literature review about financial management

Financial planning behaviour: a systematic literature review and new theory development

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• Published: 03 October 2023

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• Kingsley Hung Khai Yeo 1 ,
• Weng Marc Lim 1 , 2 , 3 &
• Kwang-Jing Yii 1  

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Financial resilience is founded on good financial planning behaviour. Contributing to theorisation efforts in this space, this study aims to develop a new theory that explains financial planning behaviour. Following an appraisal of theories, a systematic literature review of financial planning behaviour through the lens of the theory of planned behaviour (TPB) is conducted using the SPAR-4-SLR protocol. Thirty relevant articles indexed in Scopus and Web of Science were identified and retrieved from Google Scholar. The content of these articles was analysed using the antecedents, decisions, and outcomes (ADO) and theories, contexts, and methods (TCM) frameworks to obtain a fundamental grasp of financial planning behaviour. The results provide insights into how the financial planning behaviour of an individual can be understood and shaped by substituting the original components of the TPB with relevant concepts from behavioural finance, and thus, leading to the establishment of the theory of financial planning behaviour, which posits that (a) financial satisfaction (attitude), (b) financial socialisation (subjective norms), and (c) financial literacy, mental accounting, and financial cognition (perceived behavioural controls) directly affect (d) the intention to adopt and indirectly shape, (e) the actual adoption of financial planning behaviour, which could manifest in six forms (i.e. adoption of cash flow, tax, investment, risk, estate, and retirement planning). The study contributes to establishing the theory of financial planning behaviour, which is an original theory that explains how different concepts in behavioural finance could be synthesised to parsimoniously explain financial planning behaviour.

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Introduction

Background of financial planning.

Personal financial planning is critical to maintaining a healthy financial status and fulfilling future financial needs (Mahapatra et al. 2019 ). In essence, personal financial planning is a process of managing personal wealth to obtain economic satisfaction (Kapoor et al. 2014 ). This encompasses six areas of financial planning, namely cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning (Altfest 2004 ). Ideally, comprehensive financial planning should involve all six areas. However, the specific life stage of an individual, such as retirees, and life realities, such as retrenchment, may dictate the primary focus and/or relevance of these areas. For example, retirees might not be actively engaged in tax planning, and a retrenched worker might not be in a position to engage in investment planning. More importantly, personal financial planning is a profound concept that theoretically reflects and practically safeguards individuals’ financial resilience, and thus, it can be understood from two unique lenses: academic and practice.

From an academic perspective, the field of personal finance is interdisciplinary; it covers a wide range of areas, including economics, family studies, finance, information technology, psychology, and sociology (Schuchartdt et al. 2007 ). Different disciplines have varied theories that play a supporting role in understanding individuals’ financial behaviour and money management (Copur and Gutter 2019 ). However, the theories explaining personal finance are often borrowed rather than created, a situation that is common for emerging interdisciplinary fields (Murray and Evers 1989 ) such as personal finance (Lyons and Neelakantan 2008 ), which encompasses close to 250 publications only in Scopus by the end of 2022. Footnote 1

From a practice standpoint, Palmer et al. ( 2009 ) argued that it is necessary to develop financial planning for each individual that can deal with the uncertainty of the economic environment. Hanna and Lindamood ( 2010 ) echoed that personal financial planning can provide individuals sufficient economic benefits such as increasing wealth, preventing financial loss, and smooth consumption. Footnote 2 However, many individuals lack sufficient financial capability, skills, and knowledge to be able to effectively manage their personal finances (Chen and Volpe 1998 ).

Problems and importance of financial planning

Over time, the society is facing increasing challenges of high living expenses and various financial difficulties given the constant development of complexity in financial matters (Baker et al. 2023 ; Mahapatra et al. 2019 ). Individuals’ ability to manage their personal finances and financial affairs has been gaining attention across the world, wherein being financially healthy gets prioritised by individuals in their lives (e.g. changing investment approach and contributing more to retirement savings to hedge against inflation; Personal Capital 2022 ).

Birari and Patil ( 2014 ) state that individuals should practice and gain basic financial skills to manage their expenditures and acquire well-developed planning to avoid being in financial difficulties. Many factors may lead to irrational financial behaviours from individuals—for example, excess consumption, aggressive trading, lack of savings, and retirement planning. However, one of the major root causes that propels irrational financial behaviour as well as the many financial difficulties that people encounter is inarguably the lack of financial literacy (Organization for Economic Cooperation and Development 2020 ).

According to the Organization for Economic Cooperation and Development ( 2013 ), financial literacy consists of financial knowledge, skill, attitude, awareness, and behaviour to make a rational financial decision and achieve individual financial well-being. In other words, financial literacy is the ability to utilise knowledge and skills to manage financial matters effectively (Pailella, 2016 ; Tavares et al. 2023 ).

Noteworthily, financial behaviour in individuals’ daily lives cannot be separated from financial literacy. Tan et al. ( 2011 ) state that the process of personal financial planning requires individuals to acquire not only cognitive ability but also financial literacy. According to Ali et al. ( 2014 ), financial literacy should be given serious attention from individuals because it is able to affect their welfare. Indeed, financial literacy has been proven to have a positive impact on financial planning. Specifically, individuals who lack financial literacy will often end up in debt (Lusardi and Tufano 2009 ) and will most likely increase their financial burden (Gathergood 2012 ). By having sufficient relevant information, individuals can analyse their financial situation and make decisions wisely.

Gaps and necessity to theorise financial planning behaviour

As mentioned, extant understanding of financial planning is mainly derived from borrowed theories. While this practice remains acceptable, it is important that new theories are developed to enrich understanding of financial planning, particularly from a behavioural perspective, as the issue of good or poor financial planning is dependent on the individual and his or her financial planning behaviour. With the maturity of the literature on financial planning, the time is now opportune to engage in new theory development (Kumar et al. 2022 ).

The need for theory development is further accentuated as there is a notable lack of theory development in explaining financial planning behaviour. Noteworthily, existing frameworks and models remain piecemeal and do not fully cover the whole spectrum of financial planning. After an appraisal of theories related to financial planning (“ Evolution of theories ” Section), the theory of planned behaviour (TPB) has been found to be the most suitable theory on parsimonious grounds (i.e. the capability and capacity of the theory’s core components to act as an organising frame) and its track record of theory spinoffs (e.g. the theory of behavioural control; Lim and Weissmann 2023 ) to explain an individual’s financial planning behaviour. Therefore, an integration of the respective antecedents, decisions, and outcomes (ADO) to form a new, holistic theory is required to document the complexity and the extent of considerations required to explain financial planning behaviour. Such an integration can and will be pursued via a systematic literature review (Lim et al. 2022a , b ).

Goals and contributions of this study

The goal of this study is to establish a formal theory to explain financial planning behaviour. To do so, a systematic literature review is conducted, wherein the SPAR-4-SLR protocol is adopted to guide the review process, whereas the antecedents, decisions, and outcomes (ADO) framework (Paul and Benito 2018 ) and the theories, contexts, and methods (TCM) framework (Paul et al. 2017 ) are adopted and integrated to analyse the findings of the review—a best practice demonstrated and recommended by Lim et al. ( 2021 ). In doing so, this study makes two noteworthy contributions.

From a theoretical perspective, the integrated framework contributes to integrate fragmented knowledge and reduce the production of isolated knowledge on financial planning behaviour. In addition, the framework clarifies the state of existing insights and empowers the discovery of new insights on financial planning behaviour. Certainly, insights gathered from a well-structured framework can provide a better start to add to existing knowledge and increase growth in the field (Kumar et al. 2019 ; Lim et al. 2022a , b ). More importantly, the nomological structure of the framework also enables the study to establish a new theory called the theory of financial planning behaviour , which can act as a multi-dimensional behavioural guideline that involves planning, developing, and assessing the operation of cash flow, tax efficiency, investment planning, risk management, estate planning, and retirement planning within an individual.

From a practical standpoint, the insights from the study are expected to contribute to future financial service professionals gaining advantages in the understanding of financial planning behaviour in catering to the future needs of the public. Additionally, policymakers would benefit from utilising the information to effectively provide financial education programs to enhance individuals’ financial well-being. Further implications for this study focusing on consumers and managers are also discussed towards the end of this study.

Theoretical background

Evolution of theories.

Over the past decades, several theories have been used by researchers on financial planning and the determining factors that influence it. The evolution of theories relating to financial planning is based on the concept of behavioural finance. These theories remain important in financial planning research (Asebedo 2022 ; Overton 2008 ). The most well-known theory related to behavioural finance is the TPB (Ajzen 1991 ). It has been widely used on different research topics to predict and explain individuals’ behaviour or the insufficient control of their behaviour (Ajzen 1985 , 1991 , 2002 ). Noteworthily, the TPB is an extension of the theory of reasoned action, which suggested that human behaviour is determined by the intention to perform a certain behaviour, whereby the intention can be determined by attitudes and subjective norms (Fishbein and Ajzen 1975 ).

In addition, Maslow’s ( 1943 ) hierarchy of needs has been used by Chieffe and Rakes ( 1999 ) to identify and rate the different segments of financial services best suited to each level of income group. The hierarchical approach of this theory provides a framework that explains different financial planning services related to each income group. According to Xiao and Noring ( 1994 ) and Xiao and Anderson ( 1997 ), the notion of Maslow’s hierarchy of needs clearly explains an individual’s financial needs in the form of a hierarchy. The framework of a hierarchical form of financial planning indicates that individuals would only strive for a high level of financial needs after a lower level of financial needs is met. It is recommended for individuals to fulfil their needs step by step to avoid facing financial difficulties.

Another theory that has been applied to financial planning is the life-cycle hypothesis (Modigliani and Brumberg 1954 ), which is an economic theory that explains an individual’s saving and spending behaviour throughout their lifetime. The theory also points out that individuals want to have smooth consumption by saving more if their income increases and borrowing more when their income ceases. Shefrin and Thaler ( 1988 ) state that individuals mentally place their assets into three different accounts, which are current income, current assets, and future income. According to Modigliani and Brumberg ( 1954 ), this theory assumes that individuals will fully utilise their utility for future consumption and aim to accumulate savings and resources for future consumption after retiring. The model explains that individuals’ consumption and saving decisions are formed from a life-cycle perspective. Such individuals will begin with low income when they start working, and their income will slowly increase until it reaches a peak level. Taking a behavioural enrichment (or behaviourally realistic) perspective of the life-cycle theory, Shefrin and Thaler ( 1988 ) state that the behavioural life-cycle hypothesis includes mental accounting, self-control, and framing, which represent three important behavioural features that are usually missing in the economic perspective of the traditional life-cycle theory. The authors mention that individuals use mental accounting to control their propensity to spend on their assets. The willingness to spend is usually related to their current income. According to Warneryd ( 1999 ), individuals usually have a specific method to mentally allocate their expenditures into different accounts. In addition, the marginal propensity to save and consume will be different in each account. According to Shefrin and Thaler ( 1988 ), individuals may face difficulties in controlling their spending, and thus, these individuals may form personal behavioural incentives and constraints. For example, individuals would possess the intention to save and create assets when constraints are available. They also explain that individuals’ preferences are not fixed but vary depending on the constantly changing economic environment and social stimuli (Duesenberry and Turvey 1950 ; Katona 1975 ). Furthermore, the life-cycle theory faces some challenges while explaining individuals’ behaviour, such as assuming that individuals will act rationally, be consistent, and make wise intertemporal choices throughout their lifetime (Deaton 2005 ). The life-cycle theory explains that individuals’ saving decisions are based on their preferences for either present or future consumption. The theory also assumes that individuals determine a desirable age of retirement and level of consumption to fully utilise their utility throughout their lifetime.

Prospect theory is an economic theory that assumes individuals treat losses and gains differently, showing how an individual decides among several choices that involve uncertainties (Kahneman and Tversky 1979 ). This theory explains that their decisions are easily affected by psychological factors and that they are logical decision-makers. However, when individuals decide on whether to purchase or not, they are most likely affected by their cognitive biases. The theory also postulates that making losses will cause a larger emotional impact on individuals rather than a comparable amount of gain. Thus, individuals will prefer choosing the option with perceived gains. For example, individuals would prefer the option of a sure gain instead of a riskier option with a chance of receiving nothing or making a loss. Hence, the theory summarises that individuals are mostly loss averse when they face several choices. Individuals are more sensitive towards losses and would most likely prefer avoiding losses and prefer sure wins. This can be explained by the fact that the emotional impact of losses on an individual is greater than an equivalent gain.

The financial capability model is another prominent theory. Financial capability, which has been gaining prominence across the globe, is defined as the capability and skills of individuals to make rational and effective judgements on managing their financial resources (Noctor et al. 1992 ). Nowadays, individuals have been urged to ensure that they acquire sufficient resources for their retirement and provide a financial safeguard for any sudden occurrence. According to Atkinson et al. ( 2007 ), the financial capability model has been studied and is related to individuals’ financial behaviour, attitude, and knowledge. The researchers identified five different components under the financial capability model: (1) making ends meet (managing personal financial resources, i.e. individuals who have acquired financial knowledge skill sets can finance their resources well and meet financial goals); (2) keeping track (managing money, i.e. planning and recording personal daily expenses to avoid overspending); (3) planning ahead (this helps individuals to be future oriented, i.e. always planning and managing their financial resources to be prepared for any financial uncertainties in the future); (4) choosing products (accumulating resources and managing different assets’ risks, i.e. making a rational decision in choosing financial products and diversifying risks); and (5) staying informed (being updated and studying financial matters in the current market and economy, i.e. individuals have to be eager to keep track on financial matters happening in the market, such as changes in the overnight policy rate (OPR) and stock market movement).

After a review of all the theories (Table 1 ), the TPB has been found to be the most suitable theory to serve as a foundational lens for a review on financial planning behaviour with the aim of establishing a new theory in this field. Unlike the other theories (e.g. Maslow’s hierarchy of needs, life-cycle hypothesis including behavioural life-cycle hypothesis, financial capability model, prospect theory), the TPB is an adaptable yet parsimonious theory that has a track record of spinning off new theories (e.g. the theory of behavioural control; Lim and Weissmann 2023 ). Noteworthily, the TPB can be applied to financial behaviours (Bansal and Taylor 2002 ; East 1993 ; Xiao and Wu 2006 ), wherein the three antecedents of the TPB (attitude, subjective norms, and perceived behavioural control) are found to be associated with intention and contribute to financial behaviour (Shim et al. 2007 ; Xiao et al. 2007 ). Unlike other theories, the mediating effect of financial literacy, which provides an important lens to understand good and poor financial planning, can be applied to the TPB to explain an individual’s intention on financial behaviour. More importantly, it is necessary to understand how the TPB can further explain individuals’ behaviour before examining financial literacy through a behavioural approach. The theory assumes that intention is the best factor to predict an individual’s behaviour, which, in turn, is examined by attitude and social normative perceptions towards an individual’s behaviour (Montano and Kasprzyk 2015 ). Furthermore, individuals’ experiences normally affect their financial decision-making and the way they manage their personal finances. Therefore, financial literacy can be explained as an individual’s confidence and capability to make full use of their financial knowledge (Huston 2010 ) and manage financial matters (Lusardi and Mitchell 2014 ), which they would have perceived control over. In this regard, the theory can be applied to examine how the financial literacy process works on each individual. Moreover, Lusardi and Mitchell ( 2014 ) explain that the favour of financial literacy is more than that of financial capability, where individuals are responsible for their own financial decisions. Hence, financial literacy acknowledges the perceived control of individuals on their financial decisions. That being said, an individual will only show positive financial behaviour when they perceive the value of their behaviour based on their attitude. Therefore, financial behaviour will not be decided based on their financial knowledge but based on their attitude, which is the main component of this theory. In other words, the evaluation of financial knowledge will be better captured through the components of the TPB (e.g. perceived behavioural control), though conceptual contextualisation is necessary to better resonate with the financial planning behaviour of individuals. To aid this task, the next section provides a deeper discussion to understand the fundamental tenets of the TPB.

Theorisation of the theory of planned behaviour

According to Xiao ( 2008 ), the TPB is one of the best and most suitable theories related to financial behaviour that studies and predicts human behaviour. In essence, the TPB is an extension of the theory of reasoned action, which initially posits that attitude and subjective norms shape the intention to perform a behaviour, which, in turn, predicts the actual performance of that behaviour (Ajzen 1991 ). However, behavioural intention does not always translate into behavioural performance (Lim and Weissmann 2023 ), which is the main reason why the TPB was proposed to overcome the limitation of the theory of reasoned action, with the inclusion of perceived behavioural control in the TPB as a mechanism to recognise the volitional control that individuals possess in translating or not translating behavioural intention into behavioural performance (Ajzen 1991 , 2002 ).

Perceived behavioural control can be expressed as follows: Given an individual’s available resources and choices, how easy or hard it is to display a certain behaviour or act in a certain way? In this regard, the performance of an individual’s behaviour depends on his or her ability to act on said behaviour (Ajzen 1991 ). The TPB posits that the perceived control on certain behaviour will be greater when the individual has greater resources (social media, money, time) and choices (Lim and Weissmann 2023 ). Indeed, several researchers have found that perceived behavioural control has a positive relationship with intention and behaviour (Fu et al. 2006 ; Lee-Patridge and Ho 2003 ; Mathieson 1991 ; Shih and Fang 2004 ; Teo and Pok 2003 ).

Subjective norms can also be used to predict individual behavioural intention. As one of the original components of the theory of reasoned action, subjective norms refer to social influence and the social environment affecting an individual’s behavioural intention (Fishbein and Ajzen 1975 ). It is defined as an individual’s perception of the possibility that social agents approve or disapprove a behaviour (Ajzen 1991 ; Fishbein and Ajzen 1975 ). It focuses on everything around individuals, such as social networks, cultural norms, and group beliefs. This is known as a direct determinant of behavioural intention in the theory of reasoned action and the TPB. Through the lens of subjective norms, an individual is said to be willing to perform a certain behaviour even though he or she does not favour performing such behaviour while being under social pressure and social influence (Venkatesh and Davis 2000 ). Kuo and Dai ( 2012 ) state that as subjective norms become more positive, an individual’s behavioural intention to perform or act on a certain behaviour becomes more positive. Several studies have shown a significant relationship between subjective norms and intention (Chan and Lu 2004 ; May 2005 ; Teo and Pok 2003 ; Venkatesh and Davis 2000 ). Sharif and Naghavi’s ( 2020 ) research on family financial socialisation also finds that the behaviour of acquiring relevant norms and information on financial socialisation is associated with subjective norms. The informational subjective norms are known to predict perceived information. Ameliawati and Setiyani ( 2018 ) mention that subjective norms in the TPB represent financial socialisation. Their study describes subjective norms as financial socialisation to research the influence of financial management behaviour. In addition, the research of Jamal et al. ( 2015 ) on the effects of social influence and financial literacy on students’ saving behaviour used the TPB to develop the model. The author uses subjective norms to represent the social pressures influencing students’ intentions to save. It analyses the influences of parents and peers on the impact on the students’ saving behaviour. Hence, subjective norms have a significant effect on the intentions of individuals towards financial planning behaviour.

Attitude has been identified as a construct that guides an individual’s intention, which results in them acting on a particular behaviour. In essence, attitude can be defined as the evaluation of the positive and negative effects on individuals performing an act or behaviour (Fishbein and Ajzen 1975 ), and by extension, reflects the individual’s belief in certain behaviours or acts that contribute positively or negatively to a person’s life (Ajzen and Fishbein 2000 ). There are two components of attitude: the attitude towards a physical object (money, savings, pension) and the attitude towards behaviour or performing a certain act (using savings or money to practice financial planning). Keynes ( 2016 ) and Katona ( 1975 ) state that most individuals possess positive attitudes towards personal saving. Many studies have determined a significant relationship between attitudes and intention (Lu et al. 2003 ; Ramayah et al. 2020 ; Wu and Chen 2005 ). Therefore, attitude can be one of the most important factors to determine and predict human behaviour (Ajzen 1987 ). According to Xiao ( 2008 ), the more favourable the attitude of an individual on performing a behaviour, the easier it is for the individual to perform the behaviour and the stronger the behavioural intention. Further understanding of an individual’s attitude can help to predict their intention and behaviour.

Intention can be defined as an individual’s perception of performing a particular act or behaviour (Fishbein and Ajzen 1975 ). In this regard, intention is said to produce a direct effect on an individual’s behaviour as it signals the willingness of an individual to act (Ajzen 1991 ). The TPB explains that the degree of intentions that are converted into behaviour is determined by the amount of volitional control. Behaviour such as saving money is not considered as full volitional control given the lack of resources and opportunities able to affect the capability to perform the behaviour. While individuals can control their behaviour, their actual behaviour can easily be predicted by their intention accurately, but this does not prove that the measure of correlation is perfect between intention and behaviour (Fishbein and Ajzen 1975 ). Moreover, strong bias always exists in individuals, where they will overestimate the possibility of acting on desired behaviour and underestimate the possibility of acting on undesired behaviour. This can cause inconsistencies between intention and behaviour (performing an actual action) (Ajzen et al. 2004 ). Behaviour and intention will show high correlation whenever the interval time between them is low (Fishbein and Ajzen 1981 ). Yet, intention is known to change over time, and thus, if the interval between intention and behaviour is greater, the possibility of change in intention is higher (Ajzen 1985 ).

Behaviour refers to an observable response to a specific target (Fishbein and Ajzen 1975 ). In essence, the performance of a given behaviour is a direct outcome of the intention to perform that behaviour as well as an indirect result of attitude, subjective norms, and perceived behavioural control (Ajzen 1991 ), as discussed above.

The TPB has been widely used in different fields of research over the past decades: medicine (Hagger and Chatzisarantis 2009 ; McEachan et al. 2011 ), marketing and advertising (King et al. 2008 ; Yaghoubi and Bahmani 2010 ), tourism and hospitality (Han 2015 ; Quintal et al. 2010 ), information science (Lee 2009 ; Shih and Fang 2004 ), and, last but not least, human behaviour (Kobbeltvedt and Wolff 2009 ; Perugini and Bagozzi 2001 ). All the studies listed above have concluded on the positive and significant effect of attitude, subjective norms, and perceived behavioural control on an individual’s intention to act on behaviour. In the financial context, Shih and Fang ( 2004 ) apply the TPB to an individual’s financial decisions regarding internet banking. The study concludes that the TPB can be successfully applied to understand an individual’s intention to use internet banking. Lau et al. ( 2001 ) and Lee ( 2009 ) also apply the TPB to study investors’ intentions on online banking and trading online. To provide a more accurate account for financial planning behaviour, a systematic literature review is conducted and reported in the next sections.

Methodology

Study approach: systematic literature review.

This study conducts a systematic literature review to develop comprehensive insights into financial planning behaviour based on the TPB. As mentioned above, the TPB is the extension of the theory of reasoned action, and it strongly posits that an individual’s behaviour is determined by the three factors (attitude, subjective norms, and perceived behavioural control) and is backed by their behavioural intention (Ajzen 1991 ).

A systematic literature review is known as a ‘research synthesis’, an extensive process of summarising primary research based on an explicit research question, where it attempts to identify, select, synthesise, and assess all the evidence by providing answers to the research question (Donthu et al. 2021 ; Lim et al. 2022a , b ). In this regard, systematic literature reviews not only summarise and synthesise existing knowledge but also facilitate knowledge creation (Kraus et al. 2022 ; Mukherjee et al. 2022 ). Moreover, systematic literature reviews gathered eligible and pertinent evidence based on a preset criterion to answer a specific research question, and thus, a transparent and explicit systematic methodology can be used for systematic literature reviews to analyse and reduce biases (Harris et al. 2014 ; Paul et al. 2021 ).

Systematic literature reviews can be conducted through various methods. Generally, systematic literature reviews can be domain-based, theory-based, and method-based (Palmatier et al. 2017 ; Paul et al. 2021 ). In this study, a theory-based review was used for new theory development. Specifically, the theory-based review is chosen over the other approaches because it serves the purpose of analysing a specific role played by a theory in a given field. One of the examples given by Hassan et al. ( 2015 ) is the role of the TPB in the field of consumer behaviour. In this study, the TPB was applied to financial planning behaviour.

Study procedure: SPAR-4-SLR

Few protocols exist for systematic literature reviews. The most common protocol used by researchers in conducting systematic literature reviews is the preferred reporting items for systematic reviews and meta-analysis (PRISMA) by Moher et al. ( 2009 ). PRISMA is a comprehensive protocol that helps researchers to develop systematic literature reviews. It gathers and reports decisions that researchers have justified from their reviews. However, an uprising protocol was proposed by Paul et al. ( 2021 ) to address the existing limitations of PRISMA, namely the Scientific Procedures and Rationales for Systematic Literature Reviews protocol or the SPAR-4-SLR protocol. As shown in Fig.  1 , the protocol consists of three stages and six sub-stages, followed by sequences.

Assembling This stage constitutes the (1a) identification and (1b) acquisition of literature that is yet to be synthesised.

Arranging This stage entails the (2a) organisation and (2b) purification of literature in the stage of being synthesised.

Assessing This stage reflects the (3a) evaluation and (3b) reporting of literature that has been synthesised.

Review process

Systematic reviews assembling, arranging, and assessing the literature according to the SPAR-4-SLR protocol are expected to: (1) provide significant insights and (2) stimulate nuanced agendas for knowledge advancement in the review domain. Substantially, by providing such significant insights and agendas using the SPAR-4-SLR protocol, (1) the review is comprehensively justified for logical and pragmatic reasons, and (2) each stage and sub-stage is reported with full transparency.

The researchers begin with assembling in the (1a) identification stage, identifying the research domain and research question. The research domain of this study is behavioural finance with a specific focus on financial planning. The research question of this study is ‘How can the TPB be contextualised to develop a theory of financial planning behaviour?’ Thus, academic articles selected should focus on financial planning (i.e. the focus of this review) and the TPB (i.e. the theory contextualised for this review). The source quality was established based on Scopus or Web of Science indexing in line with Paul et al. ( 2021 ). Moving on to the (1b) acquisition stage, the search mechanism will rely on Google Scholar, which is free and can be easily accessed for article search. Footnote 3 The search period will begin from 2000 to 2020 (20 years) as most articles on the TPB and financial planning behaviour started to appear in the early 2000s. Related articles searched between these years are included in this study. The search was conducted multiple times with different keywords based on American and British spelling as well as different combinations: (1) ‘financial planning’ + ‘theory of planned behavior’, (2) ‘financial planning’ + ‘theory of planned behaviour’, (3) ‘personal financial planning’ + ‘theory of planned behavior’, and (4) ‘personal financial planning’ + ‘theory of planned behaviour’. Footnote 4

Next, the researchers move onto arranging in the (2a) organisation stage, wherein the organising code for this study is ADO and TCM, which rely on the suggested frameworks used, the ADO framework (Paul and Benito 2018 ; Pansari and Kumar 2017 ) and the TCM framework (Paul et al. 2017 ). Refer to Fig.  2 for the overview of ADO on the insights of the TPB on financial planning behaviour and its supporting TCM. In the (2b) purification stage, the articles gathered are filtered in this process. The researchers decided which articles to include and exclude from the study. The criteria to exclude articles in this stage include duplicate articles, irrelevant articles, inaccessible articles, and lastly, non-journal-title articles; 41 articles were excluded based on the criteria, and 30 articles proceeded to the next stage.

The state of the art of the antecedents, decisions, and outcomes of financial planning behaviour and its supporting theories, contexts, and methods

Finally, the researchers move into assessing in the (3a) evaluation stage, which involves the analysis and the agenda proposal. The study utilised content analysis, a methodical approach for coding and interpreting textual data from the selected articles to draw meaningful conclusions (Kraus et al. 2022 ). This systematic technique, which was executed by one author (a doctoral scholar) and cross-validated by another author (a senior academic) with an intercoder reliability of ± 95% and differences clarified and resolved, enabled the researchers to identify, categorise, and analyse patterns within the text, contributing to a comprehensive understanding of the subject matter (Patil et al. 2022 ). The theory development and future research agenda were formulated through conceptual extrapolation and sensemaking (i.e. scanning, sensing, and substantiating) (Lim and Kumar 2023 ). This process entailed critically examining the existing theories, extracting key concepts, and extrapolating these to propose new research directions. Thus, this study provided a roadmap for future studies, fostering further evolution in the field of financial planning behaviour. In the (3b) reporting stage, the reporting conventions used include figures, tables, and words. No ethical approval is required since the review is based on accessible secondary data (journal articles), which can be accessed by anyone with subscription (Lim et al. 2022a , b ).

Profile of TPB and financial planning behaviour research

The systematic review of 30 articles covered different insights into the existing research of the TPB and financial planning behaviour, covering the six components of financial planning (i.e. cash flow planning, tax planning, risk management, investment planning, estate planning, and retirement planning) (Fig.  2 ). Appendix 1 summarises the articles in Appendix 2 based on the approaches of Paul and Mas ( 2019 ) and Harmeling et al. ( 2016 ). The articles are classified based on author citations, years, number of citations, methods, sample, related financial planning components and variables, and lastly findings. The findings of each article briefly explained how the construct of the TPB is a predictor or shows a significant effect on financial planning behaviour.

Based on this review, which begins from 2000 to 2020, the past two decades of research in the field of behavioural economics (later known as behavioural finance) have been on continuously identifying and explaining an individual's finances from an extended social science perspective, which includes psychology and sociology. Behavioural finance can be defined as the field of study where psychological factors affect an individual's financial behaviour (Shiller 2003 ). The combination of the TPB and financial planning has proven to be impactful with over 3000 citations among the 30 articles. The articles utilised four different methods: the quantitative approach ( n  = 24), the qualitative approach ( n  = 3), the mixed method approach ( n  = 1), and the conceptual approach ( n  = 2).

Lastly, the TPB (i.e. attitude, subjective norms, perceived behavioural control, and behavioural intention) has been found to be a good predictor of financial planning behaviour (i.e. cash flow planning, tax planning, risk management, investment planning, estate planning, and retirement planning) and possesses positive relationships with each component of financial planning. For example, the TPB was found to be positively related to the intention to invest, mental budgeting behavioural intention, influencing savings and investment, and the intention to prevent risky credit behaviour, among others.

Contextualising the TPB for financial planning behaviour

Table 2 and Fig.  3 show the contextualisation of the TPB for financial planning behaviour, leading to the establishment of the theory of financial planning behaviour. Pansari and Kumar ( 2017 ) suggest the use of such a table to compare and explain each construct of the framework. The table, which leverages the findings from the review depicted in Fig.  2 , clearly illustrates how the TPB can be contextualised to explain financial planning behaviour. Attitude can manifest as financial satisfaction, wherein individuals who are dissatisfied, not fully satisfied, or wish to be more satisfied with their financial state will develop a positive disposition towards financial planning. Subjective norms can manifest as financial socialisation, wherein individuals learn about societal expectations of financial planning when they socialise with others (e.g. family, friends, work colleagues). Perceived behavioural control can manifest as financial literacy, mental accounting, and financial cognition, wherein the effect of financial satisfaction and financial socialisation is mediated through financial literacy, which may be shaped by the capability to perform mental accounting and the capacity for financial cognition. These factors can collectively shape the individual's intention to engage in financial planning, which, in turn, motivates the actual behaviour of engaging in financial planning, which can take six forms, namely cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning.

Visual representation of contextualising the TPB into the theory of financial planning behaviour

Reflections and ways forward

Behavioural decision-making has been one of the most significant research interests for economists over the past decades. Past researchers (Xiao and Wu 2006 ; East 1993 ; Bansal and Taylor 2002 ) have applied the TPB to financial behaviour. The three antecedents of the TPB (attitude, subjective norms, and perceived behavioural control) were found to be associated with the intention of an individual and contribute to financial behaviour (Shim et al. 2007 ; Xiao et al. 2007 ). Unlike other theories, the mediating effect of financial literacy can be applied to the TPB to explain financial behaviour intentions. The variables of mental accounting and financial cognition were not frequently used by the researchers in the study of financial planning, while in this study, both variables are positioned as relevant components of perceived behavioural control in the TPB.

The concept of mental accounting has been extensively studied in the research area of psychology on financial decisions (Mahapatra and Mishra 2020 ). However, past studies on mental accounting in financial planning are insufficient. The formation and influences of mental accounting as a cognitive process—which consists of the concepts of current income, current assets, and future income as well as mental budgeting—play an important role in the personal financial planning process to each individual. It serves as a guideline in the process of financial planning and provides useful insights. Budgeting plays a key role in managing the financial life of an individual in terms of short-term (e.g. prioritising spending in different categories) and long-term (e.g. setting aside money for investment and future use) financial planning.

Previous research has applied mental accounting with the theory of the behavioural life-cycle model. Shefrin and Thaler ( 1988 ) mentioned that people mentally divide their incomes into current income, current assets, and future income, where the marginal propensity to consume (MPC) for each account is relatively different. Mental accounting is helpful and crucial for individuals to plan for their future financial needs so that they can deal with any unexpected financial difficulties in the future. However, there are still gaps to fill to come out with optimal financial decisions. Therefore, given the need of individuals for personal financial planning, it is necessary to apply mental accounting to each individual by determining their spending and saving tendencies.

Moreover, the 2008 global financial crisis and the COVID-19 pandemic have also taught the world painful lessons; the need for financial literacy and cash flow control has been highlighted and considered by the public. A study conducted by Shahrabani ( 2012 ) on the effect of financial literacy and intention to control personal budget concludes that individuals with high levels of financial knowledge and literacy can influence the intention to have budgetary control. The study shows a positive relationship between the intention to budget and financial knowledge. Selvadurai and Siraj ( 2018 ) study financial literacy education and retirement planning in Malaysia. The authors mention that mental accounting is closely related to financial literacy education. Financial literacy can enhance mental accounting as it affects the behaviour of an individual in planning their savings and expenditure. In particular, individuals who acquire financial literacy education are most likely able to control their expenditure by not spending more than their income, which results in having sufficient savings in the long run. The relationship between mental accounting and financial literacy has been proven to be indispensable.

Cognitive ability also plays an important role in financial literacy as it entails understanding financial knowledge and the ability to perform with available resources. While the relationship between financial cognition and financial literacy is strong, individuals can use their cognitive abilities to solve financial problems. Yet, the cognitive biases exist and influence financial decision-making. Agarwal and Muzumder ( 2013 ) state that individuals with no cognitive ability are most likely to face difficulties while making financial decisions. Also, individuals must at least acquire good memory skills, conceptual ability, and financial sophistication to be involved in financial activities. According to Fu et al. ( 2010 ), understanding the attitude of an individual enables one to predict their intentions and behaviour. This could also influence the formation of their attitude. Lusardi and Mitchell ( 2014 ) mention that cognitive abilities are a significant component of financial literacy to determine desirable financial decision-making. In the case of financial literacy, a link between cognitive abilities and the adaptability of financial decision-making has been studied extensively in the field of personal finance. An individual must acquire cognitive skills to make a sound financial decision in an effortless way, which consists of the ability to recall and utilise financial knowledge (memory) and to implement various numerical operations (numeracy) (Chirstelis et al. 2010 ; McArdle et al. 2009 ). Three variables were discussed under the model of financial cognition: financial attitude, risk attitude, and financial knowledge.

Based on the information mentioned above, the mediating effect of financial literacy on mental accounting and financial cognition is indispensable. Policymakers and researchers should work on improving financial literacy and forming positive financial behaviours. Several studies have proven that financial literacy has slowly become a significant component of rational financial decision-making and that it also provides implications for financial behaviour. Individuals or families with higher levels of financial literacy will have an advantage compared to others and higher wealth accumulation as they have the knowledge and skills to participate in financial activities (Schmeiser and Seligman 2013 ). Past studies have proven that financial literacy plays a remarkable role in determining financial outcomes in terms of the components of financial planning (Hilgert et al. 2003 ). Hence, the need for financial literacy in financial planning is indispensable, and it should be considered by individuals as it affects their welfare.

However, no one has attempted to contextualise the TPB and financial planning with the variable of mental accounting and financial cognition with the mediating effect of financial literacy to understand and determine financial behaviour. Thus, this new theory clarifies the conceptualisation and operationalisation of the theory of financial planning behaviour between the variables of mental accounting and financial cognition, and, most importantly, the mediating effect of financial literacy. However, the new theory, in its present and encompassing form, has yet to be tested empirically, and therefore, this warrants future research across different financial products across countries and populations to establish its generalisability.

Discussion and conclusion

This study developed a new theory called the theory of financial planning behaviour using the TPB of Ajzen to understand the financial behaviour of individuals in managing their personal finances. This study examines how the TPB can be contextualised into a theory that more relevantly explains financial planning behaviour. The theoretical background section of this study presents a comprehensive review of the evolution of theories as well as theorisation for the TPB. With a systematic review of the literature, it can be concluded that the constructs of the TPB can be contextualised to better explain financial planning behaviour—that is, the review results showed how different concepts and factors affect the financial planning of an individual by substituting the original components of the TPB with financial variables. Moving on, this study concludes with an articulation of its implications for academics, consumers, and managers.

Implications for academics

The main theoretical contribution of this study is the establishment of the theory of financial planning behaviour. Noteworthily, this new theory represents a noteworthy attempt to demonstrate how a grand theory such as the TPB can be contextualised and thus transformed into a new theory that resonates with realities in the field, in this case, financial planning. The systematic literature review methodology has also proven itself as a useful approach to source for scholarly evidence to offer preliminary support for the new theory.

Another noteworthy contribution is the extrapolation of perceived behavioural control, which answers the call by Lim and Weissmann ( 2023 ) to identify or source for new forms of behavioural control, going beyond the traditional psychological conceptualisation of self-efficacy. Through this study, three types of perceived behavioural control were revealed: financial literacy, mental accounting, and financial cognition. Moreover, the interdependent relationships between these three forms of perceived behavioural control were also identified and theorised, wherein the capability of mental accounting and the capacity for financial cognition shape the financial literacy of the individual, which, in turn, mediates the effects of financial satisfaction (attitude) and financial socialisation (subjective norms) on that individual’s intention and actual behaviour to engage in financial planning.

For researchers seeking to apply the theory of financial planning behaviour in a study, they might operationalise the variables in the following way. Financial satisfaction, financial socialisation, and financial literacy could be assessed using the scales validated by Madinga et al. ( 2022 ). Financial cognition and mental accounting, being somewhat newer constructs in the literature, might require the development of new scales, which could be validated through exploratory and confirmatory factor analysis. For data analysis, researchers might employ a structural equation modelling (SEM) approach to test the relationships between these constructs, as SEM allows for the simultaneous examination of multiple relationships among observed and latent variables. This technique also enables researchers to test the mediating role of financial literacy in the relationship between financial satisfaction, financial socialisation, and financial planning behaviour, thereby assessing the robustness of the proposed theory. If researchers are interested in examining the moderating effects of certain variables (e.g. age, education, or household income), they could use moderation analysis to determine whether the strength or direction of these relationships varies under different conditions.

To this end, the theory of financial planning behaviour should serve as a useful foundational theory to understand a myriad of individual financial planning behaviour such as cash flow planning, tax planning, investment planning, risk management, estate planning, and retirement planning. In this regard, future research is encouraged to explore for new mechanisms that can positively influence or strengthen the variables espoused by the new theory, such as financial satisfaction (e.g. mechanisms that can prompt individuals to evaluate their financial satisfaction—e.g. advertising), financial socialisation (e.g. platforms to encourage individuals to socialise within a financial setting—e.g. metaverse and social media groups), and financial literacy (e.g. ways to enhance mental accounting capability and financial cognition capacity). Nonetheless, this study does not discount the possibility of discovering additional attitudinal, normative, and control variables, which could lead to possible extensions to the theory of financial planning behaviour, as in the case witnessed by TPB. Thus, the new theory herein is intended to inspire new ideas, not to limit them.

Implications for consumers

This study reaffirms the importance of financial planning to safeguard financial resilience in individuals' daily lives. Adopting financial planning entails endless benefits for consumers who do so. Noteworthily, it is important to determine short-term and long-term financial goals and to achieve them via financial planning. Having these goals in mind can provide a sense of direction and purpose in life.

This study is important for all consumers who wish to make ideal financial decisions. Consumers may adopt better cash flow management by implementing financial planning to have a stable financial flow. A cash flow plan can provide an estimation of future income and expenses to achieve financial efficiency and create an emergency fund. Hence, implementing financial planning may help to relieve financial stress and plan for future needs.

Also, consumers can not only gain monetary benefits but also improve their financial literacy. The world has slowly become more financialised, where financial products have developed rapidly and become more complex (Kumar et al. 2023 ; Goodell et al. 2021 ), which requires consumers to be financially literate before making ideal financial decisions (She et al. 2023 ; Bannier and Schwarz 2018 ). Thus, financial institution managers and policymakers are working on improving the financial literacy of consumers and forming positive financial behaviour.

Indeed, financial literacy is a significant component of rational financial decision-making, and it also provides implications towards financial behaviour. Individuals or families with higher levels of financial literacy will have an advantage compared to others as well as higher wealth accumulation as they have the knowledge and skills to participate in financial activities.

Crucial to developing financial literacy is the capability to do mental accounting and the capacity for financial cognition. That is to say, consumers must seek financial education, be it formally or informally, so that they are able to identify and evaluate the different options for financial planning. Similarly, consumers should allocate adequate resources (effort, time) to think about financial planning, which is not a low but rather high involvement process.

Implications for managers

Promoting financial planning has always been a major challenge for financial managers. The newly established theory of financial planning behaviour emerging from the grand TPB can be put into practice by authorities. The findings of this study can be used by financial managers to understand the financial planning behaviour of consumers.

Based on the results and implications of past studies, introducing financial planning behaviour can benefit banks as well as investment and insurance companies that aim to promote consumer financial well-being. It can provide insights into how different factors affect the intention and adoption of financial planning.

Financial literacy needs to be considered as it is an important mediating factor that influences the intentions and behaviour of consumers. For example, whenever a bank introduces financial products to a prospect, that bank must ensure that the prospect is financially literate or else provide sufficient financial knowledge before the prospect develop a financial plan or purchase any financial product from that bank. This is to ensure that their customers possess knowledge of and clarity on the program or product.

In addition, financial institution managers are encouraged to focus on factors (i.e. mental accounting, financial cognition, financial socialisation, financial satisfaction, and financial literacy) that influence customer behaviour towards financial planning before implementing financial programs. For example, understanding the budgeting styles and minimum level of financial satisfaction of customers may help to develop relevant and applicable financial plans for them. Consider a middle-aged client, John, who has recently experienced a job loss. John is feeling uncertain about his financial future and seeks advice from a financial advisor. The financial advisor, following the theory of financial planning behaviour, would first evaluate John's financial literacy level to assess his understanding of financial products and concepts. Then, the advisor would use the theory's constructs such as mental accounting (how John organises his finances and prioritises spending), financial cognition (how John understands his financial situation), and financial satisfaction (how content John is with his current financial state) to develop a comprehensive financial plan. For instance, the financial advisor may realise that John's financial cognition is low, indicating a lack of understanding of the severity of his financial situation. Therefore, to improve his financial cognition, the advisor would emphasise financial education and assist John in developing better mental accounting habits, such as setting up separate 'pots' for his savings, expenses, and investments. This approach is aligned with promoting financial literacy and ensuring the client's knowledge and clarity on his financial plan, which are aspects underscored in our theory.

Implications for policymakers

The findings of this study serve to inform and guide policymaking in significant ways. Policymakers play a crucial role in shaping the financial landscape that influences financial planning behaviour. A key aspect is the importance of financial literacy, which suggests that national education policies should incorporate financial education from early learning stages. Special focus should be given to underprivileged and marginalised communities, who may lack access to financial literacy resources. This might involve legislation mandating financial institutions to fund these education programs as a part of their corporate social responsibility.

This study also illuminates the role of mental accounting and financial cognition in financial planning behaviour. This could inspire policymakers to collaborate with technology developers to create user-friendly digital tools and applications that promote mental accounting practices. Such initiatives should be supported by national policies encouraging technological innovation in the financial sector.

Furthermore, the impact of financial satisfaction on financial planning behaviour underscores the need for regulation in financial advertising. Policymakers should ensure that financial advertising does not create unrealistic expectations that lead to dissatisfaction, and transparency should be mandated, with severe penalties for institutions found to be misleading consumers.

Moreover, the study's findings encourage the creation of financial socialisation platforms. Policies should support the development of both online and offline platforms for learning, sharing, and discussing financial planning strategies and experiences. Policymakers should work with technology companies, local communities, and financial institutions to ensure these platforms are safe, accessible, and inclusive.

Lastly, the responsibility of policymakers extends to the protection of citizens from unfair financial practices. Legislation should ensure transparency in financial markets, particularly regarding fees, interest rates, and risks associated with financial products. Policymakers may also consider mandating financial counselling for complex financial decisions, such as mortgages or large investments, to increase financial satisfaction.

Limitations and future research directions

Notwithstanding the contributions of this study, several limitations exist that may pave the way for future research.

First, financial planning behaviour remains in the infant stage and thus the newly established theory was limited to available evidence. In this regard, this study does not discount the possibility of extending the theory of financial planning behaviour in enriching ways, such as by adding new dimensions of the original TPB components (e.g. additional forms of perceived behavioural control).

Second, the theory of financial planning behaviour has not been empirically examined in its entirety. Thus, future research is encouraged to adopt or adapt this newly established theory in empirical investigations to ascertain its reliability, validity, and generalisability.

Third, the systematic literature review herein was limited to a single theoretical lens (TPB). As indicated through the theoretical foundation discussion, multiple theories exist to explain financial planning behaviour. In this regard, it is important to acknowledge that the development of theories in this area is continuously evolving. As other theories mature, it would be beneficial for future research to consider conducting similar reviews using those theories, to provide a more comprehensive understanding of financial planning behaviour. This could potentially uncover novel insights and lead to the development of new frameworks that could more holistically explain individuals' financial behaviours.

Fourth, the outcomes of financial planning have not been theorised. While the assumption is that good financial planning results in financial resilience, further investigation is needed to empirically verify this assumption. Further exploration of other possible outcomes is also encouraged, both at the micro-level (e.g. life satisfaction, quality of life) and at the macro-level (e.g. country happiness and financial strength).

Fifth, the relationships in the theory of financial planning behaviour are inherently linear. Nonetheless, as experience in financial planning accumulates over time, this study does not discount the possibility of a cyclical loop that reinforces the said relationships. In this regard, future research that extrapolates the theory through a longitudinal perspective is also encouraged.

Sixth, the research landscape of financial behaviour is broad and includes other aspects such as financial counselling and financial therapy. Although these areas were not covered in this study, they may be relevant in the context of the TPB and could contribute to a more comprehensive understanding of financial behaviours. Thus, future research could consider investigating these areas using the TPB, which could also include other related theories, as a guiding theoretical framework. The expansion of search terms in subsequent studies would allow for a more diverse exploration of financial behaviours, potentially enhancing the generalisability and applicability of the findings. Furthermore, it may also reveal a broader range of factors influencing financial planning behaviour and related areas. Hence, researchers are encouraged to extend the current study by exploring the use of TPB alongside related theories in different areas of financial behaviour.

In closing, while this study viewed financial planning within the context of behavioural finance, it is crucial to underscore the fact that financial planning is a distinct profession with its own body of literature. Financial planning transcends the boundary of understanding and predicting individual financial behaviours. It encompasses a broad spectrum of activities, from cash flow management to estate planning, which are geared towards enhancing an individual's economic satisfaction. Each of these areas possesses a unique set of complexities and necessitates a specialised set of knowledge and skills. The profession of financial planning is dedicated to addressing these complexities and enhancing individuals' financial well-being. Our exploration of financial planning behaviour through behavioural finance should be seen as a facet of the broader, multi-dimensional discipline of financial planning. Future research should therefore endeavour to add to the rich and varied literature of financial planning to offer a more holistic and nuanced understanding of financial behaviour.

Based on a search for “personal finance” in the “title, abstract and keywords” and the subject area of “business, management and accounting” in Scopus on 25 December 2022.

Smooth consumption refers to consumption that balances or optimises spending and saving during different life phases to achieve the greatest overall standard of living (Morduch 1995 ).

Instead of Scopus or Web of Science, which are subscription-based, Google Scholar was used as the search mechanism because it is free to use and thus more accessible. Source quality can still be maintained by referring to Scimago Journal Ranks, which relies on Scopus, and Web of Science Master Journal List, albeit manually. With the journal lists acting as a cross-check mechanism and without the need for bibliometric data, Google Scholar is deemed to be adequate for the search and review. This practice is similar to that of existing reviews (e.g. Lim and Weissmann 2023 ; Lim et al. 2021 ).

Unlike Scopus or Web of Science, which use search string, Google Scholar use search keywords.

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Appendix 1: Articles on financial planning behaviour and TPB

• NA not available, TPB theory of planned behaviour.

Appendix 2: List of articles reviewed

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Warsame, M. H. and Ireri, E. M. (2016). Does the theory of planned behaviour (TPB) matter in Sukuk investment decisions?. Journal of Behavioral and Experimental Finance 12): 93–100.

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Xiao, J.J. and Wu, G. (2008). Completing debt management plans in credit counseling: An application of the theory of planned behavior. Journal of Financial Counselling and Planning 19(2): 29–45.

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Yeo, K.H.K., Lim, W.M. & Yii, KJ. Financial planning behaviour: a systematic literature review and new theory development. J Financ Serv Mark (2023). https://doi.org/10.1057/s41264-023-00249-1

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A literature review of risk, regulation, and profitability of banks using a scientometric study

• Shailesh Rastogi 1 ,
• Arpita Sharma 1 ,
• Geetanjali Pinto 2 &
• Venkata Mrudula Bhimavarapu   ORCID: orcid.org/0000-0002-9757-1904 1 , 3  

Future Business Journal volume  8 , Article number:  28 ( 2022 ) Cite this article

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Metrics details

This study presents a systematic literature review of regulation, profitability, and risk in the banking industry and explores the relationship between them. It proposes a policy initiative using a model that offers guidelines to establish the right mix among these variables. This is a systematic literature review study. Firstly, the necessary data are extracted using the relevant keywords from the Scopus database. The initial search results are then narrowed down, and the refined results are stored in a file. This file is finally used for data analysis. Data analysis is done using scientometrics tools, such as Table2net and Sciences cape software, and Gephi to conduct network, citation analysis, and page rank analysis. Additionally, content analysis of the relevant literature is done to construct a theoretical framework. The study identifies the prominent authors, keywords, and journals that researchers can use to understand the publication pattern in banking and the link between bank regulation, performance, and risk. It also finds that concentration banking, market power, large banks, and less competition significantly affect banks’ financial stability, profitability, and risk. Ownership structure and its impact on the performance of banks need to be investigated but have been inadequately explored in this study. This is an organized literature review exploring the relationship between regulation and bank performance. The limitations of the regulations and the importance of concentration banking are part of the findings.

Introduction

Globally, banks are under extreme pressure to enhance their performance and risk management. The financial industry still recalls the ignoble 2008 World Financial Crisis (WFC) as the worst economic disaster after the Great Depression of 1929. The regulatory mechanism before 2008 (mainly Basel II) was strongly criticized for its failure to address banks’ risks [ 47 , 87 ]. Thus, it is essential to investigate the regulation of banks [ 75 ]. This study systematically reviews the relevant literature on banks’ performance and risk management and proposes a probable solution.

Issues of performance and risk management of banks

Banks have always been hailed as engines of economic growth and have been the axis of the development of financial systems [ 70 , 85 ]. A vital parameter of a bank’s financial health is the volume of its non-performing assets (NPAs) on its balance sheet. NPAs are advances that delay in payment of interest or principal beyond a few quarters [ 108 , 118 ]. According to Ghosh [ 51 ], NPAs negatively affect the liquidity and profitability of banks, thus affecting credit growth and leading to financial instability in the economy. Hence, healthy banks translate into a healthy economy.

Despite regulations, such as high capital buffers and liquidity ratio requirements, during the second decade of the twenty-first century, the Indian banking sector still witnessed a substantial increase in NPAs. A recent report by the Indian central bank indicates that the gross NPA ratio reached an all-time peak of 11% in March 2018 and 12.2% in March 2019 [ 49 ]. Basel II has been criticized for several reasons [ 98 ]. Schwerter [ 116 ] and Pakravan [ 98 ] highlighted the systemic risk and gaps in Basel II, which could not address the systemic risk of WFC 2008. Basel III was designed to close the gaps in Basel II. However, Schwerter [ 116 ] criticized Basel III and suggested that more focus should have been on active risk management practices to avoid any impending financial crisis. Basel III was proposed to solve these issues, but it could not [ 3 , 116 ]. Samitas and Polyzos [ 113 ] found that Basel III had made banking challenging since it had reduced liquidity and failed to shield the contagion effect. Therefore, exploring some solutions to establish the right balance between regulation, performance, and risk management of banks is vital.

Keeley [ 67 ] introduced the idea of a balance among banks’ profitability, regulation, and NPA (risk-taking). This study presents the balancing act of profitability, regulation, and NPA (risk-taking) of banks as a probable solution to the issues of bank performance and risk management and calls it a triad . Figure  1 illustrates the concept of a triad. Several authors have discussed the triad in parts [ 32 , 96 , 110 , 112 ]. Triad was empirically tested in different countries by Agoraki et al. [ 1 ]. Though the idea of a triad is quite old, it is relevant in the current scenario. The spirit of the triad strongly and collectively admonishes the Basel Accord and exhibits new and exhaustive measures to take up and solve the issue of performance and risk management in banks [ 16 , 98 ]. The 2008 WFC may have caused an imbalance among profitability, regulation, and risk-taking of banks [ 57 ]. Less regulation , more competition (less profitability ), and incentive to take the risk were the cornerstones of the 2008 WFC [ 56 ]. Achieving a balance among the three elements of a triad is a real challenge for banks’ performance and risk management, which this study addresses.

Triad of Profitability, regulation, and NPA (risk-taking). Note The triad [ 131 ] of profitability, regulation, and NPA (risk-taking) is shown in Fig.  1

Triki et al. [ 130 ] revealed that a bank’s performance is a trade-off between the elements of the triad. Reduction in competition increases the profitability of banks. However, in the long run, reduction in competition leads to either the success or failure of banks. Flexible but well-expressed regulation and less competition add value to a bank’s performance. The current review paper is an attempt to explore the literature on this triad of bank performance, regulation, and risk management. This paper has the following objectives:

To systematically explore the existing literature on the triad: performance, regulation, and risk management of banks; and

To propose a model for effective bank performance and risk management of banks.

Literature is replete with discussion across the world on the triad. However, there is a lack of acceptance of the triad as a solution to the woes of bank performance and risk management. Therefore, the findings of the current papers significantly contribute to this regard. This paper collates all the previous studies on the triad systematically and presents a curated view to facilitate the policy makers and stakeholders to make more informed decisions on the issue of bank performance and risk management. This paper also contributes significantly by proposing a DBS (differential banking system) model to solve the problem of banks (Fig.  7 ). This paper examines studies worldwide and therefore ensures the wider applicability of its findings. Applicability of the DBS model is not only limited to one nation but can also be implemented worldwide. To the best of the authors’ knowledge, this is the first study to systematically evaluate the publication pattern in banking using a blend of scientometrics analysis tools, network analysis tools, and content analysis to understand the link between bank regulation, performance, and risk.

This paper is divided into five sections. “ Data and research methods ” section discusses the research methodology used for the study. The data analysis for this study is presented in two parts. “ Bibliometric and network analysis ” section presents the results obtained using bibliometric and network analysis tools, followed by “ Content Analysis ” section, which presents the content analysis of the selected literature. “ Discussion of the findings ” section discusses the results and explains the study’s conclusion, followed by limitations and scope for further research.

Data and research methods

A literature review is a systematic, reproducible, and explicit way of identifying, evaluating, and synthesizing relevant research produced and published by researchers [ 50 , 100 ]. Analyzing existing literature helps researchers generate new themes and ideas to justify the contribution made to literature. The knowledge obtained through evidence-based research also improves decision-making leading to better practical implementation in the real corporate world [ 100 , 129 ].

As Kumar et al. [ 77 , 78 ] and Rowley and Slack [ 111 ] recommended conducting an SLR, this study also employs a three-step approach to understand the publication pattern in the banking area and establish a link between bank performance, regulation, and risk.

Determining the appropriate keywords for exploring the data

Many databases such as Google Scholar, Web of Science, and Scopus are available to extract the relevant data. The quality of a publication is associated with listing a journal in a database. Scopus is a quality database as it has a wider coverage of data [ 100 , 137 ]. Hence, this study uses the Scopus database to extract the relevant data.

For conducting an SLR, there is a need to determine the most appropriate keywords to be used in the database search engine [ 26 ]. Since this study seeks to explore a link between regulation, performance, and risk management of banks, the keywords used were “risk,” “regulation,” “profitability,” “bank,” and “banking.”

Initial search results and limiting criteria

Using the keywords identified in step 1, the search for relevant literature was conducted in December 2020 in the Scopus database. This resulted in the search of 4525 documents from inception till December 2020. Further, we limited our search to include “article” publications only and included subject areas: “Economics, Econometrics and Finance,” “Business, Management and Accounting,” and “Social sciences” only. This resulted in a final search result of 3457 articles. These results were stored in a.csv file which is then used as an input to conduct the SLR.

Data analysis tools and techniques

This study uses bibliometric and network analysis tools to understand the publication pattern in the area of research [ 13 , 48 , 100 , 122 , 129 , 134 ]. Some sub-analyses of network analysis are keyword word, author, citation, and page rank analysis. Author analysis explains the author’s contribution to literature or research collaboration, national and international [ 59 , 99 ]. Citation analysis focuses on many researchers’ most cited research articles [ 100 , 102 , 131 ].

The.csv file consists of all bibliometric data for 3457 articles. Gephi and other scientometrics tools, such as Table2net and ScienceScape software, were used for the network analysis. This.csv file is directly used as an input for this software to obtain network diagrams for better data visualization [ 77 ]. To ensure the study’s quality, the articles with 50 or more citations (216 in number) are selected for content analysis [ 53 , 102 ]. The contents of these 216 articles are analyzed to develop a conceptual model of banks’ triad of risk, regulation, and profitability. Figure  2 explains the data retrieval process for SLR.

Data retrieval process for SLR. Note Stepwise SLR process and corresponding results obtained

Bibliometric and network analysis

Figure  3 [ 58 ] depicts the total number of studies that have been published on “risk,” “regulation,” “profitability,” “bank,” and “banking.” Figure  3 also depicts the pattern of the quality of the publications from the beginning till 2020. It undoubtedly shows an increasing trend in the number of articles published in the area of the triad: “risk” regulation” and “profitability.” Moreover, out of the 3457 articles published in the said area, 2098 were published recently in the last five years and contribute to 61% of total publications in this area.

Articles published from 1976 till 2020 . Note The graph shows the number of documents published from 1976 till 2020 obtained from the Scopus database

Source of publications

A total of 160 journals have contributed to the publication of 3457 articles extracted from Scopus on the triad of risk, regulation, and profitability. Table 1 shows the top 10 sources of the publications based on the citation measure. Table 1 considers two sets of data. One data set is the universe of 3457 articles, and another is the set of 216 articles used for content analysis along with their corresponding citations. The global citations are considered for the study from the Scopus dataset, and the local citations are considered for the articles in the nodes [ 53 , 135 ]. The top 10 journals with 50 or more citations resulted in 96 articles. This is almost 45% of the literature used for content analysis ( n  = 216). Table 1 also shows that the Journal of Banking and Finance is the most prominent in terms of the number of publications and citations. It has 46 articles published, which is about 21% of the literature used for content analysis. Table 1 also shows these core journals’ SCImago Journal Rank indicator and H index. SCImago Journal Rank indicator reflects the impact and prestige of the Journal. This indicator is calculated as the previous three years’ weighted average of the number of citations in the Journal since the year that the article was published. The h index is the number of articles (h) published in a journal and received at least h. The number explains the scientific impact and the scientific productivity of the Journal. Table 1 also explains the time span of the journals covering articles in the area of the triad of risk, regulation, and profitability [ 7 ].

Figure  4 depicts the network analysis, where the connections between the authors and source title (journals) are made. The network has 674 nodes and 911 edges. The network between the author and Journal is classified into 36 modularities. Sections of the graph with dense connections indicate high modularity. A modularity algorithm is a design that measures how strong the divided networks are grouped into modules; this means how well the nodes are connected through a denser route relative to other networks.

Network analysis between authors and journals. Note A node size explains the more linked authors to a journal

The size of the nodes is based on the rank of the degree. The degree explains the number of connections or edges linked to a node. In the current graph, a node represents the name of the Journal and authors; they are connected through the edges. Therefore, the more the authors are associated with the Journal, the higher the degree. The algorithm used for the layout is Yifan Hu’s.

Many authors are associated with the Journal of Banking and Finance, Journal of Accounting and Economics, Journal of Financial Economics, Journal of Financial Services Research, and Journal of Business Ethics. Therefore, they are the most relevant journals on banks’ risk, regulation, and profitability.

Location and affiliation analysis

Affiliation analysis helps to identify the top contributing countries and universities. Figure  5 shows the countries across the globe where articles have been published in the triad. The size of the circle in the map indicates the number of articles published in that country. Table 2 provides the details of the top contributing organizations.

Location of articles published on Triad of profitability, regulation, and risk

Figure  5 shows that the most significant number of articles is published in the USA, followed by the UK. Malaysia and China have also contributed many articles in this area. Table 2 shows that the top contributing universities are also from Malaysia, the UK, and the USA.

Key author analysis

Table 3 shows the number of articles written by the authors out of the 3457 articles. The table also shows the top 10 authors of bank risk, regulation, and profitability.

Fadzlan Sufian, affiliated with the Universiti Islam Malaysia, has the maximum number, with 33 articles. Philip Molyneux and M. Kabir Hassan are from the University of Sharjah and the University of New Orleans, respectively; they contributed significantly, with 20 and 18 articles, respectively.

However, when the quality of the article is selected based on 50 or more citations, Fadzlan Sufian has only 3 articles with more than 50 citations. At the same time, Philip Molyneux and Allen Berger contributed more quality articles, with 8 and 11 articles, respectively.

Keyword analysis

Table 4 shows the keyword analysis (times they appeared in the articles). The top 10 keywords are listed in Table 4 . Banking and banks appeared 324 and 194 times, respectively, which forms the scope of this study, covering articles from the beginning till 2020. The keyword analysis helps to determine the factors affecting banks, such as profitability (244), efficiency (129), performance (107, corporate governance (153), risk (90), and regulation (89).

The keywords also show that efficiency through data envelopment analysis is a determinant of the performance of banks. The other significant determinants that appeared as keywords are credit risk (73), competition (70), financial stability (69), ownership structure (57), capital (56), corporate social responsibility (56), liquidity (46), diversification (45), sustainability (44), credit provision (41), economic growth (41), capital structure (39), microfinance (39), Basel III (37), non-performing assets (37), cost efficiency (30), lending behavior (30), interest rate (29), mergers and acquisition (28), capital adequacy (26), developing countries (23), net interest margin (23), board of directors (21), disclosure (21), leverage (21), productivity (20), innovation (18), firm size (16), and firm value (16).

Keyword analysis also shows the theories of banking and their determinants. Some of the theories are agency theory (23), information asymmetry (21), moral hazard (17), and market efficiency (16), which can be used by researchers when building a theory. The analysis also helps to determine the methodology that was used in the published articles; some of them are data envelopment analysis (89), which measures technical efficiency, panel data analysis (61), DEA (32), Z scores (27), regression analysis (23), stochastic frontier analysis (20), event study (15), and literature review (15). The count for literature review is only 15, which confirms that very few studies have conducted an SLR on bank risk, regulation, and profitability.

Citation analysis

One of the parameters used in judging the quality of the article is its “citation.” Table 5 shows the top 10 published articles with the highest number of citations. Ding and Cronin [ 44 ] indicated that the popularity of an article depends on the number of times it has been cited.

Tahamtan et al. [ 126 ] explained that the journal’s quality also affects its published articles’ citations. A quality journal will have a high impact factor and, therefore, more citations. The citation analysis helps researchers to identify seminal articles. The title of an article with 5900 citations is “A survey of corporate governance.”

Page Rank analysis

Goyal and Kumar [ 53 ] explain that the citation analysis indicates the ‘popularity’ and ‘prestige’ of the published research article. Apart from the citation analysis, one more analysis is essential: Page rank analysis. PageRank is given by Page et al. [ 97 ]. The impact of an article can be measured with one indicator called PageRank [ 135 ]. Page rank analysis indicates how many times an article is cited by other highly cited articles. The method helps analyze the web pages, which get the priority during any search done on google. The analysis helps in understanding the citation networks. Equation  1 explains the page rank (PR) of a published paper, N refers to the number of articles.

T 1,… T n indicates the paper, which refers paper P . C ( Ti ) indicates the number of citations. The damping factor is denoted by a “ d ” which varies in the range of 0 and 1. The page rank of all the papers is equal to 1. Table 6 shows the top papers based on page rank. Tables 5 and 6 together show a contrast in the top ranked articles based on citations and page rank, respectively. Only one article “A survey of corporate governance” falls under the prestigious articles based on the page rank.

Content analysis

Content Analysis is a research technique for conducting qualitative and quantitative analyses [ 124 ]. The content analysis is a helpful technique that provides the required information in classifying the articles depending on their nature (empirical or conceptual) [ 76 ]. By adopting the content analysis method [ 53 , 102 ], the selected articles are examined to determine their content. The classification of available content from the selected set of sample articles that are categorized under different subheads. The themes identified in the relationship between banking regulation, risk, and profitability are as follows.

Regulation and profitability of banks

The performance indicators of the banking industry have always been a topic of interest to researchers and practitioners. This area of research has assumed a special interest after the 2008 WFC [ 25 , 51 , 86 , 114 , 127 , 132 ]. According to research, the causes of poor performance and risk management are lousy banking practices, ineffective monitoring, inadequate supervision, and weak regulatory mechanisms [ 94 ]. Increased competition, deregulation, and complex financial instruments have made banks, including Indian banks, more vulnerable to risks [ 18 , 93 , 119 , 123 ]. Hence, it is essential to investigate the present regulatory machinery for the performance of banks.

There are two schools of thought on regulation and its possible impact on profitability. The first asserts that regulation does not affect profitability. The second asserts that regulation adds significant value to banks’ profitability and other performance indicators. This supports the concept that Delis et al. [ 41 ] advocated that the capital adequacy requirement and supervisory power do not affect productivity or profitability unless there is a financial crisis. Laeven and Majnoni [ 81 ] insisted that provision for loan loss should be part of capital requirements. This will significantly improve active risk management practices and ensure banks’ profitability.

Lee and Hsieh [ 83 ] proposed ambiguous findings that do not support either school of thought. According to Nguyen and Nghiem [ 95 ], while regulation is beneficial, it has a negative impact on bank profitability. As a result, when proposing regulations, it is critical to consider bank performance and risk management. According to Erfani and Vasigh [ 46 ], Islamic banks maintained their efficiency between 2006 and 2013, while most commercial banks lost, furthermore claimed that the financial crisis had no significant impact on Islamic bank profitability.

Regulation and NPA (risk-taking of banks)

The regulatory mechanism of banks in any country must address the following issues: capital adequacy ratio, prudent provisioning, concentration banking, the ownership structure of banks, market discipline, regulatory devices, presence of foreign capital, bank competition, official supervisory power, independence of supervisory bodies, private monitoring, and NPAs [ 25 ].

Kanoujiya et al. [ 64 ] revealed through empirical evidence that Indian bank regulations lack a proper understanding of what banks require and propose reforming and transforming regulation in Indian banks so that responsive governance and regulation can occur to make banks safer, supported by Rastogi et al. [ 105 ]. The positive impact of regulation on NPAs is widely discussed in the literature. [ 94 ] argue that regulation has multiple effects on banks, including reducing NPAs. The influence is more powerful if the country’s banking system is fragile. Regulation, particularly capital regulation, is extremely effective in reducing risk-taking in banks [ 103 ].

Rastogi and Kanoujiya [ 106 ] discovered evidence that disclosure regulations do not affect the profitability of Indian banks, supported by Karyani et al. [ 65 ] for the banks located in Asia. Furthermore, Rastogi and Kanoujiya [ 106 ] explain that disclosure is a difficult task as a regulatory requirement. It is less sustainable due to the nature of the imposed regulations in banks and may thus be perceived as a burden and may be overcome by realizing the benefits associated with disclosure regulation [ 31 , 54 , 101 ]. Zheng et al. [ 138 ] empirically discovered that regulation has no impact on the banks’ profitability in Bangladesh.

Governments enforce banking regulations to achieve a stable and efficient financial system [ 20 , 94 ]. The existing literature is inconclusive on the effects of regulatory compliance on banks’ risks or the reduction of NPAs [ 10 , 11 ]. Boudriga et al. [ 25 ] concluded that the regulatory mechanism plays an insignificant role in reducing NPAs. This is especially true in weak institutions, which are susceptible to corruption. Gonzalez [ 52 ] reported that firm regulations have a positive relationship with banks’ risk-taking, increasing the probability of NPAs. However, Boudriga et al. [ 25 ], Samitas and Polyzos [ 113 ], and Allen et al. [ 3 ] strongly oppose the use of regulation as a tool to reduce banks’ risk-taking.

Kwan and Laderman [ 79 ] proposed three levels in regulating banks, which are lax, liberal, and strict. The liberal regulatory framework leads to more diversification in banks. By contrast, the strict regulatory framework forces the banks to take inappropriate risks to compensate for the loss of business; this is a global problem [ 73 ].

Capital regulation reduces banks’ risk-taking [ 103 , 110 ]. Capital regulation leads to cost escalation, but the benefits outweigh the cost [ 103 ]. The trade-off is worth striking. Altman Z score is used to predict banks’ bankruptcy, and it found that the regulation increased the Altman’s Z-score [ 4 , 46 , 63 , 68 , 72 , 120 ]. Jin et al. [ 62 ] report a negative relationship between regulation and banks’ risk-taking. Capital requirements empowered regulators, and competition significantly reduced banks’ risk-taking [ 1 , 122 ]. Capital regulation has a limited impact on banks’ risk-taking [ 90 , 103 ].

Maji and De [ 90 ] suggested that human capital is more effective in managing banks’ credit risks. Besanko and Kanatas [ 21 ] highlighted that regulation on capital requirements might not mitigate risks in all scenarios, especially when recapitalization has been enforced. Klomp and De Haan [ 72 ] proposed that capital requirements and supervision substantially reduce banks’ risks.

A third-party audit may impart more legitimacy to the banking system [ 23 ]. The absence of third-party intervention is conspicuous, and this may raise a doubt about the reliability and effectiveness of the impact of regulation on bank’s risk-taking.

NPA (risk-taking) in banks and profitability

Profitability affects NPAs, and NPAs, in turn, affect profitability. According to the bad management hypothesis [ 17 ], higher profits would negatively affect NPAs. By contrast, higher profits may lead management to resort to a liberal credit policy (high earnings), which may eventually lead to higher NPAs [ 104 ].

Balasubramaniam [ 8 ] demonstrated that NPA has double negative effects on banks. NPAs increase stressed assets, reducing banks’ productive assets [ 92 , 117 , 136 ]. This phenomenon is relatively underexplored and therefore renders itself for future research.

Triad and the performance of banks

Regulation and triad.

Regulations and their impact on banks have been a matter of debate for a long time. Barth et al. [ 12 ] demonstrated that countries with a central bank as the sole regulatory body are prone to high NPAs. Although countries with multiple regulatory bodies have high liquidity risks, they have low capital requirements [ 40 ]. Barth et al. [ 12 ] supported the following steps to rationalize the existing regulatory mechanism on banks: (1) mandatory information [ 22 ], (2) empowered management of banks, and (3) increased incentive for private agents to exert corporate control. They show that profitability has an inverse relationship with banks’ risk-taking [ 114 ]. Therefore, standard regulatory practices, such as capital requirements, are not beneficial. However, small domestic banks benefit from capital restrictions.

DeYoung and Jang [ 43 ] showed that Basel III-based policies of liquidity convergence ratio (LCR) and net stable funding ratio (NSFR) are not fully executed across the globe, including the US. Dahir et al. [ 39 ] found that a decrease in liquidity and funding increases banks’ risk-taking, making banks vulnerable and reducing stability. Therefore, any regulation on liquidity risk is more likely to create problems for banks.

Concentration banking and triad

Kiran and Jones [ 71 ] asserted that large banks are marginally affected by NPAs, whereas small banks are significantly affected by high NPAs. They added a new dimension to NPAs and their impact on profitability: concentration banking or banks’ market power. Market power leads to less cost and more profitability, which can easily counter the adverse impact of NPAs on profitability [ 6 , 15 ].

The connection between the huge volume of research on the performance of banks and competition is the underlying concept of market power. Competition reduces market power, whereas concentration banking increases market power [ 25 ]. Concentration banking reduces competition, increases market power, rationalizes the banks’ risk-taking, and ensures profitability.

Tabak et al. [ 125 ] advocated that market power incentivizes banks to become risk-averse, leading to lower costs and high profits. They explained that an increase in market power reduces the risk-taking requirement of banks. Reducing banks’ risks due to market power significantly increases when capital regulation is executed objectively. Ariss [ 6 ] suggested that increased market power decreases competition, and thus, NPAs reduce, leading to increased banks’ stability.

Competition, the performance of banks, and triad

Boyd and De Nicolo [ 27 ] supported that competition and concentration banking are inversely related, whereas competition increases risk, and concentration banking decreases risk. A mere shift toward concentration banking can lead to risk rationalization. This finding has significant policy implications. Risk reduction can also be achieved through stringent regulations. Bolt and Tieman [ 24 ] explained that stringent regulation coupled with intense competition does more harm than good, especially concerning banks’ risk-taking.

Market deregulation, as well as intensifying competition, would reduce the market power of large banks. Thus, the entire banking system might take inappropriate and irrational risks [ 112 ]. Maji and Hazarika [ 91 ] added more confusion to the existing policy by proposing that, often, there is no relationship between capital regulation and banks’ risk-taking. However, some cases have reported a positive relationship. This implies that banks’ risk-taking is neutral to regulation or leads to increased risk. Furthermore, Maji and Hazarika [ 91 ] revealed that competition reduces banks’ risk-taking, contrary to popular belief.

Claessens and Laeven [ 36 ] posited that concentration banking influences competition. However, this competition exists only within the restricted circle of banks, which are part of concentration banking. Kasman and Kasman [ 66 ] found that low concentration banking increases banks’ stability. However, they were silent on the impact of low concentration banking on banks’ risk-taking. Baselga-Pascual et al. [ 14 ] endorsed the earlier findings that concentration banking reduces banks’ risk-taking.

Concentration banking and competition are inversely related because of the inherent design of concentration banking. Market power increases when only a few large banks are operating; thus, reduced competition is an obvious outcome. Barra and Zotti [ 9 ] supported the idea that market power, coupled with competition between the given players, injects financial stability into banks. Market power and concentration banking affect each other. Therefore, concentration banking with a moderate level of regulation, instead of indiscriminate regulation, would serve the purpose better. Baselga-Pascual et al. [ 14 ] also showed that concentration banking addresses banks’ risk-taking.

Schaeck et al. [ 115 ], in a landmark study, presented that concentration banking and competition reduce banks’ risk-taking. However, they did not address the relationship between concentration banking and competition, which are usually inversely related. This could be a subject for future research. Research on the relationship between concentration banking and competition is scant, identified as a research gap (“ Research Implications of the study ” section).

Transparency, corporate governance, and triad

One of the big problems with NPAs is the lack of transparency in both the regulatory bodies and banks [ 25 ]. Boudriga et al. [ 25 ] preferred to view NPAs as a governance issue and thus, recommended viewing it from a governance perspective. Ahmad and Ariff [ 2 ] concluded that regulatory capital and top-management quality determine banks’ credit risk. Furthermore, they asserted that credit risk in emerging economies is higher than that of developed economies.

Bad management practices and moral vulnerabilities are the key determinants of insolvency risks of Indian banks [ 95 ]. Banks are an integral part of the economy and engines of social growth. Therefore, banks enjoy liberal insolvency protection in India, especially public sector banks, which is a critical issue. Such a benevolent insolvency cover encourages a bank to be indifferent to its capital requirements. This indifference takes its toll on insolvency risk and profit efficiency. Insolvency protection makes the bank operationally inefficient and complacent.

Foreign equity and corporate governance practices help manage the adverse impact of banks’ risk-taking to ensure the profitability and stability of banks [ 33 , 34 ]. Eastburn and Sharland [ 45 ] advocated that sound management and a risk management system that can anticipate any impending risk are essential. A pragmatic risk mechanism should replace the existing conceptual risk management system.

Lo [ 87 ] found and advocated that the existing legislation and regulations are outdated. He insisted on a new perspective and asserted that giving equal importance to behavioral aspects and the rational expectations of customers of banks is vital. Buston [ 29 ] critiqued the balance sheet risk management practices prevailing globally. He proposed active risk management practices that provided risk protection measures to contain banks’ liquidity and solvency risks.

Klomp and De Haan [ 72 ] championed the cause of giving more autonomy to central banks of countries to provide stability in the banking system. Louzis et al. [ 88 ] showed that macroeconomic variables and the quality of bank management determine banks’ level of NPAs. Regulatory authorities are striving hard to make regulatory frameworks more structured and stringent. However, the recent increase in loan defaults (NPAs), scams, frauds, and cyber-attacks raise concerns about the effectiveness [ 19 ] of the existing banking regulations in India as well as globally.

Discussion of the findings

The findings of this study are based on the bibliometric and content analysis of the sample published articles.

The bibliometric study concludes that there is a growing demand for researchers and good quality research

The keyword analysis suggests that risk regulation, competition, profitability, and performance are key elements in understanding the banking system. The main authors, keywords, and journals are grouped in a Sankey diagram in Fig.  6 . Researchers can use the following information to understand the publication pattern on banking and its determinants.

Sankey Diagram of main authors, keywords, and journals. Note Authors contribution using scientometrics tools

Research Implications of the study

The study also concludes that a balance among the three components of triad is the solution to the challenges of banks worldwide, including India. We propose the following recommendations and implications for banks:

This study found that “the lesser the better,” that is, less regulation enhances the performance and risk management of banks. However, less regulation does not imply the absence of regulation. Less regulation means the following:

Flexible but full enforcement of the regulations

Customization, instead of a one-size-fits-all regulatory system rooted in a nation’s indigenous requirements, is needed. Basel or generic regulation can never achieve what a customized compliance system can.

A third-party audit, which is above the country's central bank, should be mandatory, and this would ensure that all three aspects of audit (policy formulation, execution, and audit) are handled by different entities.

Competition

This study asserts that the existing literature is replete with poor performance and risk management due to excessive competition. Banking is an industry of a different genre, and it would be unfair to compare it with the fast-moving consumer goods (FMCG) or telecommunication industry, where competition injects efficiency into the system, leading to customer empowerment and satisfaction. By contrast, competition is a deterrent to the basic tenets of safe banking. Concentration banking is more effective in handling the multi-pronged balance between the elements of the triad. Concentration banking reduces competition to lower and manageable levels, reduces banks’ risk-taking, and enhances profitability.

No incentive to take risks

It is found that unless banks’ risk-taking is discouraged, the problem of high NPA (risk-taking) cannot be addressed. Concentration banking is a disincentive to risk-taking and can be a game-changer in handling banks’ performance and risk management.

Research on the risk and performance of banks reveals that the existing regulatory and policy arrangement is not a sustainable proposition, especially for a country where half of the people are unbanked [ 37 ]. Further, the triad presented by Keeley [ 67 ] is a formidable real challenge to bankers. The balance among profitability, risk-taking, and regulation is very subtle and becomes harder to strike, just as the banks globally have tried hard to achieve it. A pragmatic intervention is needed; hence, this study proposes a change in the banking structure by having two types of banks functioning simultaneously to solve the problems of risk and performance of banks. The proposed two-tier banking system explained in Fig.  7 can be a great solution. This arrangement will help achieve the much-needed balance among the elements of triad as presented by Keeley [ 67 ].

Conceptual Framework. Note Fig.  7 describes the conceptual framework of the study

The first set of banks could be conventional in terms of their structure and should primarily be large-sized. The number of such banks should be moderate. There is a logic in having only a few such banks to restrict competition; thus, reasonable market power could be assigned to them [ 55 ]. However, a reduction in competition cannot be over-assumed, and banks cannot become complacent. As customary, lending would be the main source of revenue and income for these banks (fund based activities) [ 82 ]. The proposed two-tier system can be successful only when regulation especially for risk is objectively executed [ 29 ]. The second set of banks could be smaller in size and more in number. Since they are more in number, they would encounter intense competition for survival and for generating more business. Small is beautiful, and thus, this set of banks would be more agile and adaptable and consequently more efficient and profitable. The main source of revenue for this set of banks would not be loans and advances. However, non-funding and non-interest-bearing activities would be the major revenue source. Unlike their traditional and large-sized counterparts, since these banks are smaller in size, they are less likely to face risk-taking and NPAs [ 74 ].

Sarmiento and Galán [ 114 ] presented the concerns of large and small banks and their relative ability and appetite for risk-taking. High risk could threaten the existence of small-sized banks; thus, they need robust risk shielding. Small size makes them prone to failure, and they cannot convert their risk into profitability. However, large banks benefit from their size and are thus less vulnerable and can convert risk into profitable opportunities.

India has experimented with this Differential Banking System (DBS) (two-tier system) only at the policy planning level. The execution is impending, and it highly depends on the political will, which does not appear to be strong now. The current agenda behind the DBS model is not to ensure the long-term sustainability of banks. However, it is currently being directed to support the agenda of financial inclusion by extending the formal credit system to the unbanked masses [ 107 ]. A shift in goal is needed to employ the DBS as a strategic decision, but not merely a tool for financial inclusion. Thus, the proposed two-tier banking system (DBS) can solve the issue of profitability through proper regulation and less risk-taking.

The findings of Triki et al. [ 130 ] support the proposed DBS model, in this study. Triki et al. [ 130 ] advocated that different component of regulations affect banks based on their size, risk-taking, and concentration banking (or market power). Large size, more concentration banking with high market power, and high risk-taking coupled with stringent regulation make the most efficient banks in African countries. Sharifi et al. [ 119 ] confirmed that size advantage offers better risk management to large banks than small banks. The banks should modify and work according to the economic environment in the country [ 69 ], and therefore, the proposed model could help in solving the current economic problems.

This is a fact that DBS is running across the world, including in India [ 60 ] and other countries [ 133 ]. India experimented with DBS in the form of not only regional rural banks (RRBs) but payments banks [ 109 ] and small finance banks as well [ 61 ]. However, the purpose of all the existing DBS models, whether RRBs [ 60 ], payment banks, or small finance banks, is financial inclusion, not bank performance and risk management. Hence, they are unable to sustain and are failing because their model is only social instead of a much-needed dual business-cum-social model. The two-tier model of DBS proposed in the current paper can help serve the dual purpose. It may not only be able to ensure bank performance and risk management but also serve the purpose of inclusive growth of the economy.

Conclusion of the study

The study’s conclusions have some significant ramifications. This study can assist researchers in determining their study plan on the current topic by using a scientific approach. Citation analysis has aided in the objective identification of essential papers and scholars. More collaboration between authors from various countries/universities may help countries/universities better understand risk regulation, competition, profitability, and performance, which are critical elements in understanding the banking system. The regulatory mechanism in place prior to 2008 failed to address the risk associated with banks [ 47 , 87 ]. There arises a necessity and motivates authors to investigate the current topic. The present study systematically explores the existing literature on banks’ triad: performance, regulation, and risk management and proposes a probable solution.

To conclude the bibliometric results obtained from the current study, from the number of articles published from 1976 to 2020, it is evident that most of the articles were published from the year 2010, and the highest number of articles were published in the last five years, i.e., is from 2015. The authors discovered that researchers evaluate articles based on the scope of critical journals within the subject area based on the detailed review. Most risk, regulation, and profitability articles are published in peer-reviewed journals like; “Journal of Banking and Finance,” “Journal of Accounting and Economics,” and “Journal of Financial Economics.” The rest of the journals are presented in Table 1 . From the affiliation statistics, it is clear that most of the research conducted was affiliated with developed countries such as Malaysia, the USA, and the UK. The researchers perform content analysis and Citation analysis to access the type of content where the research on the current field of knowledge is focused, and citation analysis helps the academicians understand the highest cited articles that have more impact in the current research area.

Practical implications of the study

The current study is unique in that it is the first to systematically evaluate the publication pattern in banking using a combination of scientometrics analysis tools, network analysis tools, and content analysis to understand the relationship between bank regulation, performance, and risk. The study’s practical implications are that analyzing existing literature helps researchers generate new themes and ideas to justify their contribution to literature. Evidence-based research knowledge also improves decision-making, resulting in better practical implementation in the real corporate world [ 100 , 129 ].

Limitations and scope for future research

The current study only considers a single database Scopus to conduct the study, and this is one of the limitations of the study spanning around the multiple databases can provide diverse results. The proposed DBS model is a conceptual framework that requires empirical testing, which is a limitation of this study. As a result, empirical testing of the proposed DBS model could be a future research topic.

Availability of data and materials

SCOPUS database.

Abbreviations

Systematic literature review

World Financial Crisis

Non-performing assets

Differential banking system

SCImago Journal Rank Indicator

Liquidity convergence ratio

Net stable funding ratio

Fast moving consumer goods

Regional rural banks

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Rastogi, S., Sharma, A., Pinto, G. et al. A literature review of risk, regulation, and profitability of banks using a scientometric study. Futur Bus J 8 , 28 (2022). https://doi.org/10.1186/s43093-022-00146-4

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Link between Financial Management Behaviours and Quality of Relationship and Overall Life Satisfaction among Married and Cohabiting Couples: Insights from Application of Artificial Neural Networks

Monika baryła-matejczuk.

1 Institute of Psychology and Human Sciences, University of Economics and Innovation, 20-209 Lublin, Poland; [email protected]

Viktorija Skvarciany

2 Faculty of Business Management, Vilnius Gediminas Technical University, LT-10223 Vilnius, Lithuania; [email protected]

Andrzej Cwynar

3 Institute of Public Administration, Business and Management, University of Economics and Innovation, 20-209 Lublin, Poland; [email protected] (A.C.); [email protected] (W.C.)

Wiesław Poleszak

Wiktor cwynar.

Background: To explain the link between household finances and the quality of the relationship between married or cohabitating partners and their life satisfaction, the Family Stress Model (FSM) was used and placed within the theoretical framework of the Couples and Finances Theory (CFT). Methods: The measures used to examine the relationship between partners were the Financial Management Behaviour Scale, the Marriage Questionnaire (KDM-2) adapted to a version for cohabitating couples, The Shared Goals and Values Scale, Harsh Start-up Scale, and the Satisfaction With Life Scale (SWLS). In order to find out the relationship between variables, artificial neural networks (ANN) were applied. The research was conducted on a sample of 500 couples living in Poland (384 married and 116 cohabitating couples). Results: The results indicate that overall life satisfaction is most influenced by fundamental, direct, current ways of dealing with the daily financial routine and by saving and investing behaviours. Credit management and insurance behaviours are the most important for the quality of the relationship between partners. Conclusions: The research shows that financial management behaviours have an impact on the quality of relationships as well as on the subjective well-being of people in a relationship, and their relationship dynamics. This finding may be used to highlight the psychological importance of financial management behaviours.

1. Introduction

Various aspects of intra-household financial life have become the subject of many discussions, estimates, and analyses for many researchers and practitioners around the world who are concerned with both financial and relationship issues. They indicate the need to analyse the relationship between variables related to these following two domains: financial and relationship [ 1 ]. Overall, the conclusion is that it is essential to attain an improved understanding of the significance and role of financial management in the quality and durability of the relationships of married and cohabiting couples (e.g., [ 1 , 2 , 3 , 4 , 5 , 6 ]).

An attempt to explain this link is undertaken by applying the Couples and Finances Theory (CFT) model developed by Archuleta [ 7 ]. The primary assumption of the CFT theory is that financial difficulties are related to problems in the relationship ([ 8 ] as cited in [ 9 ]). The CFT is based on ecological theory, a systemic approach to investigating relationships with the financial process in the centre (every component that cooperates in bi-directional relationships). In theory, the pair system consists of a husband and wife (H&W), their marital quality (MQ), and relationship characteristics (CRC), and the financial process comprising financial inputs (FI) and financial management practices (FMP). In this article, the CFT approach is used to help to clarify the connections between the relationship of the couple and the household financial processes [ 7 ]. Additionally, in this study, the analysis was extended to include overall life satisfaction.

Another of the proposed approaches used to explain the link between intra-household finances and the quality of a relationship is the family stress model of economic pressure and marital distress, or simply the family stress model [ 10 , 11 ]. According to this model, negative economic events lead to economic pressure, resulting in changes to the affective states and, finally, to a decline in marital quality. This theory was supported by studies conducted in the USA in the 1980s, which indicated that negative economic events were associated with an increased sense of economic pressure, which in turn, was linked to affective changes (including increased depression and hostility that increased marital distress). Furthermore, some studies have produced evidence that support through affection as well as conflict management skills, helped (indirectly) to reduce the effects of economic pressure, and increased the odds of marital quality improvement [ 10 ] ([ 12 ] as cited in [ 1 ]).

2. Literature Review

Studies led by Kerkmann, Lee, Lown, and Allgood [ 13 ] indicate that financial issues affect marital satisfaction. The authors showed that financial factors might explain 15% of marital satisfaction. However, they point out that these results should be treated with caution, as the sample consisted of young couples with a short marital relationship [ 13 ].

Other studies have drawn attention to the role played by financial arrangements, especially arguments concerning money, on marital quality. Research has shown that financial issues are an essential cause of conflict between spouses. The results obtained by Britt and Huston [ 14 ] suggest that arguments concerning money are an essential indicator of relationship satisfaction, but they do not have such a significant impact on the likelihood of divorce. However, poor financial management may harm the quality of a relationship. The consequences of bad financial management such as excessive consumer debt are related to both marital conflicts and the likelihood of divorce [ 15 ]. The results of a study by Dew and Xiao [ 11 ] suggest that financial declines are not directly related to proper financial management.

On the other hand, correct financial management is positively associated with happiness in marriages and cohabitation relationships. Furthermore, proper financial management has a direct influence on the relationship between economic pressure and relationship happiness. It also influences the relationship between financial decline and the happiness of a couple [ 11 ].

Britt, Grable, Nelson-Goff, and White [ 3 ] evaluated how the perceived own money-spending behaviours, the conduct of a partner, and the joint financial behaviour of the couple affect the degree of satisfaction experienced within relationships. The results indicated that the behaviour of the partner related to expenditures affected the degree of satisfaction derived from the relationship and the decision to stay within the relationship. Interestingly, the perceived own behaviours or common spending behaviours were not a significant factor in the quality of the relationship. Self-esteem and financial stressors were also important factors for the degree of satisfaction experienced within the relationship [ 3 ]. Archuleta, Britt, Tonn, and Grable [ 2 ] investigated the link between financial satisfaction and financial stressors and the decision of the spouse to remain married or to leave their partner. The role of demographic variables, socio-economic variables, religiosity, psychological constructs, financial satisfaction, and financial stressors as factors relevant to marital satisfaction were analysed. Religiousness and financial satisfaction were positively correlated with marital satisfaction. There was also a negative relationship between financial satisfaction and financial stressors. When the spouses experienced more financial stressors, they were also more likely to leave the marriage. The authors concluded that financially satisfied spouses were also more content with their marriages, or less willing to leave them [ 2 ].

The studies discussed above indicate the role of bad financial management as an essential stressor in relationships. Behaviours that help individuals and families to attain a more stable financial position are associated to a significant extent with a sense of satisfaction derived from the relationship [ 1 , 2 , 11 , 16 ]. Financial problems affect the ability of a couple to communicate and resolve conflicts and thus remain in a relationship. Both communication and financial resources are essential factors in understanding the causes of arguments between partners [ 17 ]. Compared to other types of marital misunderstandings, conflicts related to finances are more problematic for couples and are one of the best predictors of negative conflict tactics [ 18 ]. Contemporary research [ 19 ] provides an empirical basis for the development of a theoretical framework for understanding patterns of marital interactions and the impact of these patterns on marital satisfaction. The way in which couples communicate concerning financial matters is essential. Research shows that even though it is commonly believed that money is not the most frequently discussed problem within marriages, arguments concerning money are generally the most intense disagreements within married couples [ 19 ]. When couples engage in negative interactions, conflict resolution becomes more and more difficult, and marital satisfaction decreases.

However, when the partners share a sense of meaning within the relationship, their marital satisfaction increases. Couples who engage in discussions using criticism or sarcasm (i.e., forms of contempt for partners) tend to face disagreement/arguments more often. In other words, when one of the partners enters a discussion by blaming the other or criticizing, they get involved in sharp or harsh start-ups [ 20 ]. Archuleta [ 7 ] and Archuleta et al. [ 1 ] adopted the concept of shared goals and values from the work of Gottman [ 20 ]. Archuleta and colleagues reported that those who were more satisfied financially engaged less in harsh start-ups and had more shared goals and values. Additionally, positive discussion and shared goals and values were positively associated with relationship satisfaction [ 1 ]. Rosenblatt and Keller [ 21 ] found that couples who experienced more significant economic distress reported a greater degree of blaming behaviour within the marriage. The authors conclude that the economic problems of farm couples with greater economic vulnerability produce stress in these relationships.

There is evidence to suggest that healthy financial management is associated not only with marital satisfaction, but also with general life satisfaction (cf. [ 22 ]). It has been well documented that expressing healthy financial behaviours is positively related to overall life satisfaction [ 23 ] and emotional well-being [ 24 ]. Overall life satisfaction is often linked to the availability of financial resources [ 25 , 26 ]. On one hand, lower wages, inadequate financial management, inferior financial situation, and the general conditions associated with poverty mean that people do not have sufficient funds to pay for investments that would bring them a greater sense of satisfaction. This leads to a lower level of general life satisfaction. People who live in poverty are the most vulnerable to a sense of dissatisfaction with life. Research concerning the determinants of life satisfaction in a poor community [ 26 ] shows that for the achievement of satisfaction from life, the relevant factors include income level, employment status, or poverty status. Other studies, however, have shown that a growing income, resulting in higher purchasing power, optimism, and satisfaction, may not lead to positive changes in general life satisfaction (subjective well-being) [ 22 ].

Additionally, it has been found that excessive debt, which may arise as a result of unhealthy behaviours, is negatively linked to overall life satisfaction [ 27 , 28 ] and positively related to anxiety [ 1 ]. Tay et al. [ 29 ] indicated two channels through which debt may affect overall well-being. In the bottom-up spillover view, financial management (including credit management) may have considerable spillover effects in other life domains (e.g., the marriage-related indicators). On the other hand, from the resource perspective, debt imposes constraints on financial resources and, therefore, reduces the available stress buffer. According to the above-cited research, it seems that money is not the most discussed problem within marriages. However, given the intensity of arguments about money within marriages, we assumed that financial management behaviours are related to harsh start-ups, and to beliefs about shared goals and values (the meaning of money and how it should be used, the function of autonomy and independence, and with the hopes and aspirations for the family and future relationship goals).

The research conducted so far also indicates the role of unhealthy financial management behaviours as a significant stressor in the relationship, which is associated with perceived satisfaction within relationships. Additionally, spouses experiencing more financial stressors were also more likely to leave the marriage, and the consequences of unhealthy management are associated with both marital conflict and the likelihood of divorce. Therefore, it may be concluded that behaviours related to financial management are also directly related to the quality of the relationships built.

Finally, it has been well documented that expressing healthy financial behaviours is positively related to overall life satisfaction. The debt-related financial management dimension is of particular importance. It has been established that this is an aspect of financial life that is crucial for stress and its consequences, which may be experienced in the form of mental health problems, a lower quality of social functioning, and lower global cognitive judgments of life satisfaction.

3. Materials and Methods

3.1. financial management behaviour.

In order to examine financial management behaviour, we adopted the financial management behaviour scale (FBMS) introduced by [ 30 ]. This is the only multi-dimensional, psychometrically validated scale that has been validated in a nationally representative sample designed to date [ 30 ]. Multi-dimensionality means that the scale—as opposed to other scales present in the relevant literature—captures (as subscales) all possible domains of household financial matters: cash management, credit management, savings and investment, and insurance. The scale of [ 30 ] is based on a consensus regarding what should be deemed as healthy financial management behaviour, which is present in the household finance literature. For instance, timely repayment of credit card debt is considered to be healthy, while not saving for retirement is unhealthy. In fact, healthy financial management behaviour follows the rules of common sense. In order to obtain data concerning financial management behaviour, the respondents were required to answer the following question: ‘On a scale from 1 (never) to 5 (always) indicate how often you have engaged in the following activities in the past six months’ (see [ 30 ] for the exact wording of the items comprising the FMBS). As a result, each subscale and the aggregate FMBS can easily be interpreted: the higher the value on the scale, the more healthy the financial behaviour.

3.2. Shared Goals and Values

The Shared Goals and Values Scale [ 7 ] is a four-item measurement adapted by Archuleta derived from Gottman’s [ 31 ] Shared Meaning Roles, Shared Meaning Goals, and Shared Meaning Symbols scales that are used to assess the shared meaning of couples concerning financial goals and values, life goals, and autonomy. The responses were measured using a 7-point Likert-type scale, where 1 = strongly disagree, and 7 = strongly agree. Response scores could range from 4 to 28, with lower scores indicating a lower degree of agreement concerning life goals and values, and higher scores reflecting more agreement on these issues.

3.3. Harsh Start-Up

Harsh start-ups were measured using a scale consisting of five items. The scale was adapted from work originally published by Gottman [ 31 ] and translated into Polish. Conceptually, a harsh start-up may be viewed as the way in which couples interact; more specifically, how couples engage in the discussion process covering conflictual topics. Each of the following items was assessed dichotomously, with a true statement being assigned a score of 1 or 0. Items were reverse coded and summed into a harsh start-up index scale score so that higher scores reflected being less likely to engage in the harsh start-up.

3.4. Relationship Quality

The Well-Matched Marriage/KDM-2 questionnaire in [ 32 ] was used to measure the quality of the relationship from the perspective of four dimensions: intimacy, disappointment, self-realisation, and similarity as well as the overall result indicating overall satisfaction with the marriage/relationship. The tool has satisfactory psychometric indicators concerning research on the population of Polish marriages and couples. Cronbach’s alpha for individual sub-scales ranges from 0.81–0.89. It is the only psychometrically validated scale that has been validated in a nationally representative sample scale that has been designed in Poland to date. The KDM-2 questionnaire applies to both spouses individually and to marriages. In this research, the questionnaire was adopted to also examine cohabitation relationships and consists of 32 statements. The respondent, while answering the questions, is asked to choose one of five answers on a scale from 1 = totally disagree to 5 = totally agree.

3.5. Overall Life Satisfaction

In order to assess overall life satisfaction, the SWLS scale was used [ 33 ]. The scale contains five statements. Respondents assess to what extent each of them relates to their lives. The result of the measurement is a general indicator of a sense of life satisfaction, specifically global cognitive judgments of satisfaction with one’s life [ 34 ]. The SWLS asked the respondents to rate on a 5-point Likert-type scale (where 1 states for “strongly disagree” and 5 for “strongly agree”), the extent to which they agree with the five statements, for example, “In most ways, my life is close to my ideal”; “The conditions of my life are excellent”; and “If I would live my life over, I would change almost nothing”. Some researchers have shown [ 35 ] that self-satisfaction is an important component of life satisfaction and equates to well-being with high self-esteem. The Polish translation of SWLS has been used and has shown to have strong internal reliability.

3.6. Study Design and Sampling

The research was conducted on a sample of 500 couples living in Poland: 768 spouses and 232 cohabitants. The sample selection procedure was commissioned via a professional market and opinion research agency, DRB Research in Poland. The sample was selected using a stratified sampling technique. Specifically, the respondents were selected from different voivodeships in proportion to the number of cohabitants and marriages living therein, with control for age and education. In order to find out the relationship between financial management behaviour indicators and indicators of both marital quality and satisfaction with overall well-being, artificial neural networks (ANN) were applied. Scholars from different science fields adapted ANNs as the tool for various areas of science including social sciences. Artificial neural networks are a powerful modelling technique for indicating the relationships between variables [ 36 ].

The method of using artificial neural networks (ANNs) is based on simulating the function of the nervous system of the human brain [ 37 , 38 ]. The neurons summarise the impulses sent by independent variables by weight and then transfers the integral impulse to define a dependent variable [ 39 ]. In other words, ANN is a technique based on artificial intelligence and has advantages against more traditional approaches such as regression [ 40 , 41 ]. The first benefit is that ANNs can detect both linear and nonlinear relationships; the second, the estimation accuracy of ANNs do not depend on assumptions about the distribution of the variables [ 40 ]. These ANN characteristics are crucial for selecting this approach in determining relationships. The variables used in the study are presented in Table 1 .

Variables used in the study (designed by the authors).

The respondents had to evaluate a different number of statements in order to assess the study variables. To evaluate the statements (except harsh start-up), a 7-point Likert scale was used. In fact, the Likert scale is one of the most frequently used scales for gathering data in the social sciences [ 42 , 43 ]. The research model is presented in Figure 1 .

Analytical model (developed by the authors).

The analytical model ( Figure 1 ) seeks to investigate the relationships between financial management behaviour as represented by four variables (cash management, savings and investments, credit management, and insurance) and relationship quality, overall life satisfaction, harsh start-ups, and shared goals and values. Hence, four different models were used.

In order to test the analytical model, neural networks for four distinguished models were developed ( Figure 2 ). The number of cases used for training varied from 231 to 245, while for testing, it was from 95 to 108 (i.e., it is approximately 70/30 division in all the models, Table A1 ). The number of excluded cases was 661, which means that only fully-completed cases were used for the research. As a result, artificial neural networks were developed using 340 valid cases. In Figure 2 , the neural networks for the FMB group variables are presented.

Neural network diagrams for: ( a ) Model A; ( b ) Model B; ( c ) Model C; ( d ) Model D (designed by the authors).

As can be seen in Figure 1 , all models have three layers. The input layer is represented by the factors, namely cash management, savings and investments, credit management, and insurance and one output layer represents relationship quality in Model A, overall life satisfaction in Model B, harsh start-up in Model C, and shared goals and values in Model D. Moreover, all models include one hidden layer. It is worth mentioning that the grey lines show a positive relationship, while the blue shows negative relationships. Moreover, the thickness of the line shows the strength of the connection. The parameters of the weights for Model A are provided in Table 2 .

Parameter estimates for Model A (calculated by the authors).

All of the synaptic weights presented in Table 2 are moderate. The negative weights varied from −0.345 to −0.078, while the positive ones varied from 0.111 to 0.229, which confirms that CashMan , SavInv , CreditMan , and Ins are the variables that affect the output variable RQ . In order to find out which of the independent variables were the most influential when determining the value of an output variable, the importance of the variables was calculated. The results are presented in Table 3 .

Independent variable importance for Model A (calculated by the authors).

The importance values show that the most critical value is credit management, the second is insurance, the third is savings and investment, and the fourth is cash management. Credit management, which relates to the actions taken by households to deal with borrowed funds, is of particular importance here. Insurance-related financial behaviour is in second place in terms of affecting the quality of the relationship.

In third place, in terms of importance, we have savings and investment. Healthy financial behaviour in this dimension is also essential for assessing satisfaction within the relationship. Finally, in terms of importance for the RQs are behaviours associated with cash management. Money management, in this case, means that the couple keeps a financial record (mental or written), maintains the discipline to stay within their budgets when spending, and also engage in comparison shopping. However, the importance of the CashMan variable is quite low; hence, it may be stated that it does not have a strong connection with relationship quality. In Table 4 , the parameters of Model B are provided.

Parameter estimates for Model B (calculated by the authors).

Table 4 shows that the negative weights varied from −0.824 to −0.250, while the positive ones varied from 0.203 to 0.495. In this case, all of the relationships can be treated as moderate or strong, but despite this fact, it showed that CashMan , SavInv , CreditMan , and Ins are the variables that have connections with the dependent variable of overall life satisfaction. In order to find out which of the independent variables were the most influential when determining the value of an output variable, the importance of the variables was calculated. The results are presented in Table 5 .

Independent variable importance for Model B (calculated by the authors).

Table 5 shows that the most crucial variable that relates to couples’ overall life satisfaction is cash management (the importance was 0.424 and savings and investments was 0.248). The importance of insurance and credit management were less critical than cash management. While they were less critical, the behaviours associated with insurance and savings and investments are still significant in the assessment of overall life satisfaction. This would indicate a less critical role of behaviours related to the distant future, and the greater importance of everyday financial tasks related to household tasks.

Consequently, as in the case of relationship quality, the analysis of the relationship between financial management behaviours and overall life satisfaction also indicates a significant connection. It may be concluded that healthy financial behaviour is conducive to favourable global cognitive judgments of satisfaction with the life of a spouse. It may also be concluded that another area of life, overall well-being, is affected by how couples manage their finances.

The third model to test was Model C, in which the nature of the link between cash management, savings and investments, credit management, insurance variables, and the harsh start-up variable were tested. The parameters are denoted in Table 6 .

Parameter Estimates for Model C (calculated by the authors).

From the information presented in Table 6 , the most considerable weight was assigned to the savings and investment variable, which shows that the relationship with harsh start-up is quite strong. The importance of each of the analysed variables is summarized in Table 7 .

Independent variable importance for Model C (calculated by the authors).

It may be observed in Table 7 that savings and investments appeared to be the most crucial variable. Credit management and insurance were also essential, while cash management was not as vital as the previously mentioned variables. The results of the calculations indicate that unhealthy behaviour in the area of savings and investment, the lack of actions taken by households to deal with borrowed funds, and the lack of behaviour aimed at protecting a contingency affects engagement more in the harsh start-up.

The fourth model, Model D, was investigated in order to determine the relationship between FMB variables ( CashMan , SavInv , CreditMan , Ins ) and common goals and values ( ShareGVal ). The weights of the parameters are provided in Table 8 .

Parameter estimates for Model D (calculated by the authors).

It may be observed in Table 8 that almost all of the weights were quite strong, which means that the relationships were also strong. However, the strongest one was the credit management weight. In order to find out which of the independent variables were the most influential when determining the value of an output variable, the importance of the variables was calculated. The results are presented in Table 9 .

Independent variable importance for Model D (calculated by the authors).

Table 9 shows that the most crucial variable that relates to the shared goals and values of couples were actions taken by households to deal with borrowed funds. Insurance is in second place, while cash management and savings and investments may be treated as non-essential variables, as the importance score was very low. For the shared meaning of couples concerning financial goals and values, life goals, and autonomy, the most crucial variable was credit management. Healthy behaviour associated with this financial activity is related to everyday household tasks and it turns out to be relatively unimportant for the interactional dynamics of couples. In second place in terms of importance were the behaviours related to insurance. People engaged in maintaining or purchasing an adequate health insurance policy, property insurance, and life insurance are less likely to start a conflict (they engage less in harsh start-ups).

5. Discussion

In this article, we attempted to address the question concerning the association between and among the various financial management behaviours, the interactional dynamics of couples, their relationship satisfaction, and overall life satisfaction. The investigation of the relationship between these variables is vital from the practical perspective of developing the acquired knowledge as well as filling the gap in the literature concerning the dimensions of healthy financial management behaviour as a factor that can protect the quality of relationships and overall quality of life. Due to the growing interest in research into the area of links between financial behaviour, the stress of couples, the dynamics of their relationships, and marital/relationship satisfaction, an attempt was made to capture the relationship between three critical areas of human functioning: psychological, financial, and social. The purpose of the analysis was to broaden the knowledge of employees of marriage counselling centres, marriage and family therapists, financial management specialists, and point out that finances do not just concern money, thus highlighting the crucial role of education and teaching competencies essential for healthy financial management. Finally, it emphasises the importance of healthy financial management dimensions for the healthy functioning of relationships and overall quality of life.

In the research conducted, the direct relationship between FMB and the quality of the relationship was first analysed. The investigation carried out indicates that the ways in which couples manage their finances affect the quality of their relationships. In other words, healthy behaviours related to achieving financial and economic goals are essential to the quality of the relationships built. The results are consistent with the research conducted to date, which indicates that the quality of relationships is related to the efficiency of their financial management (cf. [ 1 , 2 , 11 , 16 ]). They also indirectly point to the approach adopted throughout the research that the financial area is the foundation of the ability to meet many needs. The results of the research conducted support the concept of the Couples and Finances Theory, which in a simplified form, states that financial difficulties are related to relationship-related problems [ 7 , 8 ]. Similar conclusions were reached by Kerkmann, Lee, Lown, and Allgood [ 13 ], indicating that financial issues affect marital satisfaction as well as Dew and Xiao [ 11 ], who demonstrated that healthy financial management is positively associated with happiness in marriages and cohabitation. Therefore, it may be concluded that financially fit people are also more stable in their marriages (cf. [ 2 ]).

Our research shows that credit management and insurance are of the most significant importance for the quality of relationships. The results obtained broaden the knowledge about aspects of financial life related to relationship satisfaction. Healthy credit management behaviour has a positive impact on the cognitive assessment of relationship quality. Therefore, it may be assumed that healthy behaviour in this area is perceived by partners as desirable and comforting (cf. [ 15 ]). Insurance, in turn, involves far-reaching goals and protecting an unfavourable contingency. Again, it may be referred to as providing a sense of security, which is one of the basic needs of an individual. People who care about having optional insurance (against serious illness, insurance of their assets, a life insurance policy) assess their relationships better. Psychologically, this can mean that we meet basic needs (like the sense of security) and other needs are based on our financial means. That is, the way of managing and satisfying one’s needs (individual and relationship needs) no longer literally depends on obtaining various goods and services, but also depends on acquiring them through the appropriate management of financial resources.

A significant result obtained in this study is the positive relationship between cash management and engaging in harsh start-up (which is one of the dimensions of relationship dynamics). The result indicates that people with healthy behaviour in this area (who compare products, pay bills on time, stick to their budget) are less likely to get involved in the harsh start-up. Since cash management concerns basic needs, satisfying them (as important ones) will always be associated with strong emotions. Intense emotions, combined with negative interaction dynamics or a lack of conflict resolution skills, can lead to a release of tension. Displaying confidence in one’s financial management competence can be a source of compensation for relationship difficulties. These are areas worth covering in subsequent studies. The relationship between financial management and individual communication skills as well as conflict resolution in pairs would require unique clarification, and it would also be interesting to include personality factors in future research.

The way in which financial management behaviour affects the interactional dynamics of couples was also analysed. It was assumed that the aspects of relationship in a heterosexual couple that are related to communication strategies and shared goals and values in these relationships would both be directly related to relationship quality. The research conducted so far indicates that financial resources and the way they are managed are essential components for understanding the causes of arguments in a relationship [ 17 ], which in turn are significant for the quality of relationships. Research shows that if a discussion in a relationship begins with a difficult start, it will inevitably end negatively. Statistics indicate that in 96 per cent of cases, the outcome of a conversation can be predicted based on the first three minutes of a 15-min interaction. A problematic start (harsh start-up) is associated with more misunderstandings and less satisfaction within the relationship [ 44 ]. Compared to other types of marital misunderstandings, financial disagreements are more problematic for couples and are one of the best predictors of conflict tactics [ 18 ]. Quarrels about money, compared to other subjects, are the most intense disagreements in marriages (cf. [ 19 ]). In turn, similar views on (a) the importance of money and how it should be used; (b) the functions of autonomy and independence; and (c) hopes and aspirations for the family, and the future goals of relationships are related to both the relationship quality and the manner of interaction within the relationship. They are also influenced by the nature of financial management [ 7 , 8 , 31 ]. It has been documented that the way in which couples start a discussion (e.g., blaming or criticising a spouse or partner, and engaging in sharp start-ups,)also indicates that the couple has relatively few common goals and values.

Money management and insurance are of the most significant importance for setting shared goals and values, but savings and investment and credit management are also crucial for the healthy functioning of the relationship. Healthy behaviour in the area of credit management, saving for long-term goals, putting money aside as a deferred payday, or putting it into a retirement account has a positive impact on avoiding quarrels. In turn, healthy cash management as well as insurance for the future has a positive impact on common goals and values. In other words, healthy financial management behaviours strengthen the common approach to financial matters and decrease the frequency of engagement in a harsh start-up.

The relationship between financial management behaviours and overall life satisfaction was subsequently analysed. In the context of well-being, the most influential are cash management and saving and investment behaviour. Once again, cash management plays a vital role in the quality of functioning, and efficient functioning in this dimension can be treated as a factor that protects life satisfaction. According to researchers in this area, there is a fundamental difference between concepts that measure experienced well-being and concepts that measure life evaluation [ 22 , 45 , 46 ]. Therefore, the question is, how important is financial management in how partners are satisfied with their lives as a whole. First, in light of our results, for that aspect of well-being, the most critical factor is dealing with cash. As with other aspects of relationship interactions, these fundamental behaviours are the most influential. All in all, the results of our research confirm that expressing healthy financial behaviour is positively related to overall life satisfaction [ 23 ] and emotional well-being [ 24 ].

6. Conclusions, Limitations, and Future Research

This research shows that financial management behaviour has an impact on the quality of relationships as well as on the subjective well-being of the people in the relationship.

Money management and savings and investment behaviour are the most important for the subjective quality of life. Overall life satisfaction is influenced by the most fundamental, direct, and current ways of dealing with the daily financial routine and also by regular saving and generally planning for the future (setting long-term goals including retirement).

Overall life satisfaction is dependent on those dimensions of financial management that are associated with the daily aspects of life. These dimensions have a close psychological connection with the daily satisfaction of basic needs.

Credit management is the most critical aspect of financial management for the quality of the relationship. This finding may highlight the psychological importance of the sense of security. Healthy credit management behaviour (e.g., regular debt repayment, or comparing loan offerings) has a positive impact on how couples view their relationship. In other words, far-reaching goals are discussed (or argued about) more often than everyday shopping tasks. Insurance behaviour is also essential for the satisfaction of the relationship. Behaviours associated with non-compulsory insurance are designed to protect against unexpected changes, so they contribute toward ensuring safety. A feature of this dimension of financial management is that the insurance we studied is not mandatory, so it involves considering the future and the decision must be taken to take care of the future, both one’s own and the family’s (e.g., life insurance). Therefore, it can be said that what protects the quality of marriage from a financial perspective is the consideration of the future.

While living in cohabitation or marriage, individual needs are considered along with those in the relational context. Spouses discuss them, making decisions or at least exchanging information about them. Theoretically speaking, the quality of relationships should be associated with having common goals and values. Research shows that when people share goals and values, it is easier to maintain a consensus in this dimension and hence enjoy higher-quality relationships. This would explain why caring about far-reaching goals (such as insurance) is essential. Setting goals for the future is related to the need for security. It assumes a certain surplus and the security resulting from it. Having these skills (cash management, taking care of the future) protects against descending into conflict, which is not directly related to proper money management.

In conclusion, a list of protective factors and risks may be selected. The skilful use of money, spending it sensibly in everyday routine area translates into satisfying basic needs, and as a consequence, translates into life satisfaction and thinking about shared goals and values, which are essential for the quality of relationships. Credit management skills have a similar significance for the assessment of relationship satisfaction, overshadowing the elementary need for security. Skills in financial management are essential for the dynamics of relationships; the ability to secure the future has a unique role.

As usual, this research also has some limitations. In studies conducted to date, financial satisfaction was included in the analysis of the relationship between financial matters and marital quality as another potentially important factor. In future studies, it would be worth describing the relationship using this variable. Another topic worth exploring is the comparison between partners in relationships, as perceived by own behaviour or joint financial behaviour. It may be assumed that people in a relationship may have different perceptions of their behaviour as well as financial situations.

Additionally, it is worth noting which psychological mechanisms underlie the combination of management skills with the quality of the relationships, for which specific aspects of the FMB relationship matter.

Further research into the system approach would require the consideration of the role of children in households. Studies show [ 47 ] that in the case of money management, younger adults without children more often had independent money management systems. This would indicate the need to take account of having children and their importance in managing money (e.g., children introduce new categories of financial obligations).

Developing the issues discussed in the article with a positive psychology approach would indicate the need to identify both personal and social resources conducive to efficient financial management. The results are part of an already developed strategy regarding the importance of private resources for developing the quality of life.

The last of the proposed directions for research development would be to check how the method of money management, or rather the dynamics of management changes are related to the dynamics of the quality of marriage and family life. Longitudinal research concerning this topic would raise the issue of unexplored content.

The results obtained may be used in education and psychoeducation. The conclusions provide direction for preventive strategies that may be taken to support the well-being of individualsand provide them with satisfaction in their social lives. The application of the results is possible from both a psychological and economic point of view. Paying attention to the role of finance in life, the need for a good knowledge of the partner, resources, features, goals, and values before starting a relationship can help to develop it in a more satisfying manner. Appropriately teaching children for their age and developmental stage concerning money management is a protective factor for their well-being in life.

In summary, one should highlight the importance of financial management in aspects related to relationships and quality of life. The level of awareness of this should be raised for specialists working to improve the quality of marital and cohabitant relations, and above all, the psychological understanding of money should be stressed as an element of satisfying needs. The results obtained should also be considered in the context of couples and families in crisis who are searching for explanations for their situation; deficiencies in management skills (or asymmetrical competences in this aspect of the relationship) as potential causes of difficulties within the relationship and life. This knowledge may be particularly useful for psychotherapists of couples and families.

Case processing summary (calculated by authors).

Author Contributions

Conceptualization, M.B.-M., W.P., A.C., and W.C.; Methodology, M.B.-M., W.P., V.S., A.C., and W.C.; Formal analysis, V.S.; Investigation, M.B.-M., W.P., and A.C.; Data curation, V.S., M.B.-M., and A.C.; Wariting—original draft preparation, M.B.-M., W.P., V.S., and A.C.; Writing—review and editing, M.B.-M., A.C., W.P., V.S., and W.C.; Visualisation, V.S.; Supervision, M.B.-M. and A.C.; Project administration, A.C. and W.C.; Funding acquisition, A.C. and W.C. All authors have read and agreed to the published version of the manuscript.

This research was funded by the Ministry of Science and Higher Education, Republic of Poland, grant number 0057/DLG/2016/10. The APC was funded by the University of Economics and Innovation, Lublin, Poland.

Conflicts of Interest

The authors declare no conflict of interest. The funders had no role in the design of the study; in the collection, analyses, or interpretation of data; in the writing of the manuscript, or in the decision to publish the results.

REVIEW article

The role of big data in financial technology (fintech) towards financial inclusion provisionally accepted.

• 1 University of Johannesburg, South Africa

The final, formatted version of the article will be published soon.

In the rapidly evolving landscape of financial technology (FinTech), big data stands as a cornerstone, driving significant transformations. This study delves into the pivotal role of big data in FinTech and its implications for financial inclusion. Employing a comprehensive literature review methodology, we analyze diverse sources including academic journals, industry reports, and online articles. Our findings illuminate how big data catalyzes the development of novel financial products and services, enhances risk management, and boosts operational efficiency, thereby fostering financial inclusion. Particularly, big data's capability to offer insightful customer behaviour analytics is highlighted as a key driver for creating inclusive financial services. However, challenges such as data privacy and security, and the need for ethical algorithmic practices are also identified. This research contributes valuable insights for policymakers, regulators, and industry practitioners, suggesting a need for balanced regulatory frameworks to harness big data's potential ethically and responsibly. The outcomes of this study underscore the transformative power of big data in FinTech, indicating a pathway towards a more inclusive financial ecosystem.

Keywords: big data, FinTech, Benefits, Financial Inclusion Font: Gill Sans MT, 12 pt

Received: 11 Mar 2023; Accepted: 22 Apr 2024.

Copyright: © 2024 Mhlanga. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

* Correspondence: Mx. David Mhlanga, University of Johannesburg, Johannesburg, South Africa

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