Behavioural Finance (Actual savings vs Expected savings)

8/12/2019 Behavioural Finance (Actual savings vs Expected savings)

1/49

CHAPTER 1: RESEARCH OVERVIEW

1.1 Title of study

Examining the difference between expected savings and actual savings for generation Y and

determining its causes.

1.2 Research background

In this paper, we are examining the difference between expected savings and actual savings in

Malaysia where expected savings are derived from undergraduates and actual savings are

derived from young working adults. From this difference, the following uestions will be

addressed. !hy do young people do not save as they intend to" #o they not place importance

towards their future" !hy would they fail in meeting their savings target" In answering these

uestions, the concept of behavioural finance is used.

$nder this concept, studies had shown that when making decision about the uncertainty %the

future for the purpose of the study&, human factors such as overconfidence, fear of regret and

human heuristics formed the basis for the theories under 'udgement for uncertainties %(ishore

)**+&. It is then proposed that these three theories formed the human factor that play a role in

the difference between expected savings and actual savings in Malaysia.

1.3 Problem statement

he low savings rate among the young adults %generation Y& in Malaysia is becoming a

serious concern to the government and also to the well-being of the society. If this problem is

left to its own device, the Malaysian economy would be affected in the future.

ccording to an article from The Malaysian Digestdated )* February )*/0, there is now an

increase of bankruptcy in Malaysia with over 012 of young adults3 aged between /4 to 56-

years-old are in serious debts due to living beyond their means. ccording to the recent

statistics from the Malaysian #epartment of Insolvency %M#I&, there is an //2 rise in the

average number of monthly bankruptcies from )*/) to )*/5. 7n average, there are

approximately /,4/) people declared bankrupt per month last year %he Malaysian #igest

)*/0&..

Page 1of 49


2/49

1.4 Research objective

he ob'ective of this research is to study the savings rate among young adults %generation Y&

and if there is discrepancy between expected savings and actual savings of generation Y, the

causes of the discrepancy as well. 8y the end of this paper, the policy makers such as the

Malaysia #epartment of Insolvency and (9( %an agency set up by 8ank :egara& will be

able to appreciate the significance of this study concerning the discrepancy of expected

savings and actual savings of young adults along with its causes.

1.5 Research uestions

he following research uestion is developed in response to achieve the research ob'ective

mentioned above.

Is there a difference between expected savings from undergraduates compared to

actual savings among young working Malaysian adults"

If there is discrepancy between the expected savings and actual savings for young Malaysian

adults,

!ould the causes of this discrepancy be among the human factors %overconfidence,

fear of regret, human heuristics& being tested here"

For better evaluation of the causes of discrepancy, the following set of uestions were

developed to determine if the causes for the discrepancy are among the human factors being

studied in this paper.

Is there a difference between the undergraduates and the young working adults in

terms of overconfidence"


terms of having fear of regret"


terms of representativeness heuristics"


terms of availability heuristics"

Page 2of 49


3/49


terms of anchoring and ad'ustments"

1.! "eed of study

s mentioned above, more and more young adults from generation Y are being declared or

are on the verge of bankruptcy. !ith that in mind, it is vital that the savings behaviour of

these individuals to be studied thoroughly so that a proper solution can be implemented to

counter this problem. It ought also to be emphasis that these young adults would be the future

leaders of Malaysia. 7ur country would lose its future prospects if most of its future leaders

are declared as bankrupt. ;ere, this paper aims to be the first step on the path of studying

these young adults.


4/49


5/49

Chiller in /BB6 had put forward a new theory which is the fear of regret. 8eing human, most

individuals do not like admitting their mistakes. hey have the tendency to feel pain and

regret at having to make errors. It is precisely because of this tendency, they became

irrational as oppose to rational because being rational would mean admitting that they had

made a mistake. his is also known as Dcognitive dissonance3 %(ishore )**+&.

#ecision made under fear of regret is also known as decision regret. #ecision regret is the

emotion felt as a conseuence of a decision which, after the fact, appears to have been a

wrong or poor decision %Michenaud and Colnik )**4&. For example, individuals may ask

themselves uestions such as ?what if I had not made that decision@ or ?if only I had chosen

this instead of what I did@. hese thoughts are called counterfactuals because they are counter

to what actually, or factually, occurred %8ailey and (inerson )**6&. Aegret may be a form of

emotion that creates additional psychological bias resulting in irrational contribution %(ishore

)**+&. !ith that, expectations and reality usually deviate from one another.

#ifferent people have different reaction to these regretful feelings %Michenaud and Colnik

)**4&. Come take it positively in such that in the fear of having more regret in the future, they

would have learnt from their previous flaws and mistakes. 7thers may take it negatively and

chose not to acknowledge the mistake because they are fearful that they would be unable to

face their regrets %(ishore )**+&. nother group of people may 'ust choose to imitate

individuals who are thought to be better than them to avoid losing out.

2.3 (uman (euristics

2.3.1 Re%resentativeness heuristics

For representative heuristic, it is said that people typically evaluate the future by the degree to

which a situation is a representative of another situation and tend to neglect the background

of the situation. he word representative explains that when one is facing a new experience,

one tend to make a decision or 'udgement on a situation based on past experience %(ishore

)**+&. 7ne usually 'udges an event by taking a short history of information or data about a

similar past event. For instance, investors may look at past histories and data of rapid earning

growth of certain companies too far in the future and may overprice those shares. From here,

it can be seen that decisions may not be accurate as the information used to come up with a

decision may not be accurate %Chleifer )***&.

Page 5of 49


6/49

It is common for people to ask knowledgeable individuals for help to snap a decision or to

give them a basis for assumptions. $nfortunately, when individuals do ask others for advice,

their ?advisors@ tend to be their spouses and friends, who do not necessarily ualify as

experts. !hen people do this, they gain in simplicity and speed, but ignoring the much more

complex reality of the situation resulting in inconsistency in estimations. %8enart=i and haler

/BBB&. 8asically, representative heuristics relies on stereotypes.

Aelying on past experience can provide uick decision making and thus could be beneficial

but it may 'ust not be that accurate. #epending on the reference point, the conclusion made

will either be underestimated or overestimated. 8earing all of this in mind, expectations of

the future will surely deviate from reality because decisions made from human heuristics

have little concrete evidence to support that decision.

2.3.2 )vailability heuristics

For availability heuristic, it is a mental shortcut that helps one make a decision based on how

easy it is to bring something to mind. In other words, people often rely on how easy it is to

think of examples when making a decision or 'udgment. Freuency on how often an event

occurs is important in availability heuristic because the more freuent an event occurs or a

decision is made, it is easier to be recalled compared to the infreuent ones. he ease, with

which such issues come to mind, provides the base for a 'udgement to be made %versky and

(ahneman /B10&.

he problem with availability heuristic is that people will assume that there are several

examples readily available in mind, such as an event or sub'ect matter as a base to make a

decision. he risk is when a situation is so uniue that there may be no similar situations

coming to one3s mind while making a 'udgement and this may lead to an underestimated

'udgement %versky and (ahneman /B10&.

;owever, it may not be all that bad as there are many situations in which availability heuristic

could be useful. For example, its part of what makes one careful in dangerous situations

%(ishore )**+&. If one can think of a similar situation that ended badly for someone else, one

is more likely to be more cautious and could protect his or herself better. s for savings, if

Page 6of 49


7/49

one is able to evaluate other people3s percentage of savings from their pay, one is able to

make a decision on how much one should they save from their savings for a better future.

2.3.3 )nchoring and adjustments

nchoring and ad'ustment on the other hand is making decision by selecting an initial

reference point %the anchor& and making small changes as additional information is received

and processed %Eaton )**0&. his reduces complex problem as all information is evaluated as

a whole even with the arrival of new information. #uring decision making, anchoring occurs

when individuals use an initial piece of information to make subseuent 'udgments. 7nce

setting the anchor, other 'udgments are made by ad'usting away from that anchor. #ue to this,

there will also be biasness towards interpreting other information around the anchor.

he drawback with the anchoring and ad'ustment heuristic is that the values even after

ad'ustments are freuently insufficient. 9eople are only able to make minimal ad'ustments

most of the time and end up remaining 'ust close to the actual anchor. 9sychologists also

came up with findings that state that the ad'ustments remains insufficient most of the time

because after reaching a certain range close to the anchor, people tend to stop ad'usting

%Epley and ilovich )**+&.

2.4 *once%tual 'rame+ork

he diagram below illustrates the framework of the study carried out in this paper. It is

formulated to explain the relationship of the independent variables %overconfidence, fear of

regret, representativeness heuristics, availability heuristics, anchoring and ad'ustment& and

the dependent variables %actual and expected saving behaviour&.

Page 7of 49

7verconfidence

$ndergraduate
http://en.wikipedia.org/wiki/Decision_makinghttp://en.wikipedia.org/wiki/Decision_making


8/49


9/49

extremely high sense of entitlement. 8asically, a large ma'ority of the other generations

dislike this particular generation and this is not without reasons.

8ased on a research done by 9rofessor 9aul ;arvey from the $niversity of :ew ;ampshire,

he had discovered that the generation Y respondents scored )62 higher than respondents

aged 0* to +*, and 6*2 higher than those over +/ in his test of measuring psychological

entitlement and narcissism. he professor also added on that due to these characteristics,

generation Y individuals tend to have an inflated view of themselves %!alsh )*/*&.

his is further supported by explanation provided by Huffington Postdated /6 Ceptember

)*/5. ccording toHuffington Post, generation Y unlike its parents, the baby bloomers, had

grown up in a positive and smoother life experience compared to its parents. he sense of

optimism and unbounded possibility are instilled within them. 8eing so, a special protagonist

identity is built deep into this generation. s each of them think that they are special, it is not

surprising that they started demanding more simply because of the fact that they are in the

opinion that they deserved it %;uffington 9ost )*/5&.

2.5.1 Relationshi% bet+een e-%ected savings and actual savings

!ith reference to the explanation provided above concerning the generation Y, being

narcissistic, optimistic and having a high sense of entitlement, these individuals generally

have expectation that is nowhere close to reality. heir expectation is always higher than

reality resulting in them having unrealistic expectations %;ansen n.d.&. Young Malaysian

adults are very likely to have a sense of inflated view about themselves too as it is in the

$nited Ctates as they belonged in the same generation. hey would have high expectations

about their future prospects and certainly would expect more. 8ased on this, the relationship

between expected savings and actual savings is such that expected savings will be higher than

actual savings.

2.5.2 Relationshi% bet+een overconfidence +ith e-%ected savings com%ared to actual

savings

Page 9of 49


10/49

7nce again in evaluating this, it is important to refer back to the brief overview provided

above regarding generation Y. 8eing part of generation Y, the young adults in Malaysia would

be filled with self-entitlement with an air of arrogance. his is more so to the Malaysian

undergraduates %the base for the study on expected savings&. $ndergraduates should have a

higher sense of overconfidence because it is during their university days where they would

feel that they are invincible and nothing could stop them in pursuit of their dreams.

Meanwhile, the working young adults have been exposed to the harsh working life. 8eing

already exposed, their level of overconfidence would be lower compared to the

undergraduates. Employed adults tend to be more realistic because of their knowledge and

experience gained while being in employment. For example, they have more varied and

complex life experiences and information feedback being older than the undergraduates.

hus, the relationship to be observed here is that the undergraduates will have a higher level

of overconfidence as compared to the working individuals resulting in higher expected

savings compared to actual savings.

2.5.3 Relationshi% bet+een fear of regret +ith e-%ected savings com%ared to actual

savings

8ased on what is already known about the common characteristics of those in the generation

Y category, being narcissists, they often believe that they deserve a particular amount of

respect and rewards. hey are determined to get that and would not settle for lesser

treatments. !hen dealing with such individuals, it is expected that these individuals would

also have a high resistance toward accepting negative feedback %#urham )*/*&.

>onnecting this characteristic with the concept for fear of regret, this very same group of

individuals will have problems of admitting their faults and mistakes. hey would refuse to

admit that they are wrong because to admit their mistake is to say that they regretted their

actions. !ith the fear of regret, they would not be able to admit their mistake or the choices

they had made in the past and present. hey would often pro'ect their future self to be their

ideal-self such as being much more discipline in their spending habits. !ith that,

undergraduates will have a higher expected savings.

Page 10of 49


11/49

2.5.4 Relationshi% bet+een re%resentativeness heuristics +ith e-%ected savings

com%ared to actual savings

he life of the generation Y is largely connected to social media sites such as Instagram,

Facebook, witter and oogleG. 8eing surrounded by such sites, a new world is created

where what everyone else is doing is broadcasted globally. :ot forgetting that they are also

filled with pride about themselves, these individuals will most often present an inflated

version of themselves on these sites rather than the truth. his would leave an impression that

everyone is doing very well %;uffington 9ost )*/5&.

!ith that in mind, when it comes to the undergraduates, the same situation should be able to

be observed. he undergraduates would also think that everyone they knew is doing well

financially. s it is common for university students to feel that their peers3 opinion represents

them, it is said that this shows the presence of representativeness heuristics.


12/49

friends3 and relatives3 experience on savings, they would recall of the numerous of times

%high freuency& these individuals described their rosy life and thus would overestimate their

future savings.

2.5.! Relationshi% bet+een anchoring and adjustments +ith e-%ected savings com%ared

to actual savings

enerally, those in the generation Y grew up in a positive, conducive and supportive

environment compared to the baby bloomers. Many had even gone to the extend to say that

the environment conditions surrounding the generation Y-ers are so good that it started

breeding spoilt brats in replacement of hardworking and tough baby bloomers %;ansen n.d.&.

#ue to such environment, whether they reali=ed it or not, they started being more dependent

on their parents compared to the other older generations at their age. his is especially true

for the undergraduates for the fact that they have not even started earning their own life

expenses.

Co, it is expected that undergraduates rely a lot on their parents because they have not left

Dthe nest3 yet. heir parents3 opinion and behaviour would be mirrored by the undergraduates

themselves.


13/49

H2: The level of overconfidence is higher for undergraduates compared to young

working adults.

his research paper used statements that exhibit characteristics of an individual with high

self-confidence to determine if the respondent is overconfident. 7verconfidence for the

purpose of the research is when an individual is overconfident about his or her own capability

that he or she will overestimate their ability to save resulting in a higher estimation of

expected future savings.

H: The level of fear of regret is higher for undergraduates compared to young working

adults

his research paper used individual3s savings and spending behaviour %both in economic and

economic psychological& to determine fear of regret. Fear of regret for the purpose of this

study is referred to as an anxiety feeling that the individual feels when he or she realised that

they made a mistake.

H!: The level of representativeness heuristics present in undergraduates is higher than

young working adults.

his research paper used peer groups to determine representativeness heuristics. It is

commonly noted that members in the same group and in the same environment will behave

similarly. heir behaviour will most often reflect the behaviour of the group in general. he

reason is people with similar preferences tend to belong to the same group.

H": The level of availability heuristics present in undergraduates is higher than young

working adults.

his research paper used friends3 and relatives3 experience to determine availability

heuristics. his is so because the people surrounding individuals are none other than their

friends and relatives. 8eing so, the best source for the individuals to depend and reflect on

while making decisions will be none other than from the numerous amounts of time that they

hear about the working experience of their friends and relatives. hus, there should be a

correlation between the savings behaviour of young adults to the ease of bringing the

experiences of their friends and relatives to mind.

Page 13of 49


14/49

H#: The level of anchoring and ad$ustments present in undergraduates is higher than


his research paper used parental sociali=ation to determine anchoring and ad'ustments. his

is because the family environment always provided initial information or knowledge to their

members. hus, the undergraduates being young and lacking of life experiences are believed

to use their parents as an anchor more than those that already started working. !ith that in

mind, the level of anchoring and ad'ustments present in undergraduates should be higher than


CHAPTER 3: RESEARCHMETHODOLOGY

3.1 Research design

Page 14of 49


15/49

he study adopted here is an explanatory study with a deductive approach because the

emphasis of the research is on studying the difference between expected savings and actual

savings and also to explain the relationships between variables such as overconfidence, fear

of regret and human heuristics towards that difference. he research will be using scientific

principles whereby the study will move from theory to data %Caunders et.al )**B&.

3.2 Data collection methods

3.2.1 Sampling method

For this research, the data used will be primary data gathered from uestionnaires distributed

to undergraduates and young working adults in Malaysia. >onvenience sampling method is

used for the data collection. It is a method which draws representative data by seeking

individuals because of the ease of their volunteering or selecting them because of their

availability or easy access(


16/49

8efore distributing the uestionnaire, a pilot study was done in aylor3s $niversity. Five

students and five aylor3s staffs aged below 5* were selected randomly to participate in the

pilot study. Each of these respondents was ask of his or her opinion concerning the

uestionnaire. mong the uestions ask include, ?do you have any difficulties in

understanding the uestionnaire"@ and ?is there any part of the survey that you think we

could have improve on"@ ll /* respondents were able to understand the uestionnaire and

encountered no problems in answering it. ;owever, there were some commented that the

uestionnaire have too many uestions even before starting to answer it.

From this feedback, a short session of restructuring the uestionnaire was done with the

lecturer supervising this study. fter discussing and re-examining the uestionnaire, it is

determined that the most likely cause of this came from the way the uestionnaire was

numbered. he respondents would flip to the last page and see that there were 50 uestions in

total for section two. he number 50 would scare them and this would discourage them from

participating in the study. hus, to resolve this problem, the uestionnaire was renumbered.

Each page will begin with one again instead of having a continuous numbering system. fter

this amendment, there are no more complaints about the uestionnaire having too many

uestions.

3.2.4 ,istribution of uestionnaire

he uestionnaires were distributed through two ways. he first way being though online

oogle survey forms and the second way being though paper uestionnaires. For statistical

analysis rule of thumb, a minimum of 5* is needed for the sample si=e (gresti and Min

n.d.&. ;owever as there are two groups being examined here being the undergraduates and the

young working adults, the rule of thumb needs to be multiplied by two. hus, the minimum

sample si=e needed for this study to be statistically acceptable is +*.

total of 0** uestionnaires were distributed via both mediums mentioned above and 50+

responses were collected back. 7ut of these 50+ responses, approximately half of it came

from undergraduates studying in Malaysia3s public and private universities such as,

$niversity Malaya, $niversity Malaysia of Cabah, $niversity Ccience Malaysia, $niversity

echnology MA, $niversity Malaysia of Carawak for the public universities and aylor3s

$niversity, Cunway $niversity, Monash $niversity, $niversity of unku bdul Aahman,

Multimedia $niversity, $niversity of :ottingham for private universities. Meanwhile, the

other half of the gathered responses came from individuals aged 5* years old and below

Page 16of 49


17/49

working in corporations from different industries such as oil and gas, accounting,

construction, I, law, banking, police force, properties, media and advertising.

3.3 Measrement o! "aria#les

he dependent variable for this study is the expected savings rate for the undergraduates and

actual savings rate for the young working adults. he independent variables are

overconfidence, fear of regret and human heuristics for both groups.

3.3.1 Dependent "aria#les

he variables here are measured using multiple choice closed ended uestions. For expected

savings rate catered towards undergraduates, uestions such as asking about their likely

savings rate excluding E9F if expected salary is AM5,*** and AM6,*** respectively. he

respondents were given four choices of answers to choose from. For expected savings below

AM)6*, the response was coded as /)6. For expected savings between AM)6/ to AM6**,

the response was coded as 516. For expected savings between AM6*/ to AM/,***, the

response was coded as 16*. For expected savings above AM/,***, the response was coded as

/)6*. he codes are reflective of the average value of the savings range given except for the

fourth option where code is a generalised amount as working individuals aged 5* and below

%young working adults& are unlikely to save more than AM/,)6* per month on average.

For actual savings rate which were asked to the young working adults, two uestions were

asked. he first uestion is about the range of their monthly gross salary. For this uestion, a

total of four options were given to the respondents to choose from. For a salary below

AM),6** and between AM),6*/ to AM5,6**, the response was coded as /. For a salary

between AM5,6*/ to AM0,6** and between AM0,6*/ to AM6,6**, the response was coded

as ). >ode / represents that it is for the comparison against expected savings for an expected

salary bracket of AM5,***. >ode ) represents that it is for the comparison against expected

savings for an expected salary bracket of AM6,***.

he second uestion asked was about their actual monthly savings from their net salary.


18/49

the response was coded as /)6*. he codes are reflective of the average value of the savings

range given except for the fourth option where code is a generalised amount as working

individuals aged 5* and below %young working adults& are unlikely to save more than

AM/,)6* per month on average.

3.3.2 $ndependent "aria#les

he variables here are measured though a series of statements based on the theories

concerning overconfidence, fear of regret and human heuristics. he respondents were asked

to rank these statements using four likert scales whether they disagree or agree to the

statements. For strongly disagree, the response was coded as /. For disagree, the response

was coded as ). For agree, the response was coded as 5. For strongly agree, the response wascoded as 0

o test for overconfidence, a set of seven statements were given. Each of these statements

exhibited a sense of confidence. Aespondents who chose mostly 5 and 0 here were deemed as

overconfident.

o test for fear of regret, another set of seven statements given. he statements given

described a fear of having regretful feeling towards the present if they start thinking about

their future. Aespondents who chose mostly 5 and 0 here were deemed to have the fear of

regret.

In testing for human heuristics, three separate sets of statements were prepared. his is so

because human heuristics can be broadly classified into three sections namely,

representativeness heuristics, availability heuristics and anchoring and ad'ustments (Tver!"

and (ahneman/B15&. 8eing so, a test was prepared separately for each of the sections.

For representativeness heuristics, a set of seven statements were given. he statements were

designed to express the tendency of individuals to act according to the likelihood of an event

by comparing it to an existing prototype that already exists in their minds. For this study, the

prototype here is illustrated as their peers. hose that chose mostly 5 and 0 were deemed to

exhibit representativeness heuristics in their decision making.

For availability heuristics, a set of six statements were given to the respondents. he

statements were made to express the respondents3 tendency to make decisions regarding theirfuture by referring to a number of related events or situations that immediately spring to their

Page 18of 49


19/49

thoughts. For this study, the events and situations are based on their friends and relatives.

Aespondents who chose mostly 5 and 0 were deemed to have used availability heuristics in

their process of decision making.

For anchoring and ad'ustments, a set of seven statements were given. rosstabs on the

other hand, are freuency tables of co-occurring codes in two or more %categorical& variables

which make it a useful tool to compare and contrast the responses gathered from the two

groups %undergraduates and working individuals& in tabular form %ray and (innear )*/)&.

In examining section two of the uestionnaire %likert scale part&, to test for internal

consistency, the 50 uestions from this section will also be tested for their >ronbach lpha

value. >ronbach lpha value ranges between * to /. he closer is the value to /, the higher is

its internal consistency. In addition to that, factor analysis will be used as a data reduction

techniue to summarise the essential information contained in the variables. Factor analysis is

a techniue that serves for the evaluation of the variability among observed, correlated

variables in terms of unobserved variables or better known as factors. his analysis will help

in reducing the number of variables and also to detect the structure of relationship between

variables %;ill and


20/49

Cubseuently, the variance covariance between variables is tested using the statistical

significance of mean differences using Multivariate nalysis of Hariance, M:7H. s a

multivariate procedure, it is used when there are two or moredependent variables. o test for

statistical significance, individual p-values for each dependent variable can be found in the

statistical report provided %>arey /BB4&. M:7H is suggested for this study because this

study has more than one correlated dependent variables %expected and actual savings& and

that a single, overall test is needed for this set of variables instead of carrying out several

individual tests. Individual tests are not really a feasible method due to the time constraint for

this study.

fter that, comparison of mean across two groups %undergraduates and working generation

Y& is done using independent t test to determine whether the mean difference between two

groups are significant or not by comparing the mean of expected savings to the mean of

actual savings. !ith this techniue, it can be determine if ;/ should be accepted or re'ected.

From the five components generated using factor analysis, each of the component will be

tested using comparison of mean across two groups %undergraduates and working generation

Y&. !ith that, it can be determined if there is significant difference between the two groups in

terms of each component. hus, it will be known if the hypotheses will be accepted or

re'ected %;) to ;+&.

CHAPTER # : RESULTS$ %I&DI&GS 'DISCUSSIO&

4.1 &vervie+ of res%onses /Refer to )%%endi- 1 and 20

Page 20of 49
http://en.wikipedia.org/wiki/Dependent_variableshttp://en.wikipedia.org/wiki/Dependent_variableshttp://en.wikipedia.org/wiki/Dependent_variables


21/49

8efore going in depth about the results, an overall summary regarding the responses gathered

is made. his summary is based on their demographic profiles such as gender, age, marital

status, ethnicity, field of work or field of education and whether they are working or studying.

hus to keep thing simple here, the summary will be using the freuency analysis in the

descriptive statistics. he figures will be expressed in terms of percentage using this analysis

to avoid bias interpretation as the sample si=e between the two tested groups %undergraduates

and working individuals& is different. he summary below and subseuent findings and

discussion will exclude one response from the working individuals group due to technical

errors during the data collection process.

7verall, 50+ responses had been collected across the two groups. 7ut of these responses,

662 of it came from undergraduates %/B/ individuals& and 062 came from the working

young adults %/60 individuals&. 8esides that, from these 50+ responses, /)2 of them aged )/

years old and below %0/ individuals&, +02 of them aged between )/ to )6 years old %))*

individuals& while )62 of them aged between )+ to 5* years old %46 individuals&. Further

information regarding the distribution of demography for the 50+ respondents can be found in

the table below.

Page 21of 49


22/49

Page 22of 49


23/49

4.2 Testing for internal consistency /Refer to a%%endi- 3a and 3b0

o test for internal consistency, >ronbach3s lpha is used. he reason of using >ronbach3s

lpha is because the uestions designed in the uestionnaire all are using ronbach3s

alpha reliability coefficient normally ranges between * and /. he closer the >ronbach3s

alpha coefficient is to /.*, the greater is the internal consistency of the items in the scale.

he >ronbach3s lpha for the entire data irrespective of its group is *.4)). his would mean

that there is high internal consistency for the 50 uestions from section two of the

uestionnaire. In other words, it would mean that these 50 uestions are measuring the same

construct. !ith *.4 as the >ronbach3s lpha, all items appeared to be worthy of retention.

here would be a greater increase in alpha if item // is deleted, but removal of this itemwould only increase the alpha by *.**) %refer to the appendix for more information&.

For more detailed analysis, the >ronbach3s lpha is measured again but this time separately

to see the internal consistency separately for each test group. he results are as shown in the

table below.

From the table, it can be observed that for both the groups, the value of >ronbach3s lpha is

large. For the undergraduates, the value of their >ronbach3s lpha is *.46) while for the

working individuals, the generated >ronbach3s lpha is *.11). his would mean that the

internal consistency in each group is good and thus the results gathered from these uestions

are reliable. Co here, it appeared that all items are worthy of retention for both groups.

Page 23of 49


24/49

4.3 'actor analysis /Refer to a%%endi- 4a and 4b0

s mentioned earlier, a 9rincipal xis Factor %9F& of the 50


25/49

!ith reference to the factor analysis of five components extracted in the appendix, all seven

items measuring anchoring and ad'ustments are loaded in Factor /. It is then deduced that

Factor / is a component measuring anchoring and ad'ustments. For Factor ), six items from

the seven items measuring representativeness heuristics are all loaded here. It is then

determined that Factor ) is a component of representativeness heuristics. he same method is

used to identify Factor 5 to Factor 6. s all six items measuring availability heuristics is

loaded in Factor 5, Factor 5 is identified as a component of availability heuristics. s all

seven items measuring overconfidence is loaded in Factor 0, Factor 0 is said to be a

component of overconfidence. / F>) F>5 F>0 F>6

7verconfidence - - - 7 -

Fear of regret - - - - 7Aepresentativeness heuristics - 7 - - -

vailability heuristics - - 7 - -

nchoringK ad'ustments 7 - - - -

4.4 M'()*' /Refer to a%%endi- 5 and !a !b0

4.4.1o-s Test of uality of *ovariance atrices

he table below includes all

506 respondents. here is atotal /B/ undergraduate and

a total /60 employed

individuals.

he table below includes )4)

respondents. here is a total /B/undergraduates and a total of B/

employed individuals, earning

within the AM5,*** bracket a

month.

he table below includes )60

respondents. here is a total of /B/undergraduates and a total +5

employed individuals ,earning

within the AM6,*** bracket a

month.

Page 25of 49


26/49

his tests the null hypothesis that the observed covariance matrices of the five variables are

eual across groups. If the five factors in each of the groups are approximately eual, the

robustness of the M:7H tests is guaranteed %9hillips )**)&. he 8ox3s est of Euality of

>ovariance Matrices checks the assumption of homogeneity of covariance across the groups.

s the sample si=es are uneual, the 8oxs M will be using p L*.**/ as a criterion.

From the table above, it is shown that, there is no concern regarding the assumption of

homogeneity of covariance matrices of the five variables across the groups. his is so

because the F value for all the three box3s test of euality of covariance matrices are greater

than p value of *.**/ %*.)1J*.**/ *.)BJ*.**/ *.)5+J*.**/&. his indicates that there are no

significant differences between the covariance matrices because the tests showed that the

differences are insignificant. herefore, the assumption is not violated and comparison

between the groups is allowed.

4.4.2 Pillai6s Trace test

he table below includes all 506 respondents. here is a total /B/ undergraduate and a total

/60 employed individuals.

he table below includes )4) respondents. here is a total /B/ undergraduates and a total of

B/ employed individuals, earning within the AM5,*** bracket a month.

Page 26of 49


27/49

he table below includes )60 respondents. here is a total of /B/ undergraduates and a total

+5 employed individuals ,earning within the AM6,*** bracket a month.

ll four tests explore whether the means for each of the groups are the same. 9illai3s criterion

is more robust and appropriate test for the purpose of this study because there are uneual

sample si=es between undergraduate and employed. %weedy and


28/49

he table below includes )4) respondents. here is a total /B/ undergraduates and a total of

B/ employed individuals, earning within the AM5,*** bracket a month.

he table below includes )60 respondents. here is a total of /B/ undergraduates and a total

+5 of employed individuals, earning within the AM6,** bracket a month.


29/49

hypothesis. he two statistical tests mentioned are the t-test for Euality of Means and the


30/49

H1: There is a difference between expected savings of undergraduates and actual

savings among young Malaysian adults %&efer to appendix '(

!ith reference to the structure of the uestionnaire which can be found in the appendix, in

determining the expected savings rate and the actual savings rate, the savings rate are based

on income brackets. o keep things simple for the data analysis, there are two income

brackets namely, the AM5,*** salary bracket and the AM6,*** salary bracket. Co for the

undergraduates group, all respondents in this group will be providing estimates of their

savings rate based on these two income bracket. Meanwhile, for the working group, as each

individual could only have one actual salary, the respondents in these category will be

classified as per their salary bracket as in whether they would be under the AM5,*** salary

bracket or under the AM6,*** salary bracket.

aking all these into consideration, there will be four groups in total. he first being the

AM5,*** undergraduates3 expected savings rate and the second being the AM6,***

undergraduates3 expected savings rate. For the first two groups, the total respondents for each

would be /B/ individuals as all the undergraduates answered for the estimation of savings in

terms of these two salary brackets. For the other two groups which are the AM5,*** working

individuals3 savings rate and the AM6,*** working individuals3 savings rate, the number of

respondents would be different being B/ individuals for those in the AM5,*** salary bracket

and +5 individuals for those in the AM6,*** salary bracket because an individual could only

have one actual salary. Co, t tests are carried out using the data from these four groups as

shown below.

Page 30of 49


31/49

For CH5***N>vsEO9 %AM5,*** salary bracket&, the F value for vsEO9 %AM6,*** salary bracket&, theF value for


32/49

o conclude for this hypothesis, it seems that the difference is not significant for AM5(

group but is significant for the AM6( group. he reason to this could be because when the

salary is low, there is really not much that can be saved and the undergraduates know this.

!ith that, it will be hard to observe savings behaviour at lower levels of income. hus, the

difference between expected and actual savings rate will most likely to be insignificant. 8ut

as the salary increases, savings behaviour will be more observable.

$sing a simple common sense concept here, assuming that income had increased and

expenses are constant, savings should have been increased as an effect from the increased

income. >onversely, same goes when income is reduced. Cavings rate would have been

reduced when all other factors remained constant %ceteris paribus&. hus, the relationship

between income and savings is a positive relationship %they move in the same direction&.

nother reason to this could because of the common mentality of the society. 9eople often

thought that they will save more when they earn more. ;owever, the sad truth is that the more

you make, the more you spend %8akke )**B&. his is because the society had failed to

recognise that when an individual have a higher income, his or her lifestyle will tend to

change. !ith an improvement in standard of living, the expenditures of such individuals will

also increase. hus bearing this in mind, the difference between expected savings and actual

savings should be more obvious at higher income bracket.

lthough ;/ is re'ected for the AM5( group, this group is continued to be tested upon for

the other five hypotheses because ;/ is only re'ected for this group when p is lesser than

*.*6. ;/ would had been accepted at p lesser than *./6. It depends on the level of accuracy

tested.

H2: The level of overconfidence for undergraduates is higher than young working

adults. %&efer to appendix ) and *(

5(N>vsEO9P

Page 32of 49


33/49

6(N>vsEO9P

For CH5***N>vsEO9 %AM5( group&, the F value for vsEO9 %AM6( group&, theF value for


34/49

level of overconfidence remained untainted and unchanged. hus, it is not surprising to see

that the hypothesis is re'ected for ;) in this group.

Meanwhile the reason for the acceptance of ;) for the AM6( group will most likely be due

to the fact that those with an actual salary bracket of AM6,***, had at least more than a year

of working experience. !ith more working experience, their level of overconfidence would

had been tainted by the harsh reality surrounding the working world and thus in all

probability should have been lowered. hus, it is very reasonable to see that ;) is accepted

for this group.

H: The level of fear of regret between undergraduates is higher than young working

adults %&efer to appendix ) and *(

5(N>vsEO9P

6(N>vsEO9P

For CH5***N>vsEO9 %AM5( group&, the F value for vsEO9 %AM6( group&, the F value for


35/49

both groups %AM5( group and AM6( group&. !ith that in mind, as the variance of groups is

eual so only the t-test results on the first row should be reported.

vsEO9P

6(N>vsEO9P

Page 35of 49


36/49

For CH5***N>vsEO9 %AM5( group&, the F value for 0.*6&. !hereas for

CH6***N>vsEO9 %AM6( group&, theF value for


37/49

5(N>vsEO9P

6(N>vsEO9P

For CH5***N>vsEO9 %AM5( group&, the F value for vsEO9 %AM6( group&, theF value for


38/49

not surprising that there is no significant difference between the studying and working

individuals in the AM5( group for availability heuristics.

he reason behind the significant difference in the level of availability heuristics for those in

the AM6( group is due to the years of experience gained from being in employment. hose

with an actual salary bracket of AM6,*** normally have at least a year of working

experience. s they had worked more, their circle of networks and also their knowledge

about facts of life should be significantly higher than the undergraduates. hus bearing this in

mind, with more knowledge, the reliance on availability heuristics would most likely to be

lower as one started working. 7n the other hand, having a wider circle of networks could

cause a difference in availability heuristics too as this would also mean that the company that

the working individual keeps will be different from the company kept in their university days.he wider the circle of networks, the freuency of coming across similar experience multiple

of times will be lower resulting in a lower level of availability heuristics too. his is because

wider networks would mean having contacts from all walks of life. Individuals with diverse

backgrounds are unlikely to have share similar experiences. he experiences shared should be

very diverse too.

H#: The level of anchoring and ad$ustments present in undergraduates is higher than


5(N>vsEO9P

6(N>vsEO9P

Page 38of 49


39/49

For CH5***N>vsEO9 %AM5( group&, the F value for


40/49

(y%othesis 3>?)*Tvs@P 5>?)*Tvs@P

(1 Ae'ect ccept

(2 Ae'ect ccept

(3 ccept ccept

(4 Ae'ect Ae'ect

(5 Ae'ect ccept

(! Ae'ect Ae'ect

7verall, from the discussion above, in the AM5( group, all of the tested hypotheses are

re'ected except for ;5 while for the AM6( group, all the tested hypotheses are accepted

except for ;0 and ;6.

CHAPTER : CO&CLUSIO&$LIMITATIO&S A&DRECOMMA&DATIO&S

5.1 *onclusion

Page 40of 49


41/49

In conclusion, there is indeed a difference between expected savings and actual savings. It is

found that the higher is the tested income bracket, the higher would be the discrepancy

between the expected and actual savings.

In the case for those in the AM5,*** salary bracket and the AM6,*** salary bracket,

representativeness heuristics and anchoring and ad'ustments, do not seem to contribute to the

discrepancy between expected savings and actual savings. Instead, the cause of this

difference is due to factors such as overconfidence, fear of regret and availability heuristics.

From the tests carried out, it is proven that there is indeed a significant difference in the levels

of overconfidence, fear of regret and availability heuristics for the undergraduates and the

young working individuals. he undergraduates have a significantly higher level of

overconfidence, fear of regret and availability heuristics compared to the working

individuals.

his would mean that the undergraduates in Malaysia are still living in their own fantasies

and had failed to reali=e that life is not a bed of roses. It is only upon exposing themselves to

the real working world, they would begin to understand that they had been sheltered and

pampered by their respective parents that they had failed to see that the world is not as

beautiful as it is in their imagination. hus, once started working, their level of

overconfidence along with fear of regret and availability heuristics would have changed. It is

also likely that because this study is done onto individuals around the same age, the

difference between representativeness heuristics and anchoring and ad'ustments is not yet

significant. !ith longer and more working experience, it is likely that these two factors will

show a significant difference too.

hus, the M#I and (9( in Malaysia should take notes of these factors. hey should direct

more of their campaigns to burst the bubble of fantasies of these undergraduates so that they

will be more aware of their expenses and would be able to have a clearer idea on savings

upon entering the working world. !ith more exposure and knowledge, the youths in

Malaysia will spend lesser part of their lives being lost in reality and could spend more of

their time working on cultivating a good savings habit.

5.2 7imitations

here are several limitations in this study due to the adopted research methodology. First of

all, the samples gathered are not representative of the actual population. his is because the

Page 41of 49


42/49

type of sampling method used in this research is convenience sampling. It draws

representative data by seeking individuals because of the ease of their volunteering or

selecting them because of their availability or easy access %hai et.al )*/)&. his is because not all respondents are truthful and

there will always be some that would be answering the uestions randomly. !ith that, the

results from the uestionnaire may be distorted.

5.3 Recommendations

8ased on the limitations mentioned above, subseuent studies should be done in a more

precise manner with a longer duration for the research. !ith the time constraint for this study,

there is not much that can be done besides providing the basis for subseuent researchers.

Further researches should be done using the actual population of generation Y in Malaysia.

herefore, other methods of sampling should be used instead of convenience sampling.

here are many areas that future researchers could look into. First of all, they could consider

studying the savings behaviour of generation Y using a ualitative approach such as carrying

out interviews. Interviews will enable the researcher to go in depth about the hidden agenda

behind their savings attitudes.

8esides using different research methods, future researchers can also consider doing a

longitudinal research design whereby they would be studying a set of respondents over time.!ith a study over time, the researcher can observe the changes and the shifts of savings

Page 42of 49


43/49

behaviour as the undergraduate matures and enter the working field. he researcher can also

observe how their savings habit change when they have higher salary. !ith this method, the

researcher will be able to determine the pattern of changing savings behaviour for generation

Y.

Furthermore, studying the difference of savings habits in terms of demographic difference

would make a very interesting study too. Future researchers can study the difference in

savings pattern for different ethnicity in Malaysia. #ifferent ethnicity may cause a difference

in mentality which in turn will affect how an individual saves. Marital status and occupation

of an individual would also make good independent variables to be tested against savings

behaviour. he savings behaviour of a single person and a married person will no doubt be

very different. he sense of responsibility alone between these two categories would have

already impact their savings habit.

RE%ERE&CES

gresti, . and Min, Y. %n.d.& "n #a$ple #i%e &ui'elines for Tea(hing )nferen(e a*out the+ino$ial Para$eter in )ntro'u(tory #tatisti(s. vailable fromP

httpPQQwww.stat.ufl.eduQRaaQarticlesQagrestiNminNbinomial.pdf Sccessed 5* May )*/0T.

lpert, M. and Aaiffa ;. %/B4)& 9rogress Aeport on the raining of 9robability ssessors.

InP (ahneman, #., Clovic, 9. and versky, . ed., %/B4)&,,u'g$ent -n'er

-n(ertainty Heuristi(s an' +iases. >ambridgeP >ambridge $niversity 9ress.

Page 43of 49


44/49

8ailey, U. U. and (inerson,>.A)**6&/egret oi'an(e an' /is2 Toleran(e. ssociation for

Financial >ounseling and 9lanning Education.vailable fromP

httpsPQQafcpe.orgQassetsQpdfQvol/+/5.pdf Sssessed )5 May )*/0T.

8akke, #. >. %)**B&Dont +e a Mule 'ontoearth6 (o$$onsense approa(h to saing

$ore6 spen'ing less6 an' generating etra $oney in your eery'ay life. >anadaP

8ookCurge 9ublishing.

8arber, 8. M. and 7dean, . %)**/&+oys ill *e *oys &en'er6 "er(onfi'en(e an'

o$$on #to(2 )nest$ent. vailable fromP

httpPQQfaculty.haas.berkeley.eduQodeanQpapersQgenderQ8oys!ill8e8oys.pdf Sccessed )

Uune )*/0T.

8enart=i, C and haler, A. ;. %)**1& ;euristics and 8iases in Aetirement Cavings 8ehavious.

,ournal of 9(ono$i( Perspe(tie.)/%5&, pp. 4/-/*0.

8lock, A. . and ;arper, #. A. %/BBB& "er(onfi'en(e in 9sti$ation Testing the n(horing

an'':ust$ent Hypothesis. Financial nalysts Uournal. 66%+&, pp./)-/1.

8ooth, ., rimmond, #. . and Ctroombergen, . %)***&Deter$inants of saing *ehaiour.

vailable fromP httpPQQwww.infometrics.co.n=QreportsQsavingNbehaviour.pdf Sccessed

)4 May )*/0T.

>arey, . %/BB4&Multiariate nalysis of ;arian(e


45/49

#urham, :. ;. %)*/*&s ollege &ra'uates Hit The ?or2for(e6 #o Do More 9ntitle$ent

Min'e' ?or2ers.vailable fromP httpPQQwww.unh.eduQnewsQc'NnrQ)*/*QmayQlw/1gen-

y.cfm Sccessed 5 Uune )*/0T.

Eaton, A. #. H. %)**0& The Psy(hology +ehin's o$$on )nestor Mista2e. vailable fromP

httpPQQwww.aaii.comQ'ournalQarticleQ)-the-psychology-behind-common-investor-

mistakes

Epley, : and ilovich, %)**+&. he nchoring-and-d'ustment ;euristics,Psy(hologi(al

#(ien(e./1%0&, pp. 5//-5/4.

anesan, . C. %)*/)&. onsu$ption6 #pen'ing an' )nest$ent +ehaiour of Malaysia

&eneration @. vailable fromP httpPQQeprints.utar.edu.myQ+45Q/QM8-)*/)-

*4$(M/B+/-/.pdf Sccessed )4 May )*/0T.

rable, U. E., Mcill, C. and 8ritt, C. %)**B& Aisk olerance Estimation 8iasP he ge Effect.

,ournal of +usiness an' 9(ono$i(s /esear(h. 1%1&, pp./-/).

ray, >. #. and (innear, 9. A. %)*/)&)+M #P## #tatisti(s 1! Ma'e #i$ple. :ew YorkP

9sychology 9ress.

;ansen, A. C. %n.d.&Per(eption s. /eality 10 Truths *out The &eneration @ ?or2for(e.

vailable fromP httpPQQwww.uintcareers.comQen-YNworkforce.html Sccessed 5 Uune

)*/0T.

;ealy, 9. U. and Moore, #. . %)**1&+ayesian "er(onfi'en(e. vailable fromP

httpPQQhealy.econ.ohio-state.eduQpapersQ;ealyNMoore-7verconfidence.pdf Sccessed /

Uune )*/0T.

;ill, . and


46/49

Ifcher, U. and Varghamee, ;. %)*/)&=egatie ffe(t an' "er(onfi'en(e Ba*oratory

)nestigation. vailable fromP

httpPQQwww.scu.eduQbusinessQeconomicsQresearchQuploadQ:and7>-Uune)*/).pdf

Sccessed / Uune )*/0T.

(ishore, A. %)**+& Theory of *ehaioural finan(e an' its appli(ation to property $ar2et a

(hange in para'ig$. InP welfth nnual 9acific Aim Aeal Estate Cociety >onference.

Uanuary ))-)6, uckland, :ew Vealand.

(layman, U., Coll, U. 8., Halle'o, >. . and 8arlas, C. %/BBB& 7verconfidenceP It #epends on

;ow, !hat, and !hom You sk. "rgani%ational +ehaiour an' Hu$an De(ision

Pro(esses. 1B%5&, pp.)/+-)01.


47/49

Michenaud, C. and Colnik, 8. %)**4& pplying regret theory to investment choicesP currency

hedging decisions. vailable fromP httpPQQssrn.comQabstract+1+1)4 Sccessed 5 Uune

)*/0T.

Moore, 8. %)*/*& The orst generationA.vailable fromP httpPQQnypost.comQ)*/*Q*6Q/*Qthe-

worst-generationQ Sccessed 5 Uune )*/0T.

Moore, #. and ;ealy, 9. U. %)**1& The Trou*le ith "er(onfi'en(e. vailable fromP

httpPQQrepository.cmu.eduQcgiQviewcontent.cgi"article/50*Kcontexttepper Sccessed

/ Uune )*/0T.

Mussweiler, and Ctrack, F %/BB1&. Explaining the enigmatic anchoring effectP Mechanisms

of selective accessibility,,ournal of Personality an' so(ial phy(ology. 15, pp. 051-00+.

:orthern ri=ona $niversity %n.d.&)nterpreting the oneay Manoa. vailable fromP

httpPQQoak.ucc.nau.eduQrh)5)QcoursesQE9C+)6Q;andoutsQInterpreting2)*the2)*7ne-

way2)*M:7H.pdf Sccessed /B Uune )*/0T.

:orthern ri=ona $niversity %n.d.& -n'erstan'ing the )n'epen'ent #a$ple t Test. vailable

fromP httpPQQoak.ucc.nau.eduQrh)5)QcoursesQE9C6)6Q;andoutsQ$nderstanding2)*the

2)*Independent2)*t2)*est.pdf Sccessed /B Uune )*/0T.

9athak, 9. ;olmes, U. and Vimmerman, U. %)*//& :ew 9ublication from the :ew merica

Foundation.((elerating Finan(ial apa*ility a$ong @outh =u'ging =e Thin2ing

vailable fromP

httpPQQwww.newamerica.netQsitesQnewamerica.netQfilesQpolicydocsQcceleratingFinancia

l>apabilityamongYouth.pdf Sccessed 5* May )*/0T.

9hillips, U. . %)**)& ?hat are the assu$ptions for using M=";A. vailable fromP

httpPQQpeoplelearn.homestead.comQindex.html Sccessed )5 Uune )*/0T.

9ulford, 8. #. %/BB+& "er(onfi'en(e in Hu$an ,u'ge$ent. vailable fromP

httpPQQwww.le.ac.ukQpcQbdp6Qphd.pdf Sccessed ) Uune )*/0T.

Page 47of 49


48/49

Aicciardi, H. %)***& ?hat is +ehaioral Finan(eA. vailable fromP

httpPQQpapers.ssrn.comQsol5Qpapers.cfm"abstractNid)6+160 Sccessed ) Uune )*/0T.

Cabri, M. F. and Mac#onald, M. %)*/*&. Cavings 8ehavior and Financial 9roblems mong

>ollege CtudentsP he Aole of Financial


49/49

versky, . and (ahneman, #. %/B10&. Uudgement $nder $ncertaintyP ;euristics and 8iases.

#(ien(e, /46, pp.//)0-//5/.

weedy, (. and

Behavioural Finance (Actual savings vs Expected savings)

Documents

Transcript of Behavioural Finance (Actual savings vs Expected savings)