Understanding Financial Behaviour: Key Factors and Implications

Mr. Tankala Kalyan Kumar
Assistant Professor
Commerce and Management
Kalinga University, Raipur, Chhattisgarh, India
The various methods that people handle their finances, including their spending, investing, saving, & budgeting practices, are commonly referred to as financial behaviour. Numerous factors, such as psychological, social, and economic aspects, influence this behaviour. For the purpose of creating financial education initiatives and regulations that will enhance financial well-being, it is imperative to comprehend these habits.

Key Factors Influencing Financial Behaviour
Psychological Factors
Financial carry out is significantly shaped by psychological factors. Lerner and Tetlock (1999) assert that feelings having a big influence on how people make decisions. Overconfidence can result in riskier investments, whereas fear and concern regarding financial stability might cause people to adopt excessively conservative financial tactics. Furthermore, Thaler’s (1985) notion of mental budgeting postulates that individuals utilize distinct ways of classifying their finances, which may have an impact on their saving and spending habits.

Social Influences
Peer pressure and cultural norms constitute two social forces that have an impact on spending habits. Family financial habits have a major impact on children’s eventual financial actions, according to research by Danes and Hira (1987). Also, given that individuals frequently model their behaviour after that of their peers, social networks can have an impact on spending patterns (Granovetter, 1978). Depending on the circumstances, this social comparison could result in either favorable or negative financial behaviours.

Economic Factors
A person’s financial conduct is greatly influenced by economic factors, including income level, employment status, and economic stability. Individuals choose their consumption habits based more on their projected lifetime income than their actual income. According to Friedman’s 1957 Life Cycle Hypothesis theory, people save money during their working years in order to get ready for retirement, which shows that they are taking a sensible approach to financial planning.

Implications for Financial Education
The field of financial education stands to gain a great deal from an understanding of the numerous elements surrounding financial conduct. People can identify and control their money-related emotions with the aid of programs that integrate psychological concepts. To make more logical financial decisions, for instance, people can be empowered by education regarding cognitive biases and emotional triggers (Kahneman, 2011).
Moreover, adding social elements can improve the efficacy of financial education. Beneficial financial practices can be fostered in supportive environments through peer-led seminars or community-based initiatives (Beverly et al., 2008). By exploiting the effects of society, these programs can encourage responsibility and commitment among participants.

Conclusion
A complex interaction of psychological, social, and economic elements influences financial behaviour. Comprehending these factors can facilitate the creation of focused financial literacy initiatives which allow people to make knowledgeable financial choices. Educators and legislators can enhance financial literacy and enhance better financial outcomes for individuals and communities by addressing both the cognitive and emotional components of financial behaviour.

References
Beverly, S. G., Sherraden, M., & Kauffman, R. (2008). The effect of individual development accounts on financial behaviour: Results from a randomized experiment. Journal of Consumer Affairs, 42(2), 159-186.
Danes, S. M., & Hira, T. K. (1987). Financial socialization of children: A longitudinal study. Financial Counseling and Planning, 1(1), 21-34.
Friedman, M. (1957). A theory of the consumption function. Princeton University Press.
Granovetter, M. (1978). Threshold models of collective behaviour. American Journal of Sociology, 83(6), 1420-1443.
Kahneman, D. (2011). Thinking, fast and slow. Farrar, Straus and Giroux.
Lerner, J. S., & Tetlock, P. E. (1999). Accounting for the effects of accountability. Psychological Bulletin, 125(2), 255-275.
Thaler, R. H. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199-214.