The mediating effect of financial literacy on the relationship between financial behavior and financial well-being on budget intentions

Financial literacy concerns the understanding of those concepts related to finances. Financial literacy is globally recognised as an essential life skill since people must be able to differentiate among a wide range of products, services and providers of financial products to manage their finances successfully. Individuals make daily financial decisions about expenditures and savings. In environments where resources are scarce poor financial decisions have high impact on the quality of life and future access to resources. People are not adequately educated with regards to finance and wealth creation, save too little for retirement, overspend and tend to purchase items that are not prioritised for the household. Due to limited empirical research, it is clear that new research into the effect of financial literacy on the relationship between financial behaviour and financial well-being on budget intentions is required. This study was anchored to two theories, namely the Theory of Planned Behavior (TPB), intended to explain all behaviors in which people have the ability to exert self-control and the Trans-Theoretical Model of Behaviour Change (TTM) that could be used to change people’s financial behaviour. The problem being explored is that the mismanagement of funding for beneficiaries at higher education institutions. NSFAS has begun to increasingly make cash payouts available to beneficiaries yet there is not enough empirical evidence to suggest that the beneficiaries possess adequate personal finance management skills or they are financially literate to being able to better manage their finances. When the beneficiaries are not adequately skilled regarding personal finance management skills, they could misuse such funds and this could result in these beneficiaries failing to complete their studies. This study contributed to the identified knowledge gap by investigating the mediating effect of financial literacy on the relationship between financial behaviour and financial well-being on budget intentions among South African university students. This study included quantitative research methods and questionnaires were used as the primary means of collecting the data. The sample included 204 participants from the University of Fort Hare. The final sample yielded a total response rate of 81.6%. A cross sectional research design was used for this study. Convenience sampling was used in this study. The researcher made use of student leaders to distribute and collect questionnaires. This study included 14 hypotheses. The dependent variables included Budget Intentions and Financial Literacy. The independent variables included Financial Well-being and Financial Behaviour. Self-control as a financial behaviour predicted university students’ budget intentions. Individuals with better self-control were more likely to forgo indulgences and focus on the long-term goals, thereby sticking to a budget. Optimism significantly predicted budget intentions of university learners. People who tend to engage in deliberate thinking more often are more likely to better manage their personal finances through budgeting. Individuals who have more positive financial attitude were more satisfied with their financial situation implying that they undertake planning and budgeting as far as finance issues are concerned. Financial socialisation from a parental perspective significantly influenced university students’ financial behaviour, namely, financial teaching, monitoring and modelling. People with better self-control are more likely to practise saving in almost every income flowing to them. Financial behaviour, particularly, deliberating thinking significantly predicted financial literacy. Positive financial behaviours such as being financial literate such as a reduction in day-to-day expenses were found to be associated with lower financial anxiety levels. Financial behaviours including positive financial attitude significantly predicted financial literacy. Individuals who had their financial issues monitored by parents for the purpose of earning advice and tips on financial matters were positively behaving pointing to the notion that they were financial literate and knowledgeable. The implication of the study is that management of institutions of higher learning should encourage students to practise self-control behaviour regarding their finances in order to improve budget intentions. It is also recommended that the Universities management should design short courses where students can be trained on or made aware of the importance of self-control as much as good financial behaviour is concerned