Financial Management 352 Research Proposal Assessment Answer

Page 1: The real world

Unveiling the Imperative for Transforming Financial Behavior in South Africa

The imperative need to confront and alter financial behaviour has recently emerged as a major real-world trend and problem with the context of personal finance in South Africa. The identification of this need was made possible by a thorough literature review and empirical findings. Without a question, business executives, legislators, and the community at large must give this issue top priority (Alsemgeest, 2015).

With low savings rates, high levels of debt, poor retirement planning, and little investment in wealth-building assets, South Africa is experiencing a multidimensional financial behaviour crisis. The population's hopes for financial security and the nation's expanding economy are out of step with these developments (Reyers, 2019). Kostov et. al., (2015), state that a cycle of financial fragility is exacerbated by low savings rates, which lead people to turn to costlier borrowing in times of need. Despard et. al., (2020), argues that high levels of debt cause households to carry a lot of consumer debt, which causes financial stress, less money to spend, and an increased likelihood of loan default. Low enrolment rates in retirement savings institutions like pension plans or provident funds are another concern with insufficient retirement planning. Wealth accumulation is hampered by a lack of investment in wealth-building assets like stocks, bonds, and real estate (Wentzel, 2016).

For a number of reasons, this problem is quite challenging. First, poor personal finance habits can make economic disparity worse, putting a disproportionate amount of stress on communities that are already at risk. Furthermore, it puts a heavy pressure on social welfare systems since people who are unprepared for retirement or unexpected financial shocks may seek for public aid (Gjertson, 2016). Thirdly, it slows down economic expansion since a population with low savings and investment levels makes fewer capital investments. Additionally, it fosters a cycle of financial vulnerability by passing on bad financial practises to next generations (Bhargava &Lown, 2006).

The debate over personal finances in South Africa is complex, with major points of contention including a lack of financial literacy among young people, historical economic disparities, high debt levels, poor retirement planning, behavioural economics, financial institutions, cultural and social factors, policy and regulation, and economic growth and stability (Robert et. al., 2013). A thorough strategy that takes into account educational, economic, cultural, and regulatory factors is needed to address these difficulties.The scope of the issue is staggering. Almost every household in South Africa is affected by poor financial management. Nearly 10 million South Africans, according to study (Adewale, 2014), have credit histories that are compromised, showing a pervasive problem with debt management. Many people have trouble saving for retirement, which puts further demand on social security systems (Referaet. al., 2016).

Page 2 and 3: The theories and research concepts

Theory of Planned Behaviour (TPB)

According to TPB, an individual's behaviour, personal standards, and perceived behavioural control all have an impact on their behavioural intention. TPB can assist researchers in comprehending how people's attitudes towards saving, investing, and debt management influence their financial actions in the context of South Africa's financial behaviour dilemma. Researchers are able to pinpoint the major elements influencing or impeding changes in financial behaviour by evaluating subjective standards and perceived control (Sommer, 2011).

According to TPB, perceptions of behavioural control, subjective norms, and attitudes all have an impact on behavioural intention(Kautonen et. al., 2013). Savings attitudes, subjective standards, and perceived behavioural control are important factors in South Africa's financial behaviour dilemma because they have an impact on how well people think they can manage their finances.

Theory of Reasoned Action (TRA)

TRA, which places a strong emphasis on the influence of ideas and attitudes in determining behavioural intentions, is closely related to TPB. It can be used to investigate how people's ideas about personal financial matters, such as how important saving is or how dangerous taking on debt is, affect their long-term goals and subsequent actions (LaCaille, 2020).

The influence of beliefs and attitudes on behavioural intentions is highlighted by TRA. Relevant factors in South Africa include attitudes towards investing and debt perceptions, which affect how favourably or unfavourably people view investment prospects.

The Prospect Theory

According to Kahneman&Tversky, (2013), Theprospect theory, created by Kahneman and Tversky, describes how people make judgements in the face of uncertainty. Due to cognitive predispositions and their sensitivity to prospective losses, it can be used to explain why some South Africans would participate in risky financial behaviours, such as investing in speculation or excessive debt. This idea can guide actions intended to reduce risky financial decisions (Wakker, 2010).

Prospect theory investigates how people make decisions when faced with uncertainty, taking potential advantages and costs into account. Risk aversion and loss aversion are important factors in South Africa's financial behaviour problem since they involve people prioritising preventing losses above pursuing similar benefits (Liu et. al., 2014).

The Socialization Theory

Financial behaviour in South Africa is frequently impacted by familial and cultural norms, according to socialisation theories (Grusec&Davidov, 2010). Researchers can use socialisation theories to better understand how a person's upbringing and cultural influences effect their financial attitudes and behaviours. By recognising the role of social and cultural elements in influencing financial habits, this perspective helps direct initiatives (Grusec& Hastings, (Eds.).2014).

Theories of socialisation examine how social and familial norms influence people. Parental financial behaviour and cultural norms are important factors in South Africa because they affect how children make financial decisions (LeBaron&Kelley, 2021).

The Life Cycle Theory

The life cycle hypothesis contends that people base their financial choices on the stage of their lives and their projected future earnings. This idea can be used by researchers to investigate how life events like marriage, becoming a parent, or retirement affect financial behaviour. Understanding the effects of life stages might help develop customised financial education programmes and policies(Stepayan, 2012).

According to the life cycle hypothesis, people base their financial choices on their stage of life and expected future income. Relevant factors in South Africa that affect decisions about saving and investing include family financial status and earnings trend (LaRocca et. al., 2011).

For understanding the psychological, social, and economic elements impacting financial behaviour, theories and concepts are essential. To investigate financial decision-making, saving, and investment behaviour, they have been used internationally and in South Africa. These ideas can be used to pinpoint issues in the study of South Africa's financial behaviour, such as cultural norms influencing retirement planning and consumer approval of financial applications influencing savings behaviour. By utilising these theories, researchers can create focused interventions and policies to encourage a change in positive financial behaviour.

Page 4: The problem statement

The main goal of the research is to find a solution to the urgent problem of changing South Africa's financial behaviour. This problem includes a lack of investment in wealth-building assets, low savings rates, high levels of debt, and poor retirement planning. These patterns run counter to South Africa's economic goals of prosperity and progress. The goal of the research is to comprehend the underlying causes of positive financial behaviour change among South Africans(Alsemgeest, 2015).

Through exploration of the psychological, social, and economic elements influencing these behaviours, the research problem seeks to identify the underlying reasons of South Africa's financial behaviour crisis. Researchers seek to pinpoint elements that support or obstruct changes in positive financial behaviour by applying well-known theories and looking at pertinent variables(Wentzel, 2016). To fully comprehend South Africa's financial behaviour issue, a multidisciplinary approach is necessary, incorporating well-known theories and variables to inform actions and policies that successfully manage financial challenges and promote economic progress.

According to TPB theory, a person's attitudes, subjective norms, and perceived behavioural control all affect their financial decisions. TPB can be used by researchers to better understand how South Africans' views towards debt management, investing, and saving influence their financial choices(Kautonen et. al., 2013). On the other side, socialisation theories investigate how societal factors and one's upbringing form a person. Researchers can better grasp the effects of these factors on financial attitudes and behaviours among South Africans by comprehending variables like parental financial behaviour and cultural norms(LeBaron&Kelley, 2021).To fully understand how different life stages and expected income levels affect financial decisions, it is essential to understand the life cycle hypothesis. It takes into account elements that affect financial behaviour at various phases of life, such as marital status and income trajectory(LaRocca et. al., 2011).

Addressing the research problem of transforming financial behavior in South Africa is crucial for economic growth, stability, income inequality reduction, social welfare impact, financial independence and security, interconnected issues, future generations, global competitiveness, and social cohesion. Poor financial behavior hinders participation in economic activities, exacerbates income inequality, and reduces the burden on social welfare systems. By empowering individuals across all income levels to make informed financial decisions and accumulate wealth, South Africa can level the playing field and reduce the strain on public resources(Adewale, 2014). By breaking the cycle of poor financial behavior, South Africa can pave the way for a more financially responsible and prosperous future generation. Addressing this multifaceted issue requires attention from policymakers, businesses, educators, and researchers to create a more financially secure and prosperous South Africa.

Page 5: The Variables of the proposed research question

Remember: Variables are measurable, and not vague or broad concepts. Be sure that the dependent and independent variables are specific and measurable. It must be clear from the argument in page 1 – 3 and the problem statement in page 4 why these variables were the most relevant for your proposed research.

Bibliography

Adewale, A. R. (2014). Financial Regulation, Credit Consumption And Economic Growth An Analysis Of The National Credit Act In South Africa. Journal of Applied Business Research (JABR) , 30 (2), 367-378.

Alsemgeest, L. (2015). Arguments for and against financial literacy education: where to go from here?. International Journal of Consumer Studies , 39 (2), 155-161.

Bhargava, V., &Lown, J. M. (2006). Preparedness for financial emergencies: Evidence from the Survey of Consumer Finances. Journal of Financial Counseling and Planning , 17 (2).

Despard, M. R., Friedline, T., & Martin-West, S. (2020). Why do households lack emergency savings? The role of financial capability. Journal of Family and Economic Issues , 41 , 542-557.

Gjertson, L. (2016). Emergency saving and household hardship. Journal of Family and Economic Issues , 37 , 1-17.

Grusec, J. E., &Davidov, M. (2010). Integrating different perspectives on socialization theory and research: A domain‐specific approach. Child development , 81 (3), 687-709.

Grusec, J. E., & Hastings, P. D. (Eds.). (2014). Handbook of socialization: Theory and research . Guilford Publications.

Kahneman, D., &Tversky, A. (2013). Prospect theory: An analysis of decision under risk. In Handbook of the fundamentals of financial decision making: Part I (pp. 99-127).

Kautonen, T., Van Gelderen, M., &Tornikoski, E. T. (2013). Predicting entrepreneurial behaviour: a test of the theory of planned behaviour. Applied economics , 45 (6), 697-707.

Kostov, P., Arun, T., &Annim, S. (2015). Access to financial services: The case of the'Mzansi'account in South Africa. Review of Development Finance , 5 (1), 34-42.

LaCaille, L. (2020). Theory of reasoned action. Encyclopedia of behavioral medicine , 2231-2234.

La Rocca, M., La Rocca, T., &Cariola, A. (2011). Capital structure decisions during a firm's life cycle. Small Business Economics , 37 , 107-130.

LeBaron, A. B., & Kelley, H. H. (2021). Financial socialization: A decade in review. Journal of family and economic issues , 42 (Suppl 1), 195-206.

Liu, Y. Y., Nacher, J. C., Ochiai, T., Martino, M., &Altshuler, Y. (2014). Prospect theory for online financial trading. PloS one , 9 (10), e109458.

Refera, M. K., Dhaliwal, N. K., & Kaur, J. (2016). Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities. Journal of African Studies and development , 8 (1), 1-12.

Reyers, M. (2019). Financial capability and emergency savings among South Africans living above and below the poverty line. International Journal of Consumer Studies , 43 (4), 335-347.

Roberts, B., Struwig, J., & Gordon, S. (2013). Financial literacy in South Africa: Results of a 2012 national survey update.

Sommer, L. (2011). The theory of planned behaviour and the impact of past behaviour. International Business & Economics Research Journal (IBER) , 10 (1).

Stepanyan, G. G. (2012). Revisiting firm life cycle theory for new directions in finance. Available at SSRN 2126479 .

Wakker, P. P. (2010). Prospect theory: For risk and ambiguity . Cambridge university press.

Wentzel, A. (2016). Financial Literacy in South Africa. International handbook of financial literacy , 329-339.

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