Current Research Theory to Be Used: Theory of Planned

The need for modelling in behavioural finance studies was mentioned by Campbell (2006). It is further argued that the behavioural finance theory describes the choices households currently make, whereas standard finance theory describes the choices that maximise the household welfare. Previous studies on the emergency fund mainly focus

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on the traditional finance paradigm rather than behavioural finance aspects. However, factors such as norms and economic conditions should also be considered when looking to study financial behaviour (Greninger et al., 1996). This is because the author argues that financial experts need to be aware that a “typical” family/individual does not really exist, and diversity in financial behaviour could occur over the course of life-cycle. Besides, Fisher (2010) explained that life-cycle hypotheses and precautionary motives are still unable to provide a deep understanding of savings behaviour for emergency motives. It also agreed by others, such as Wärneryd (1989), that life-cycle theory is inadequate in explaining savings behaviour. Since it suggests that people tend to save less and borrow more, especially young adults that expect to use their future income to cover their debt. In addition, those theories become the limitation in the previous studies on emergency fund to deal with latent variables (unobserved) because of the data used (Anong & Fisher, 2013), such as using secondary data instead of primary data.

Therefore, this thesis applies the modified theory of planned behaviour as part of the conceptual framework, which will be discussed further in Chapter 4. The theory of planned behaviour could be studied to enhance understanding toward individuals’ financial behaviour because it is designed to predict and understand human behaviour (Xiao, 2008, p.69). By understanding human financial behaviour better, the education programme provided by financial educators could be developed and designed to meet the behavioural change orientation (Xiao, 2008, p. 70). The author further argued that saving behaviours, for example, could be explained in two different perspectives: in which saving regularly becomes behaviour, whereas the increase of the savings becomes an outcome.

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The theory of planned behaviour is the extension of the theory of reasoned action by Ajzen and Fishbein (1980). Ajzen (1991) explained “according to the theory of planned behaviour, performance of behaviour is a joint function of intentions and perceived behaviour control.” That this theory further suggests three conceptual independent determinants of intention: (i) attitude towards behaviour; (ii) subjective norm (refers to the perceived social pressure to either perform or not perform the behaviour); and (iii) degree of behaviour control. This theory is illustrated in Figure 2.3.

The difference between the theory of reasoned action and the theory of planned behaviour is the perceived behavioural control. There are some relations on the motivations to perform such behaviour and the ability of the individuals to perform it that indicates the achievement of the particular behaviour (Ajzen, 1991). It is further argued that this theory is relevant to predicting the understanding of the specific behaviour. This research, therefore, suggests that this theory could be suitable to understanding the emergency fund behaviour that without doubt is specifically prepared for emergency purposes. This is because, according to Ajzen (1991), the theory of planned behaviour was designed to predict and explain human behaviour in specific contexts.

Recently, the theory of planned behaviour has received vast attention in the behavioural finance studies. It has been tested in many financial behaviour studies, such as investment behaviour (East, 1993); savings and future oriented financial behaviours (Soyeon Shim, Serido & Tang, 2012); service switching behaviour (Bansal & Taylor, 2002); and credit counselling client behaviour (Xiao & Wu, 2006). This theory was also tested on saving behaviours among young adults by Shim, Serido & Tang (2012).

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However, those studies were primary carried out in the contexts of the United States. Moreover, these studies are not focused on specific savings intention, i.e. emergency fund. According to Xiao (2015), it also suggested that the theory could help to understand the financial behaviour among individuals.

Figure ‎2.3: Theory of Planned Behaviour

Source: Ajzen (1991).

2.6.2.1 Theory of Planned Behaviour and Emergency Fund

There is less discussion about the relationship between attitudes, subjective norms, perceived behavioural control and intention towards emergency fund behaviour. Therefore, this research will predict the possibilities of the factors by using them in constructing the conceptual models later in Chapter 4. However, the following section will discuss the related literature on the above factors.

Attitude toward the Behaviour Subjective Norms Perceived Behavioural Control Intention Behaviour

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2.6.2.1.1 Savings and Borrowing Consumption’s Attitudes for Emergency

According to Ajzen (1991, p.188), the attitude toward behaviour is referred to as “the degree to which a person has a favourable or unfavourable evaluation or appraisal of the behaviour in question.” Bi and Montalto (2004) argued that an individual’s attitude towards borrowing to cover living costs when income is cut is not significant. However, it is argued further that the availability of credit instruments relates to less preparation for an emergency fund. This indicated that individuals are more probably financially literate. In addition, The positive attitude towards credit contributes to less savings for an emergency fund (Bhargava & Lown, 2006). This may because individual think that they will still have possibility of alternative of money if there is emergency need. Some studies (such as Kimball & Weil, 2009; Lusardi, 2000) were found not to measure attitudes towards savings for emergency directly. The attitude towards risk was used to explain the savings for emergencies, such as precautionary savings. The attitude was found to directly influence saving behaviours among individuals (Garcia, Barros & Silvestre, 2011).

However, the attitude towards emergency fund formation among young student adults as yet remains unclear. Studying it is important to gain an understanding of their attitude, as well as to well educate the debt knowledge among them (Norvilitis, Szablicki & Wilson, 2003).

2.6.2.1.2 Subjective Norms and Emergency Fund

Ajzen (2011, p.188) defines the subjective norms as referring to “the perceived social pressure to perform or not to perform the behaviour.” The relationship between subjective norms towards emergency fund behaviours among young adults is relatively

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unexplored. However, from the literature in section 2.3.1.3, it can be argued that the social factors that contribute to a young adult’s financial behaviour exist. Factors such as family and peers are found to affect financial behaviour among young adults. Future study is required to understand the relationship between these social pressures towards specific financial behaviour among young adults (Shim et al., 2012).

In addition, this research suggests that culture is also a predictive factor that contributes to emergency fund behaviour. This is because each culture has a unique character (Bakir, Rose & Shoham, 2006). For example, Hong & Kao (1997) found that Asian- Americans have more adequate levels of emergency funds compared to other ethnic groups in America. Although they live in the same country, then, culture and custom influences the financial behaviour of each. In the context of Malaysia, particularly, it is widely practiced to hold some specific assets such as gold in order to have quick cash during an emergency event. It could be predicted that Malaysian culture may contribute to individuals performing emergency fund behaviour. The discussion on the culture in Malaysia contexts towards this prediction is shown later in Chapter 3.

2.6.2.1.3 Perceived Behaviour Control and Emergency Fund

Perceived behavioural control “refers to people’s perception of the ease or difficulty of performing the behaviour of interest.” (Ajzen, 1991, p.188). In other words, Ajzen (2002) argues that it is “focused on the ability to perform a particular behaviour.” It is further argued that the resource and the obstacle that are faced by individuals are unimportant, but what is important is the belief for individuals to perform the behaviour. Besides, perceived behavioural control can represent internal or external factors (Ajzen, 2002).

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No evidence could be found in a discussion of the relationship of perceived behaviour control towards an emergency fund. However, Soyeon Shim et al., (2012) have argued that there is a significant relationship between perceived behaviour control towards general savings behaviour.

2.6.2.1.4 Intention and Emergency Fund

Ajzen (1991, p.181) defines that “intention is to perform a given behaviour. Intentions are assumed to capture the motivational factors that influence a behaviour; they are indications of how hard people are willing to try, of how much of an effort they are planning to exert, in order to perform the behaviour.” From a savings perspective, Wärneryd (1999) stated that saving motives are one form of intention which have been found to affect saving behaviours. Rabinovich and Webley (2007) argued that intentions contribute to successful savings behaviours.

Although motive to save was previously mentioned to contribute to the success of saving behaviour, Huston & Chang (1997) argued that the intention alone did not contribute to the probability of individuals to actually having sufficient reserves for emergencies. In another study by Rabinovich & Webley (2007), it was found that there is relationship occurring between intention and savings. However the causal effects are still unknown. Therefore, there is less evidence to explain the cause and effect of intention towards the emergency fund behaviour.