financial Management behavior, Personal income on financial

determined using the purposive sampling method.

Loan knowledge

As cited by Sardo, F. S. et, al. (2022) the purpose of this study is to analyze the

financing behaviors of young and old small knowledge-intensive service (SKIS) firms,

giving particular attention to the relationship between owner loans and the level of

indebtedness and to the effect of owner loans on rebalancing the capital structure of such

firms. Using dynamic panel data, this study used two samples, one with 421 young SKIS

firms and another with 1353 old SKIS firms. Based on the findings, the financing behaviors

of both the young and old firms closely resembled the predictions of the pecking order

theory.

According to Dell’Ariccia, G.et, al. (2021) this study identifies the factors that affect

the knowledge of mortgage loans' total cost. Empirical research utilizing a survey

administered through in-home interviews was conducted. This study adopts the

elaboration likelihood model (ELM) theory to analyze the influence of information

shortcuts and borrowers' abilities and motivations on the knowledge of mortgage loans'

total cost.

As cited by Sachan, S., Yang, J. et, al. (2020) we study the composition of bank

loan portfolios during the transition of the real sector to a knowledge economy where firms

increasingly use intangible capital. Exploiting heterogeneity in bank exposure to the

compositional shift from tangible to intangible capital, we show that exposed banks curtail

commercial lending and reallocate lending to other assets, such as mortgages. The

system can explain the chain of events leading to a decision for a loan application by the

importance of an activated rule and the contribution of antecedent attributes in the rule.

As stated by Babaev, D. et, al. (2019) in this paper we present a novel approach

to credit scoring of retail customers in the banking industry based on deep learning

methods. We used RNNs on fine grained transnational data to compute credit scores for

the loan applicants. We demonstrate that our approach significantly outperforms the
baselines based on the customer data of a large European bank. We also conducted a

pilot study on loan applicants of the bank, and the study produced significant financial

gains for the organization. In addition, our method has several other advantages

described in the paper that are very significant for the bank.