Exploring the underlying factors influencing the financial capability and financial wellness of young adults in Malaysia

Young adults, today, are faced with making difficult financial decisions that have considerable long-term economic and societal effects. There is ample evidence that young Malaysian adults are particularly vulnerable to make poor financial decisions as they lack the financial capability to do so, hence compromising their overall sense of financial wellness. However, young adults’ financial capability and financial wellness have been a relatively under-researched area in Malaysia. Using a hierarchical reflective-formative component model, this study tested an augmented financial capability model underpinned by the Theory of Consumer Socialization, the Theory of Planned Behaviour, the Social Cognitive Theory and the Developmental Model of Financial Capability to explore the underlying factors influencing the financial capability and financial wellness of young Malaysian adults. 787 questionnaires were distributed in public and private universities in Malaysia. 645 were returned, giving a response rate of 82%. After the data screening and cleaning process in SPSS version 22, 530 data sets were exported into SmartPLS v.3.3.2 to assess the measurement and structural model using the extended repeated indicator approach. Four hypotheses were tested. All twelve structural model paths were positive and statistically significant. Higher levels of parental financial socialization were found to result in higher levels of financial knowledge, more favourable financial attitudes and financially capable behaviours in young Malaysian adults. Higher levels of financial knowledge had a significant relationship with the financial self-beliefs of young adults in Malaysia such that it predicted more favourable financial attitudes, along with higher values of perceived behavioural control, higher measures of financial self-efficacy, and financially capable behaviour. The results show that more positive financial attitudes, higher values of parental subjective norms, higher degrees of perceived behavioural control and financial self-efficacy predicted a higher instance of financially capable behaviour. The prevalence of a financially capable behaviour predicts better levels of the financial wellness of young adults in Malaysia.