Journal of Behavioral and Experimental Finance 3 (2014) 110

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Journal of Behavioral and Experimental Finance

journal homepage: www.elsevier.com/locate/jbef

Full length article

Propensity toward indebtedness: An analysis using

behavioral factors
Silvia Amlia Mendona Flores a , Kelmara Mendes Vieira b,
a

Federal University of Pampa, Brazil

Federal University of Santa Maria, Avenida Roraima, 1000, prdio 74C, sala 4212, Santa Maria, CEP 97105-900, Brazil

article

info

Article history:
Received 27 January 2014
Received in revised form 7 May 2014
Accepted 15 May 2014
Available online 21 May 2014
JEL classification:
G32
G110
M300
Keywords:
Behavioral finance
Propensity to indebtedness
Behavioral factors

abstract
This study aims to construct a model of propensity toward indebtedness using behavioral
factors from 1046 inhabitants in Santa Maria (RS), Brazil. A questionnaire comprising
90 questions was administered. The questionnaire addressed demographic and cultural
variables and seven behavioral factors: financial literacy, risk perception, risk behavior,
emotion, materialism, indebtedness, and money-related values. Results indicate high risk
perception, conservative risk behavior, and low levels of indebtedness and materialism.
The tests reveal a significant difference in the level of debt according to age, gender,
marital status, education, religion, religious principles, occupation, family income, credit
card, and dependence on credit. In structural equation modeling, eight of the 10 original
hypotheses are confirmed and three new ones inserted. The results also indicate positive
influences from the constructs materialism and risk behavior and negative influences from
the constructs risk perception, emotion, and value of money.
2014 Elsevier B.V. All rights reserved.

1. Introduction
Over the years, financial markets have undergone transformation, and the ease of obtaining credit is growing in
many economies. In Brazil, for instance, economic growth
and inflation stability influence and reflect how people
handle money. The Brazilian reality of the 1980s forced
the population to consume all of their income so as not to
lose purchasing power due to high inflation rates, which
rapidly devalued the currency. However, buying habits
have changed, and in recent years Brazil has experienced
considerable growth in credit supply and an increase in
payment periods, generating expanded consumption.
Consumption is strongly associated with public and private individual behavior, as it is influenced by the sense

Corresponding author. Tel.: +55 5532209297.

E-mail addresses: sisimflores@yahoo.com.br (S.A.M. Flores),
kelmara@terra.com.br, kelmara@smail.ufsm.br (K.M. Vieira).
http://dx.doi.org/10.1016/j.jbef.2014.05.001
2214-6350/ 2014 Elsevier B.V. All rights reserved.

of identity, well-being, relationships, and negotiation with

others that partly takes place through exchange of money
and material goods (Dittmar, 1996). According to Fournier
and Richins (1991), societies experience a period of compulsive materialism, which contributes significantly to
social and individual indebtedness. Dynan and Kohn
(2007) argue that in a world without funding restrictions,
families have the freedom to choose the desired consumption, based on the expected useful life of resources,
interest rates, and personal preferences and needs. Nevertheless, the consequences of the attitudes and choices
of this new consumer model, the excessive consumer,
should be examined, which can lead to a scenario of default and debt.
Research on the causes of default points to unemployment uncontrolled expenses and use of credit cards. Dynan and Kohn (2007) state that using credit cards instead
of cash can increase family debt due to the commitment
established, which in most cases, is a long-term one.
Given this scenario, it becomes relevant to understand
the behavioral determinants of individual indebtedness. In

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

this study, six behavioral factors highlighted in the literature as influencers of debt are considered: financial literacy, risk perception, risk behavior, emotion, materialism,
and money values. Using these factors, the main objective
is to build a model of personal debt.
2. Theoretical basis
Ferreira (2006) shows that, depending on the level of
debt, individuals may commit a significant portion of their
income. Gathergood (2011) stresses that studies should
examine the factors that influence the increase in debt
and, consequently, that cause individual indebtedness. According to Davies and Lea (1995), the research on aspects that drive indebtedness is highlighted in Katona
(1975). For this author, there are three reasons that explain
why individuals spend more than they earn: (i) low income, such that they cannot even cover essential expenses;
(ii) high income, combined with a strong desire to spend;
and (iii) a lack of desire to save (regardless of income). The
importance of the Katona study lies in its discussion of the
origin of credit problems, evaluating not only economic
factors but also psychological and behavioral ones. Following this perspective, Vitt (2004) notes that consumer financial decisions involve a number of psychological, physical,
and social values, often rooted in emotion.
The relation between demographic factors and debt is
highlighted by Ponchio (2006) and Keese (2010). Ponchio
(2006) finds that women are more favorable to debt than
men, older people are less likely to take on debt, and the
lower the educational level of the individual, the greater
the propensity to take on debt becomes. In analyzing what
debt represents for families and enumerating demographic
aspects such as age, gender, education, and household
situation, Keese (2010) finds that younger people (under
30) tend to perceive their debt burden as significantly
lower, whereas heads of families aged over 45 are more
likely to make bigger charges.
Among the behavioral factors that can influence the
propensity for indebtedness, this work studies value of
money, risk, materialism, financial literacy, and emotion.
The first factor is value of money, i.e., the importance that
people attribute to the possession of money, interpreting
it positively or negatively. According to Moreira (2000),
money can be understood as a unit of value that can be
equated with objects, labor, and human capacity, among
others.
Considering the various perceptions that exist about
money, Moreira (2000), based on the Schwartz Theory of
Values, identifies two broad dimensions for the meaning
of money. There is a positive dimension with sociocultural
development, prestige, utilitarianism, stability, and pleasure as categories. The negative dimension includes social
inequality, domination, detachment, conflict, and worry.
The second factor that may be associated with the
propensity to debt is risk. The word risk derives from
the Old Italian risicare, which means to risk. According
to Bernstein (1996), the concept of risk marks thousands
of years of history because it can be considered a
revolutionary idea that guides decision making in volatile
environments and that overcomes uncertainty.

In a study specifically on the objective and subjective

factors that influence family debt in Germany, Keese
(2010) evaluates personality traits through the perception
of risk. On a risk scale of 11 points, it is concluded that risk
attitude does not significantly influence subjective issues
of debt, but it appears as a representative in structures
of covariance. On the other hand, several authors indicate
that the issue of risk influences decision making, as in the
case of Garling et al. (2009), which highlights that risk
perception is an essential component of financial decision
making and other risk-related behaviors.
Another factor highlighted in the literature is materialism. Richins and Dawson (1992, p. 32) argue that materialism is related to the act of consumption, defined as
the importance given to the possession and acquisition
of material goods in achieving life goals or desired states.
Santos and Fernandes (2011) observe that people associate excessive materialism with a search for status; moreover, researchers relate materialism to psychological traits
and personal orientation of moral values and ethics, in
addition to the constant search for possession, demonstrating the downside of materialism. However, Csikszentmihalyi (1999) develops a new conceptmaterialism
defined through two optics: instrumental, i.e., materialism regarded as good; and terminal, i.e., bad materialism. Santos and Fernandes (2011, p. 176) exemplify this
classification, noting that when the rate of consumption
is itself the possession and intent to arouse envy and get
status, materialism is evil. However, when the motivation
is anchored in values more collectively oriented, materialism causes no harm and is not viewed negatively.
In addition to the values of money, materialism, and
risk, it is possible to highlight another important factor in
the propensity to indebtedness: financial literacy. Matta
(2007, p. 59) refers to personal financial literacy as the set
of information that helps people to cope with their income,
with money management, expenses and monetary loans,
savings and investment in the short and long term.
With a wide range of financial products available, individuals should be able to understand the characteristics
of each option, calculate and understand their costs, and
manage their indebtedness capacity. It is in this sense that
the issue of financial literacy arises, including with respect
to investments with gains for both customers and financial services providers. In sum, the importance of financial
literacy lies in the support that it provides because, generally, individuals are affected by the financial decisions they
make.
Thus, financial literacy seeks to improve the capacity
of individuals to understand financial problems. According
to Sevim et al. (2012), attention to financial literacy has
grown in recent years due to the complexity of financial
services, which require individuals to be prepared to
handle their own personal finances.
Finally, there is the factor of emotion. This factor is
linked to individual ability to express emotions (positive
or negative) when handling financial decisions. Roazzi
et al. (2011) suggest that defining the word emotion is
a difficult task. These authors contend that this factor
constitutes a complex and multifaceted concept and
depends on the form of expression, the sociocultural

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

Table 1
Hypotheses and research relations with bibliographic references.
Source: Elaborated by the authors.
Hypotheses/relations

References

H1: Materialism positively impacts propensity toward indebtedness.

H2: Financial literacy inversely impacts propensity toward indebtedness.

Watson (1998), Ponchio (2006).

Chen and Volpe (1998), Disney and Gathergood
(2011).
Macedo et al. (2011).
Caetano et al. (2011).
Caetano et al. (2011).
Stone and Maury (2006).
Csikszentmihalyi (1999), Vohs et al. (2008).
Kllmn (2000), Bouyer et al. (2001).
Zuckerman and Kuhlman (2000).
Quelch and Jocz (2007), Persson (2007).
Zuckerman and Kuhlman (2000), Ponchio
(2006).
Zuckerman and Kuhlman (2000), Ponchio
(2006).
Zuckerman and Kuhlman (2000), Keese (2010).
Zuckerman and Kuhlman (2000), Keese (2010).
Zuckerman and Kuhlman (2000), Keese (2010).
Keese (2010).
Frade et al. (2008), De Oliveira (2011).
Keese (2010).
Zerrenner (2007).
Jain and Joy (1997).

H3: Value of money impacts materialism.

H4: Risk perception impacts propensity toward indebtedness.
H5: Risk behavior impacts propensity toward indebtedness.
H6: Value of money impacts propensity toward indebtedness.
H7: Value of money impacts individual emotions.
H8: Emotions impact risk perception.
H9: Emotions impact risk behavior.
H10: Indebtedness impacts emotions.
R1: Older individuals tend to have a lower propensity toward indebtedness.
R2: Individuals with higher levels of education tend toward a lower propensity toward
indebtedness.
R3: Women tend toward higher levels of risk perception than men.
R4: There is a difference in the propensity toward debt according to family composition.
R5: There is a difference in the propensity toward debt as the situation of residence.
R6: There is a difference in perception of risk according to marital status.
R7: There is a difference in propensity toward indebtedness according to the use of credit cards.
R8: There is a difference in risk perception according to occupation.
R9: There is a difference in propensity toward indebtedness according to income.
R10: There is a difference in behavior according to religion.

context, the historical moment, and the significance

that each subject gives to emotions. Considering this
context, Roazzi et al. (2011) classify emotions into three
categories: background emotions, primary emotions, and
social emotions. Background emotions may be long-lasting
and influence how primary emotions are expressed, for
example, apathy. Primary emotions are those that people
easily identify, such as anger and fear. Finally, there are
the secondary or social emotions, which are influenced by
society and culture, such as jealousy, embarrassment, and
pride. It is in the sense of this classification that this study
uses emotion, considering how a society of consumption
and indebtedness influences subjective issues, such as
shame, pride, and nervousness.
3. Methodology
This study represents exploratory research. According
to Hair et al. (2003), the exploratory approach to research is
geared toward discovery and aims to test specific research
hypotheses. A theoretical model is developed to investigate the influence of behavioral factors in debt situations.
Furthermore, to evaluate demographic and cultural variables, 10 relations are developed for testing. In total, 10 hypotheses are considered relations, as shown in Table 1.
The 10 hypotheses refer to the above-described model,
which describes the relations among the constructs considered. The 10 relations refer to demographic and
cultural variables and are analyzed from parametric hypothesis tests; the T test is used for up to two groups, and
analysis of variance is used for more than two groups.
Regarding the theoretical model, it appears that the
first hypothesis establishes a relation between materialism
and propensity toward indebtedness. This finding is based
on Watson (1998) and Ponchio (2006), who show that
more materialistic individuals are exposed to higher levels

of propensity toward indebtedness. In Ponchio (2006), for

example, more materialistic individuals are more likely
to engage in credit for consumption purposes, showing a
more positive attitude toward debt, i.e., the higher the level
of materialism, the more likely the individual will be in
debt.
The second hypothesis refers to financial literacy. Based
on Chen and Volpe (1998) and Disney and Gathergood
(2011), we attempt to determine whether financial literacy
inversely impacts propensity toward indebtedness.
The third hypothesis of the theoretical model attempts
to identify the impact of the value of money on materialism. Macedo et al. (2011) note that money changes interpersonal relationships among individuals, who seek social
status through their financial behavior. This quest for social recognition hinders the level of materialism, i.e., people tend to use more and more money to acquire material
goods (not always necessary) that satisfy their desires and
indicate a better position in society. Therefore, a relation is
established between these two constructs (value of money
and materialism).
Next, two hypotheses related to the construct of risk are
developed, one focused on risk perception and the other on
risk behavior. In these relations, it is notable that the higher
the perceived risk is, the lower the level of debt becomes.
Moreover, the more conservative behavior toward risk is,
the lower the level of debt becomes (Caetano et al., 2011).
The value of money construct may also influence
indebtedness and emotion. Accordingly, Stone and Maury
(2006) investigate the personal aspects that influence
debt and note that factors such as obsession, inadequacy,
and retention of money are important in predicting the
condition of being in debt. People who save a greater
proportion of their income tend to appreciate it more
and therefore tend to have negative emotions, in case
they suffer serious financial problems and shortage of
money. On the other hand, there are people who prefer

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

Fig. 1. Theoretical model and associated hypotheses.

Source: Elaborated by the authors.

to spend more money and experience positive emotions

from purchases, such as pleasure from and satisfaction
with purchases. According to Vohs et al. (2008), attitudes
toward money can cause motivational, emotional, and
behavioral changes.
With respect to the construct of emotions, two
hypotheses can be set forth that relate emotion to
risk. Kllmn (2000) examines the hypothesis that the perception of risk is related to personality differences, through
the locus of control, self-efficacy, and anxiety, where the
last of these (anxiety) involves emotions caused by the environment. This author notes that people with lower levels
of anxiety and emotion manage risk more efficiently than
those with high levels of anxiety. Zuckerman and Kuhlman
(2000) suggest that high-risk behaviors (such as reckless
driving) may be caused by the need to express emotions.
These authors stress that people search impulsively for
feelings involving positive and negative emotions. As a result, they tend to develop (or not develop) riskier behaviors to experience the desired sensation. Thus, the two
hypotheses developed here are impact of emotion on perception and that on risk behavior.
The final hypothesis of the theoretical model aims
to measure the relation between propensity toward
indebtedness and emotion. It is notable that consumption
affects people emotionally and physically; it may cause
positive emotions, such as joy and satisfaction, or negative
emotions, such as sadness (Quelch and Jocz, 2007). Given
these perspectives, the following hypothesis is analyzed:
the propensity toward indebtedness impacts emotion.
From these hypotheses, a theoretical model is set forth
in Fig. 1.
The setting for this research is the city of Santa Maria,
located in the state of Rio Grande do Sul, Brazil. According
to census data from 2010, available from the Brazilian
Institute of Geography and Statistics (IBGE), the city of
Santa Maria has an estimated 261,031 inhabitants. The

sample is characterized by the confidence level of 95% and

a sampling error of 3.2% at 973 respondents.
The study design was submitted to the National Research Ethics System; it was approved on April 17,
2012, under the identification number 11831 and Certificate of Presentation to Ethical Consideration number
02054312.5.0000.5346.
The data collection instrument is a structured questionnaire with open and closed questions, divided into nine
sections. The first section addresses the profile, whereas
the second section considers aspects relating to expenses;
the third phase of the questionnaire addresses individual debt. The remaining sections explore behavioral factors based on the following references: financial literacy,
using the scale of Matta (2007) and Disney and Gathergood (2011); risk, using the scale of Paulino (2009);
emotions, based on Disney and Gathergood (2011); materialism and indebtedness, using the scale of Moura (2005)
and Disney and Gathergood (2011); and finally, value of
money, using the scale of Moreira (2000). A five-point Likert scale for six factors is used: perception of riskno risk
up to extreme risk; risk behavior and emotionsvery unlikely to very likely; indebtedness, materialism, and money
valuesstrongly disagree to strongly agree. For the factor
of financial literacy, we use a four-point scalenever to
always.
Model estimation and validation employs structural
equation modeling. In the structural model, many multivariate equations have been used to predict and explain
a set of endogenous and exogenous constructs. To this
end, the principal equation in modeling is represented by
Eq. (1). (Hair et al., 2006, p. 672).

= B + +
where
= is an m 1 vector of endogenous latent variables;

(1)

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

B = is an m m matrix regression coefficients relating the

latent endogenous variables to each other;
= is an m k matrix regression coefficients relating
endogenous variables to exogenous variables;
= is a k 1 vector of exogenous latent variables;
= is an m 1 vector of disturbance terms.
The convergent validity of each construct is assessed
by observing the magnitude and statistical significance of
the following standardized coefficients and fit index of the
model: 2 (chi square) statistic, root mean square residual (RMR), root mean square error of approximation (RMSEA), goodness-of-fit index (GFI), comparative fit index
(CFI), normed fit index (NFI), and TuckerLewis index (TLI)
or non-normed fit index (NNFI). It is emphasized that to
reduce sensitivity toward sample size, some researchers
divide values by degrees of freedom ( 2 /GL). For example, Hair et al. (2006) consider values equal to or less than
5 as acceptable.
For the indexes, acceptable values are as follows: GFI,
CFI, NFI, and NNFI equal to or greater than 0.90, RMSEA less
than 0.08, and RMR less than 0.10 (Kline, 1998; Garver and
Mentzer, 1999; Hair et al., 2006).
4. Results and discussion
Data collection was carried out from May to August
2012, yielding a sample of 1046 valid respondents.
The majority of the respondents are women (57.5%),
married (42.7%), or single (47.9%). In addition, 65% of
the respondents have their own home, and 55.6% have
no dependents. The majority of the respondents indicate
their race to be Caucasian (80.5%). With respect to the
educational level, some respondents did not finish high
school (22.1%), others completed high school (19.6%),
and some have incomplete higher education (14%). With
respect to occupation, most respondents are private-sector
employees (33.6%), civil servants (20.9%), or self-employed
(19.7%).
Concerning financial matters, a significant proportion
of individuals have a monthly household income of one
or two times minimum wage (24.1%). Regarding the use
of credit cards, a representative percentage (56.6%) uses
credit cards, with the greatest proportion using one (29.1%)
or two credit cards (18.5%).
After profiling the respondents, we analyzed mean
scales and subsequently examined the factors. Table 2
shows all variables used in each scale, with the respective
averages of the responses. It is important to highlight that
the scales used in this study are five-point Likert scales.
Validation of the constructs was then carried out. To
this end, confirmatory factor analysis was considered.
Relationships between the observed variables and their
constructs were examined via estimation of maximum
likelihood. The results obtained from construct validation
are shown in Table 3.
Regarding the relations of demographic and cultural
variables to indebtedness, we note that there are significant differences in debt according to age, gender, marital
status, education, religion, religious principles, occupation,
income, use of credit, dependence on credit, and expenses.

We find that people who have not formed a family or

who already have one but are living alone (widowed, divorced, or single), tend to have a higher propensity toward
indebtedness, which may be attributed to not having an
exclusive commitment toward a family. Individuals without literacy and who do not work tend toward a greater
propensity for indebtedness; these results are similar to
those of Gathergood (2011).
People under 30 have a higher level of debt, in accord
with the results of Gathergood (2011) and Sevim et al.
(2012). It is also shown that men are more likely to be
in debt (mean: 1.97) than women (mean: 1.85). With respect to religion, people who have no religion and follow
no religious principle are more likely to be in debt, supporting Davies and Lea (1995). In regard to income, it is noted
that those with salaries in the lowest (up to minimum
wage) and highest (more than 20 minimum wage) ranges
have the greatest propensity toward indebtedness; this
outcome matches that demonstrated in Katona (1975), revealing that there are two main reasons for indebtedness:
low and high income. In matters of credit, respondents who
use and depend on credit cards are most likely to be in debt.
For construction and validation of the constructs, confirmatory factor analysis (CFA) was used, which is adequate
for all factors addressed in this study: financial literacy, risk
perception, risk behavior, emotion, materialism, indebtedness, and value of money. Therefore, this study seeks to
build an integrated model that combines the measurement
model and the structural model. The theoretical model is
evaluated based on the fit indices and the statistical significance of the estimated regression coefficients.
The initial model was estimated; due to problems of
adjustment, some changes were made. The final model
obtained after modification is shown in Fig. 2. Table 4
illustrates the equation model fitting process. Tables 5 and
6 illustrate the standardized coefficients and the model
fitting.
Fig. 2 shows the final model, with the validated factors
and their formative variables. However, it is clear that
from the factors cited, financial literacy is not in the final
model. The hypothesis for this issue is not confirmed,
which requires exclusion of this factor.
The indices shown in Table 6 reach the appropriate
limits. The standardized coefficients of the final model are
significant.
Five relations are negative: materialism and emotion;
materialism and risk perception; value of money and indebtedness; risk perception and indebtedness; and indebtedness and emotion. By verifying these relations, we note
that people with higher levels of materialism are accustomed to a high level of consumption, which hinders their
perception of risk and consequently increases their risk
behavior. This behavior reduces the probability of experiencing negative feelings toward indebtedness because
purchasing usually gives such people positive emotions.
The discussed emotions-based approach in this work is
negative; therefore, the relation between materialism and
emotions is negative.
In general, addiction to material goods (high materialism) at first brings about a sense of wealth and quality of
life. It is because of this feeling that humans by nature conclude that the more possessions one obtains, the higher

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

Table 2
Scales used, variables, and respondent means.
Source: Elaborated by the authors.
Scale

Code

Variable

Mean

Financial literacy

Q18
Q19

Concerned with managing their money better.

Takes notes and controls all personal expenses (e.g., worksheet of income and monthly expenses,
financial notebook).
Sets financial goals that influence financial management (e.g., save a specific amount in a year, avoid
overdrafts).
Follows a budget or a weekly or monthly expense plan.
Lasts more than a month without taking stock of costs.
Is satisfied with own system to control finances.
Pays bills with no delay.
Is able to identify costs of what is bought on credit (e.g., embedded interest).
Uses credit cards because no money is available to cover some expenses.
When buying on credit, makes comparison among available credit options (e.g., installments directly
with the store, installments on credit card).
More than 10% of next month income is invested with credit bills (except for housing and automobiles).
Pays credit card bill completely to avoid finance charges (interest and fines).
Checks credit card bills to examine errors and unauthorized charges.

3.58
2.79

Q20
Q21
Q22
Q23
Q24
Q25
Q26
Q27
Q28
Q29
Q30
Financial literacy

Q31
Q32
Q33

2.86
2.88
2.17
3.01
3.31
3.25
2.28
3.23
2.80
3.93
3.84

Q34
Q35
Q36
Q37

Saves money every month.

Saves to buy more expensive products (e.g., car, flat).
Has a financial reserve greater than or equal to three times monthly income that can be used in
unexpected cases (e.g., unemployment, sickness).
Compares prices when buying something.
Analyzes personal finances in depth before making any major purchase.
Buys impulsively.
Prefers to buy something in installments than to save and buy it in cash.

2.68
2.75
2.48
3.52
3.46
3.52
2.48

Risk perception

Q39
Q40
Q41
Q42
Q43

Spends a great amount of money on the lottery.

Accepts being a guarantor for someone.
Spends money impulsively, without thinking of the consequences.
Invests in businesses that have great chances of not working well.
Lends a great proportion of personal income to a friend or relative.

3.24
3.65
3.87
3.83
3.64

Risk behavior

Q44
Q45
Q46
Q47
Q48

Spends a large amount of money on the lottery.

Accepts being a guarantor for someone.
Spends money impulsively, without thinking of the consequences.
Invests in business that have great chances of not working well.
Lends a great proportion of personal income money to a friend or relative.

1.51
1.79
1.96
1.73
2.06

Emotions

Q49
Q50
Q51
Q52
Q53
Q54
Q55
Q56
Q57
Q58
Q59

I would feel ashamed.

I would feel nervous.
I would feel depressed.
My sleep would be affected.
My dietary habits would be affected.
I would drink more than usual.
I would smoke more than usual.
My family relation would suffer.
My relations with friends would be harmed.
My professional income would decrease.
My school performance would be affected.

3.53
4.05
3.61
3.73
3.39
1.87
1.67
2.71
2.43
2.83
2.76

Materialism

Q60
Q61
Q62
Q63
Q64
Q65
Q66
Q67
Q68

I admire people who possess expensive houses, cars, and clothes.

I like to spend money on expensive things.
My life would be much better if I had things I actually do not have.
Buying gives me pleasure.
I would be happier if I could buy more things.
I like to possess things to impress other people.
I like to have a lot of luxury in my life.
It bothers me when I cannot buy everything I want.
Spending much money is among the most important things in my life.

3.03
2.30
2.89
3.19
3.29
2.14
2.11
2.75
1.78

Indebtedness

Q70
Q71
Q72
Q73
Q74
Q75
Q76
Q77
Q78

It is not correct to spend more money than I make.

It is better to gather money first and then spend it.
I know exactly how much I owe in stores, in credit cards, or to the bank.
I think it is normal for people to be in debt to pay their bills.
I would rather buy in installments than to wait to gather money to buy in cash.
It is important to know how to control the expenses in my house.
I would rather pay in installments even if the total is more expensive.
People would be disappointed with me if they knew I had a debt.
There is no problem to have a debt if I know I can pay it.

4.18
3.90
3.99
2.14
2.73
4.30
2.33
2.54
3.36

Money values

Q82

Money helps me to be happy.

3.37
(continued on next page)

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

Table 2 (continued)
Scale

Code

Variable

Mean

Q83
Q84
Q85
Q86
Q87
Q88
Q89
Q90

The one who has money also has authority over others.
Money generates suspicion among people.
Spiritual rewards are more important than money.
Money causes distress.
Money builds a better place.
Those who have money are valued socially.
I would invest money in scientific research.
I will be completely realized when I reach the situation I set for myself.

2.24
3.30
3.53
2.95
3.11
3.63
2.96
4.11

Table 3
Validation of constructs.
Source: Elaborated by the authors.
Factor

Financial literacy

Risk perception

Risk behavior

Emotions

Materialism

Indebtedness

Money values

Initial variables

1837

3943

4448

4959

6068

7078

8290

Final variables

20, 23, 31, 32, 33

3943

4448

49, 50, 51, 52, 53, 56

61, 63, 65, 66, 68

70, 71, 72, 75

82, 83, 87, 88

quality of life and satisfaction one will achieve. However,

Csikszentmihalyi (1999) notes that high consumption levels do not always provide benefits; on the contrary, such
levels of consumption may adversely affect individual welfare. The result obtained with respect to materialism and
risk perception is also noteworthy; indeed, there is a negative relationship, indicating that people with high levels
of materialism tend to have low perception of risk because

Cronbachs alpha

Adjustment index

0.78

GFI = 0.998
CFI = 0.998
NFI = 0.996
NNFI = 0.993
RMR = 0.013
RMSEA = 0.030

0.91

GFI = 0.999
CFI = 1.000
NFI = 0.999
NNFI = 1.000
RMR = 0.007
RMSEA < 0.001

0.70

GFI = 1.000
CFI = 1.000
NFI = 0.998
NNFI = 1.008
RMR = 0.007
RMSEA < 0.001

0.83

GFI = 0.998
CFI = 0.999
NFI = 0.997
NNFI = 0.997
RMR = 0.015
RMSEA = 0.023

0.74

GFI = 0.997
CFI = 0.996
NFI = 0.994
NNFI = 0.988
RMR = 0.013
RMSEA = 0.036

0.64

GFI = 1.000
CFI = 1.000
NFI = 0.999
NNFI = 1.005
RMR = 0.004
RMSEA = 0.000

0.61

GFI = 1.000
CFI = 1.000
NFI = 1.000
NNFI = 1.014
RMR = 0.002
RMSEA < 0.001

the satisfaction of their needs becomes the central task, regardless of the risk incurred.
With respect to the hypothesis regarding the relation
between money values and propensity toward indebtedness, it is observed that people who value possession of
money tend toward a lower propensity of being in debt
because they are predisposed to saving and spending only
what is planned beforehand.

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110
Table 4
Equations of the final proposed model.
Source: Elaborated by the authors.
Latent variables

Observed variables

1 DIN

Q82, Q83, Q87, Q88

1 MAT
1 = 11 1 + 1

Q61, Q63, Q65, Q66, Q68

2 CR
2 = 21 1 + 2

Q44, Q45, Q46, Q47, Q48

3 PR
3 = 31 1 + 32 5 + 3

Q39, Q40, Q41, Q42, Q43

4 END
4 = 41 1 + 41 1 + 42 2 + 43 3 + 4

Q70, Q71, Q72, Q75

5 EMO
5 = 51 1 + 51 1 + 52 4 + 5

Q49, Q50, Q51, Q52, Q53, Q56

Fig. 2. Final results of the proposed model. Note: EMO = emotions; MAT = materialism; END = indebtedness; CR = risk behavior; PR = risk perception;
DIN = money values.
Source: Elaborated by the authors.

Hypothesis four is accepted; this hypothesis tests the

relation between perceived risk and indebtedness, showing that the higher the perceived risk is, the lower the level
of indebtedness becomes (Caetano et al., 2011). Because
risk scales are measured in an inverse manner, a greater

perception of risk results in less dangerous risk behavior.

In our results, there is a direct relation between risk behavior and indebtedness. People who risk more (higher risk
behavior) are more likely to experience indebtedness, confirming hypothesis five.

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

Table 5
Standardized coefficients and significance of relations of the final proposed model.
Source: Elaborated by the authors.
Relations between factors

Standardized coefficients

Z score

Materialism money values

Risk behavior materialism
Emotions money values
Emotions materialism
Risk perception materialism
Indebtedness materialism
Indebtedness money values
Indebtedness risk behavior
Risk perception emotions
Indebtedness risk perception
Emotions indebtedness

0.452
0.263
0.229
0.126
0.074
0.172
0.199
0.300
0.231
0.233
0.245

7.978
5.870
4.000
2.528
2.074
3.228
3.475
6.162
5.645
5.333
4.909

**
***

***
***
***
***
**
***
***
***
***
***
***

Significant at 5%.
Significant at 1%.

Table 6
Final fit indexes for the proposed model.
Source: Elaborated by the authors.
Index

Value

Chi square
Degrees of freedom
GFI
CFI
NFI
NNFI
RMR
RMSEA

875,59 (p < 0.001)

350
0.943
0.945
0.911
0.936
0.053
0.038

Furthermore, it is notable that there is an inverse

relation between indebtedness and emotion, confirming
hypothesis 10. People who reach a high level of negative
emotions reduce their debt to seek emotional well-being.
Thus, the more negative emotions people experience, the
more care they exercise with respect to being in debt,
confirming hypothesis 10.
The remaining relations between the constructs are
positive, where the highest coefficient (0.452) is obtained
for the influence of the value of money on materialism,
i.e., people who value money and seek social recognition
through it will consequently have higher levels of consumption and materialism. In testing the relation between
materialism and indebtedness (coefficient: 0.172), it is notable that more materialistic people have a higher propensity toward indebtedness.
It is emphasized that two hypotheses defined in the
theoretical model are not confirmed: hypotheses two and
nine. Hypothesis two seeks a relation between financial
literacy and indebtedness; however, it is not accepted,
eliminating the financial literacy factor. Despite hypothesis
nine not being confirmed, the corresponding factors, risky
behavior, and emotions are retained in the model because
they have a significant relation with other factors.
5. Final considerations
This study aims to construct a model of propensity
toward indebtedness. To improve the model, some adjustments are made in all constructs, and only for risk perception and risk behavior are all of the original variables
preserved. After these changes, all constructs are satisfactory, and the fit indices reach the recommended levels.

The estimation phase of the structural model reveals

that two coefficients are not significant and three new
relations are inserted. Among the hypotheses excluded,
one refers to the construct of financial literacy. The other
eliminated hypothesis is hypothesis number nine, which
aims to test the impact of emotion on risk behavior. The
three new hypotheses refer to the influence of materialism
on risk perception, risk behavior, and emotion.
With respect to propensity toward indebtedness, the
central theme of this study, the hypotheses related to
this construct are confirmed. Therefore, the propensity
toward indebtedness may be influenced by behavioral
factors, such as values toward money, materialism, risk
perception, and risk behavior. People who classify money
as a form of power and status tend to maintain a high level
of consumption, which may lead to indebtedness. This
scenario also encompasses materialism. People who have
high levels of materialism have, as a consequence, high
levels of propensity toward indebtedness. With respect
to the influence of risk, there are two dimensions, one
concerning perception and the other concerning behavior.
Individuals with higher risk perception tend toward lower
levels of indebtedness because their aversion prevents
unplanned expenses. Regarding this behavior, people who
have a propensity for risk are more willing to be in debt.
Demographic and cultural variables can also have an
influence. Our results are similar to those of Katona (1975),
in which individuals with higher income are reported to
have a higher propensity toward indebtedness, followed
by those with a lower salary range. In addition to income,
it is observed that there are significant differences in the
level of indebtedness according to age, gender, marital
status, education, religion, religious principles, occupation,
credit card use, dependence on credit, and expenses.
The contributions of this study are subject to several
restrictions. First, the model limits the choice of variables
and relations. With respect to the sample, it is not
possible to generalize the results, i.e., to investigate
the indebtedness of a specific city/county; it would be
necessary to expand the study to obtain results that can be
generalized. In relation to the investigation, the application
of instruments in cross-section experiments is subject
to possible emotional biases. In this sense, longitudinal
experiments can reduce the measuring errors.
Despite the problems highlighted above, indebtedness
is an issue of extreme importance. The recent economic

10

S.A.M. Flores, K.M. Vieira / Journal of Behavioral and Experimental Finance 3 (2014) 110

crisis has established a new consumer profile, one that is

more consumerist and willing to take on more risk, such
as in the form debt. The supply of credit has expanded to
include consumers in social classes previously excluded.
Further studies should be developed to identify the main
factors that lead to indebtedness.
Finally, it is important to understand individual behavior, which could lead to the development of actions to
prevent indebtedness and assist defaulters. From an organizational viewpoint, companies can adapt their cash flow
according to this new style of consumption and saving. Financial institutions can benefit by taking advantage of the
possibility of building stronger models of credit offerings.
Acknowledgment
We thank the National Council for Scientific and Technological Development (CNPq) for their financial support
(edict 06/2011).
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