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European Journal of Economics, Finance and Administrative Sciences

ISSN 1450-2275 Issue 16 (2009) EuroJournals, Inc. 2009

http://www.eurojournals.com

An Empirical Analysis of Personal Financial Planning in an

Emerging Economy

Ming-Ming Lai

Faculty of Management, Multimedia University, Jalan Multimedia 63100 Cyberjaya

Selangor Darul Ehsan Malaysia

Tel: 603-83125722; Fax: 603-83125590

E-mail: [email protected]

Wei-Khong Tan

Faculty of Management, Multimedia University, Jalan Multimedia 63100 Cyberjaya

Selangor Darul Ehsan Malaysia

E-mail: [email protected]

Abstract

This paper examines the attitudes of the Malaysians toward personal financial planning,which encompasses money management, insurance planning, investment planning,

retirement planning, and estate planning. A survey data was obtained from 400 Malaysians

by using a set of structured questionnaire. We associated personal financial planning effortswith three measures: attitudes towards personal financial planning, factors influencing

various aspects of personal financial planning decision, and frequency of managing for

various aspects of personal financial planning. The results show that the job status of arespondent is the primary factor in influencing attitudes towards personal financial

planning and the frequency in managing for various aspects of personal financial planning.Demographic characteristics such as age, race, marital status, gender, and education levelare the secondary factors where concerned. This paper has implications on financial

planners in formulation strategies on how to successfully deploy a personal financialplanning programme for their customers.

Keywords: Financial planning, personal finance, money management, retirement

planning, Malaysia

1. IntroductionThe burgeoning of the personal financial planning has drawn great interests in financial servicesindustry. Personal financial planning is a fairly new and growing discipline. It deserves academic

financial recognition as investment and corporate finance, and additional financial research and

specialized centre are greatly needed, (Altfest, 2004, p.53). Kapoor et al. (2004, p.4) stated thatpersonal financial planning is the process of managing your money to achieve personal economic

satisfaction. Individual needs and goals change when he or she moves through different stages of life,

therefore, making financial planning is a dynamic process (Gitman and Joehnk, 2005).People are investing their own assets and personal income efficiently to ensure that their

economic security can be guaranteed, not only during their working life but also after retirement. The

gradual increase in the aged population, together with a longer life expectancy, points to the need and

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100 European Journal of Economics, Finance and Administrative Sciences - Issue 16 (2009)

importance of well-planned personal financial planning. Nonetheless, little attempt have been

conducted to provide comprehensive evidence in measuring attitudes toward personal financial

planning and its associated issues. This paper, thus, fills the gap by examining the attitudes andmanagement of general public, i.e., Malaysian towards personal financial planning, which

encompasses money management, insurance planning, investment planning, retirement planning, and

estate planning. We further explored the factors most influencing the decisions. This paper contributes

interesting and additional empirical evidence to factors influencing the respondents attitudes, and

managing personal financial planning in an Asian and different environment setting from westerncountries. The findings will be extremely useful for effective financial plan in tailoring the needs of

individuals based on job status, age, gender, education level, income, race, and marital status. It ishoped that the findings of this study contribute to the financial planner profession and industry in an

emerging economy such as Malaysia.

2. Literature ReviewTo achieve personal economic satisfaction when one moves through the life cycle, several major typesof financial planning--insurance, investment, retirement, and estate planning--are required. A persons

life situation such as income, age, gender, education may influence decisions of his or her personal

financial planning. It is worth noting that the role of money and money management are closely linkedto personal behavior and financial planning.

Tang et al. (2002a) examined on peoples endorsement of the money ethic across Taiwan,

United States (USA), and the United Kingdom (UK). The respondents comprised 78 full-timeemployees in Taiwan, 137 employees in the USA, and 93 professional in UK. Data were measured

through exploratory factor analysis, confirmatory factor analysis, multivariate analysis of variance, and

multiple regression analysis. American men considered money as their success, in contrast, British men

considered money as evil. As for British women, they budgeted their money carefully.Tang et al. (2002b) studied the money ethic scale (budget, evil, equity, success, and motivator),

self-reported income, demographic variables, and life satisfaction among 207 professors in the USA

and 102 professors in Spain. American faculty reported higher scores on factors budget, equity, and

success, and lower scores on factor evil than their Spanish counterparts. Further, gender (male),budget, education, and work experience were predictors of American professors income, while work

experience, gender (male), education, and factor motivator were predictors of Spanish professorsincome. For the American sample, marital status (married), budget, gender (male), a low level of

education, and a low level of factor success were predictors of life satisfaction, whereas for the Spanish

sample, marital status (married), young age, and budget were predictors of life satisfaction. There is no

difference in money as a motivator between professors in these two samples. It is also interesting tonote that income was not related to life satisfaction in both samples. This is because most of the

professors in higher education are less interested in making money, compared to those (with the same

qualifications) working in industry and business. It is in line with the process of self-selection in theteaching profession.

Hwang and Gao (2003) used a time series analysis, which showed that the main factors whichinfluenced people in China to purchase life insurance products are directly associated with thesuccessful economic reform leading people to progress to higher layers of economic security, the

increase in the level of education, and the change in social structure. However, this research has not

found a negative effect of inflation on life insurance consumption, even as China experienced highinflation in the mid-1990s. The significant relationship between the demand for life insurance and the

level of income in China suggests that the life insurance industry can be reasonably developed in a

low-income country.

Graham et al. (2002) indicated that female investors appear both to be more risk averse and tohave less confidence in their investment decisions than male investors in equivalent circumstances. On

a larger scale, since women are more comprehensive information processors, and thus, trade less often

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than their male counterparts, it might be hypothesized that the increasing participation of women in

investing will have a moderating effect on the stock market.

Glamser (1981) and McPherson (1991) indicated that respondents had generally favorableattitudes toward retirement during pre-retirement years. The favorable attitudes were associated with

high levels of income, health, education, and high degree of support from family and work. It is

interesting to note that the younger the respondents, the greater the favorable attitude towards

retirement. At the same time, Glamser (1981) and Prothero (1981) pointed out that negative attitudes

were found towards retirement and the negative attitudes were related to the fear of financialdifficulties after retirement, high commitment, and satisfaction from work.

Ryan (2001) conducted a survey of 700 retired people and the results revealed that men andwomen adjust differently to retirement. She stated that there was no clear reason associated with men

having most of their identity tied to their working environment. This is consistent with McPherson

(1991) who indicated that work is a primary concern as it influences life, chances, income, socialstatus, lifestyle, and even friendship. Similarly, Butters (2002) indicated that people retire differently.

Some men behave differently from woman in view of the men involvement of work and value of work

to men.Lim (2003) analyzed via questionnaire surveys in Singapore towards the attitudes of 204 senior

workers towards work and retirement, retirement planning, and their willingness to continue working

after retirement, and to undergo retraining. The results showed that work occupied a salient part of thelives of employees in their 40s and above. Respondents held rather ambivalent attitudes with regard tothe prospect of retirement, i.e. while they did not view retirement negatively, they were nevertheless

anxious about certain aspects of retirement. In addition, respondents also generally have not planned

for retirement. Those aged 50 years and above were more likely to engage in retirement planninginvolving discussion about retirement with others, financial planning, and planning for holiday trips

compared with those below 50 years old. The majority of them preferred to remain employed and

willing to undergo retraining after they have retired.

3. Data and Method

This study was conducted via questionnaire survey. The researcher himself has conducted the pre-testinitial questionnaire administration over a period of four days to a total of 200 respondents from three

different professions (senior workers, executives and professionals, and college students) at differentareas in Klang Valley, Malaysia in July 2004. Reliability and validity of the items in the questionnaire

were carried out for both pilot study and actual study.

The final survey was self-administered over a period of eight days on a random sample of 400

Malaysian general public in September 2004, in Klang Valley, Malaysia. The questionnaire wasdivided into three main sections. Each section is further divided into five sub-sections, and respondents

are asked to give their opinions according to the questions following the instruction provided in each

section.The first section was a series of questions on a five-point Likert-type scale concerning attitudes

towards various aspects of personal financial planning. Respondents indicated whether each responsewas strongly disagree, disagree, neither agree nor disagree, agree, or strongly agree on theirattitudes towards money, insurance, investment, retirement, and estate planning.

The second section was a series of questions on a three-point Likert-type scale involving factors

influencing decision on various aspects of personal financial planning. Respondents indicated whethereach response was not an influence, moderate influence, or great influence on the factors

influencing their decision on money, insurance, investment, retirement, and estate.

The third section was a series of questions on a five-point Likert-type scale comprising how to

manage for various aspects of personal financial planning. Respondents indicated whether eachresponse was never, rarely, neutral, sometimes or often on the frequency engage in

managing for their money, insurance, investment, retirement, and estate.

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As for the demographic characteristics section, the questionnaire included social-demographic

variables concerning gender, race, marital status, age, education level, income, and job status.

Respondents are given an opportunity to provide their own opinion on how they feel about completingthis questionnaire. If there are certain items/questions on certain set of the questionnaires collected are

left blank or unanswered, the researcher has to handle these blank responses to an interval-scaled item

with a mid-point of the scale as the response to that particular item. Appropriate and robust statistical

tests like T-test, ANOVA, and Tukey method were employed to test the hypotheses and they are

discussed as follows:

3.1 T-test

Two null hypotheses that are examined by using T-test are as follows:

H1o: There will be no difference between individuals gender in the opinions on various

aspects of personal financial planning.

Statistically expressed, H1o is: =

where and signify the means in the opinions on personal financial planning by respondents who

are female and male, respectively.

H2o: The opinions on various aspects of personal financial planning will be the sameirrespective of the individuals marital status.

Statistically expressed, H2o is: =

where and signify the means in the opinions on personal financial planning by respondents who

are married and not married, respectively.

3.2 Analysis of Variance (ANOVA)

While the t-test would indicate whether or not there is a significance mean difference in a dependentvariable between two groups, an analysis of variance or ANOVA is a statistical method for testing the

null hypothesis that the means of several populations are equal.ANOVA helps to examine the significance mean differences between more than two groups on

an interval or ratio-scaled dependant variable. In this study, the variables are age, race, income, jobstatus, and education level. The results of one-way analysis of variance show whether or not the means

of the various groups are significantly different from one another, as indicated by thep-value. The null

hypothesis tested for job status, for example by ANOVA is as follows:

Ho: There will be no difference between individuals job status in the opinions on various

aspects of personal financial planning.

Statistically expressed, H1o is: = =

where , and signify the means in the opinions on personal financial planning by respondentswho are employed, self-employed, and unemployed, respectively.

3.3 Tukey Method

When significant mean differences among the groups are indicated by the p-value, there is no way of

knowing from the one-way ANOVA results alone as to where they lie, that is, whether the significancedifference is between groups A and B, or between B and C, or A and C, and so on. Therefore, it would

be unwise to use multiple t-test, taking two groups at a time.

Tukey test, however, is chosen to conduct post hoc test for this study. The test statistic forTukey test is found by dividing the difference between the means by the square root of the ratio of the

within group variation and the sample size.

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4. Analysis and DiscussionThe profile of the respondents is shown in Table 1. Overall, 266 respondents were employed while 134

respondents were unemployed.

Table 1: Demographic Characteristics of the 2004 Survey Participants

Variables/Characteristics Respondents % Respondents (n)

GenderFemale 49.5 (198)

Male 50.5 (202)

Age

Under 20 14.5 (58)

20 30 35.5 (142)

31 40 14.5 (58)

41 50 13.3 (53)

51 60 11.5 (46)

Over 60 10.8 (43)

Race

Malay 32.8 (131)

Chinese 30.0 (120)

Indian 26.3 (105)Other (specify) 11.0 (44)

Education Level

Standard Six/UPSR 0.0 (0)

N-Level/PMR/O-Level/SPM 11.5 (46)

A-Level/STPM 10.3 (41)

Diploma/Higher Diploma 22.0 (88)

BA/BS 24.3 (97)

MA/MS/MBA/MPhil 12.0 (48)

Professional Degree 12.0 (48)

DBA/PhD 8.0 (32)

Marital Status

Married 40.0 (160)

Single 60.0 (240)Income

Under RM2,000 33.0 (132)

RM2,000 RM4,000 17.0 (68)

RM4,001 RM6,000 20.0 (80)

RM6,001 RM8,000 8.3 (33)

RM8,001 RM10,000 12.8 (51)

Over RM10,000 9.0 (36)

Job Status

Employed

Top Management 8.8 (35)

Middle Management 22.0 (88)

Low Management 13.0 (52)

Nonmanagerial 10.8 (43)

Total Score 54.5 (218)

Self-Employed 12.0 (48)

Unemployed

Students 18.5 (74)

Housewives 7.5 (30)

Homemakers 0.0 (0)

Retired Persons 7.5 (30)

Total Score 33.5 (134)

Note: n = 400 and no missing value

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Table 2 reports the attitudes and significant differences of the Malaysian respondents towards

money management, insurance, investment, retirement, and estate planning. First of all, the results

show that respondents demonstrated positive attitude towards money. This finding is consistent withTang et al. (2002a) in which people have positive attitude towards money. People viewed money as

budget factor in which they spend their money very carefully and budget them very well. The results

are also consistent with Tang et al. (2002a) and Tang et al. (2002b) in which money are a symbol of

success and achievement.

We move the discussion to the respondents attitude toward insurance. The result indicates thatinsurance is served as a protective mechanism rather than as an investment instrument. This can be

seen from Chow-Chua and Lim (2000) when they pointed out that insurance is a common way toreduce personal exposure to loss by guaranteeing a specific sum of money when a particular event

occurs.

The mean values of 3.94 to 4.20 of investments presented in Table 2 show that Malaysianrespondents have a positive attitude toward investment. They perceived that investment has always

been an important part of building wealth and security.

On the other hand, respondents held a rather negative attitude with regard to the prospect ofretirement. The survey results suggest that respondents were anxious about certain aspects of

retirement and it is a difficult adjustment on lifestyle for respondents.

Lastly, the Malaysian respondents were reasonably familiar with estate planning, theyunderstood that estate planning involves the planning and documentation of how their assets will bedistributed whey they die. It is also meant to minimize the taxes on assets when they ultimately transfer

the assets to their beneficiaries. As a whole, the Malaysian public have shown positive attitude with

mean scores of more than 3.0. Nonetheless, there are not much significant statistical differences whenall these items were tested across the demographic characteristics.

Results show that Chinese respondents viewed money much more positively and budgeted their

money very well compared to Malay and Indian respondents. This finding is consistent with Tang et al.(2002a) that the Chinese equate their levels of achievement to money, and because of these attitudes

towards money, the Chinese are more driven towards accomplishment.

Respondents who earn under RM2,000.00, are mostly younger adults, lack of knowledge on

insurance products. On the other hand, those respondents who earn between 8,001.00 andRM10,000.00, are having enough insurance policies, but still in difficulty to make decisions about

purchasing additional insurance. At the same time, married respondents were more proud of their

investment and let their friends know about them when compared with unmarried respondents.Job status of an individual appears to be the most statistical significant among these

demographic characteristics, and therefore, the results are reported in Table 3. Table 3 presents the

result of Tukey method on the respondents attitude on various aspects of personal financial planningwhen linked to job status of the respondents. The employed and self-employed respondents generally

viewed money much more positively when compared to unemployed respondents. This finding is

consistent with Wernimont and Fitzpatrick (1972) in which money was seen by those employed as

desirable, important, and useful. However, the unemployed seem have a tense, worrisome, and

unhappy view of money. The 134 unemployed respondents are students, housewives, and retiredpeople.

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Table 2: Respondents Demographics and Attitudes towards Personal Financial Planning

Items MeanStandard Significant Different*

Deviation Means are in parentheses

Money Management

1. I spend my money very carefully. 3.89 1.07 Indian (3.71) < Chinese (4.14)

2. I budget my money very well. 3.65 1.05Indian (3.46), Malay (3.60) Single (3.47)

18. I am afraid I will feel lonely after I retire. 3.50 1.17 Married (3.51) > Single (3.50)

19. Retirement is a difficult adjustment on lifestyle. 3.23 1.22

20. Retirement will give me new opportunities to do things

that I was not able to do while I was working.3.92 0.99

RM6,001-RM8,000 (3.58) &

over RM10,000 (3.61)

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