Factors Affecting Financial Planning in Malaysia: The Mediating Role of Trust

Teoh, Debera Hiang (2024) Factors Affecting Financial Planning in Malaysia: The Mediating Role of Trust. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Despite increased personal savings and financial awareness post-COVID-19, many Malaysians still have low financial literacy, inadequate insurance coverage, and improper financial planning, particularly among younger demographics (Ali et al., 2020). These challenges are exacerbated by a slow improvement in insurance penetration rates and many bankruptcy cases, primarily due to poor cash and debt management. There is an urgent need for enhanced financial literacy and comprehensive planning to improve financial resilience, particularly in light of rising living costs, healthcare expenses, and economic vulnerabilities faced by lower-income groups. Therefore, this study addresses these issues by examining the key factors influencing financial planning in Malaysia by integrating the Theory of Planned Behaviour, Life Cycle Hypothesis, and Transtheoretical Model of Behavioural Change. Addressing gaps in the existing literature, the research considers financial literacy, financial attitude, financial awareness, financial risk tolerance, use of financial planner services, trust, and income level within Malaysia's diverse cultural context. The findings of this study highlight the significant positive relationships between financial literacy, financial attitude, trust, and financial planning. In contrast, financial awareness and financial risk tolerance show a positive but insignificant correlation with financial planning. The use of financial planner services negatively correlates with financial planning, and financial literacy has a negative, insignificant relationship with the use of financial planner services. However, financial attitude shows a significant positive relationship between using financial planner services and trust. Besides, the finding reveals a positive significant relationship between using financial planner services and trust. The mediation analysis supports the role of financial planner services in mediating the relationship between financial literacy and financial planning, as well as between financial attitude and financial planning. Trust mediates the relationship between financial attitude and financial planning but does not mediate the correlation between financial planner services and financial planning. Also, income level does not moderate the relationship between financial risk tolerance and planning. From a practical standpoint, the findings suggest that improving financial literacy and fostering positive financial attitudes should be priorities for industry stakeholders and policymakers. The study also underscores the need for financial institutions to build trust through transparent, ethical, and client-centred practices.