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Locus of Control on Financial Behavior and Financial Risk Attitude

Author

Listed:
  • Wisuwat Chujan

    (School of Economics and Investment, The Bangkok University)

  • Nguyen Le Bao Ngoc

    (Faculty of Economics, The University of Da Nang)

  • Ahmad Shabir Faizi

    (School of Economics, University of the Thai Chamber of Commerce)

Abstract

This paper investigates the impact of locus of control on financial behavior and financial risk attitude. Financial behaviors are captured by savings, payment behavior, and investment, while financial risk attitude is measured by the level of willingness to take financial risks. Using the longitudinal data of Household Income and Labor Dynamics in Australia (HILDA), where locus of control is measured across many waves, we compute the between to within ratios to examine the variations in the locus of control over time. The values of between to within ratios suggest that locus of control is a rarely changing variable, and therefore the fixed-effects vector decomposition model is preferable for our empirical analysis. Our findings reveal that locus of control significantly affects financial behavior and financial risk attitude. Particularly, individuals with an internal locus of control are likely to save more, invest more, be more willing to take ï¬ nancial risks, and have less overdue payments. Moreover, we find that more internal locus of control leads to (1) higher savings and more on-time debt payments for females, (2) lower willingness to take financial risks for older individuals, and (3) higher willingness to take financial risks for higher educated individuals. Our findings are confirmed when we control attrition bias and re-estimate the model using the Partial Random Effects Mundalk (REMT) Transformation.

Suggested Citation

  • Wisuwat Chujan & Nguyen Le Bao Ngoc & Ahmad Shabir Faizi, 2022. "Locus of Control on Financial Behavior and Financial Risk Attitude," Annals of Economics and Finance, Society for AEF, vol. 23(2), pages 289-313, November.
    • Handle: RePEc:cuf:journl:y:2022:v:23:i:2:chujan:ngoc:faizi
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    More about this item

    Keywords

    Locus of control; Financial behavior; Financial risk attitude; Savings investment; Payment behavior; Fixed-effects vector decomposition;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D10 - Microeconomics - - Household Behavior - - - General

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