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Article Excerpt
Using a cross-cultural conceptualization with a targeted sample of Americans and Koreans, it was noted that Koreans exhibited more responsible financial management behavior than Americans after controlling for locus of control, financial knowledge, and income interactions. Overall, financial knowledge was positively related to responsible financial behavior. No direct effects on financial management behavior were noted for locus of control or household income. Locus of control was found to mediate the effect of financial knowledge on financial behavior for Koreans. Being Korean did moderate between financial knowledge and financial behavior.
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Cross-cultural explorations of human behavior have been studied since the 19th century. Segall et al. (1990), in their introductory text on cross-cultural psychology, justified culturally based research by stating the following: "Given the complexities of human life and the importance of culture as a behavioral determinant, it obviously behooves psychologists to test the cross-cultural generality of their principles before considering them established" (37). According to Weber and Hsee (1999), "considerable benefits can be derived from a fresh advocacy for comparative cross-cultural investigations of individual and group differences in perceptions, values, attitudes, and behaviors" (612). This is particularly true in relation to the roles locus of control, financial knowledge, and socioeconomic status play in shaping and explaining financial management behavior. The continued shifting of global commerce and finance away from Europe and the United States toward East Asia is just one reason cross-cultural research in the personal finance area is needed. Understanding saving, investment, and debt decision differences across cultures can help explain wealth disparities around the globe. Furthermore, it is important for those who make financial decisions to use a reliable base of knowledge. The decision-making process can be strengthened by better understanding cultural similarities and differences among those who engage in financial management behavior. If it turns out that individuals from Asia act differently than those in the United States, in part based on cultural differences, this information can be used to better understand the context of decision making. Moreover, if cultural differences are found to be one of the factors that affect financial management behavior, and if it is assumed that behavior ultimately influences financial well-being, cultural studies can be used to help establish the initial steps toward enhancing financial well-being among various constituencies.
Perry and Morris (2005) examined consumers' willingness to save, budget, and control spending using a dual psychosocial and cultural conceptual perspective. They noted that financial management behavior tends to be associated with a person's perceived control over spending outcomes. Perry and Morris found that a person's locus of control has an important role to play in shaping financial management behavior, with those exhibiting an internal locus of control being more financially responsible. They also established that a person's level of financial knowledge and financial resources play a role in shaping financial management behavior. Locus of control was found to mediate the relationship between knowledge and resources, suggesting "individuals may not take full advantage of their knowledge or financial resources unless they feel that they control their own destiny" (310). While their findings, in and of themselves, were interesting, what made their study noteworthy was the inclusion of cultural background as a potential moderating factor related to the way people manage their financial management behavior. Perry and Morris asserted that the way in which people manage their financial management behavior may vary depending on culturally contextual issues. They concluded that African Americans and Hispanics/Latinos who exhibit an external locus of control are "more likely to engage in responsible financial management behavior than white or Asian externals" (310).
Of particular interest in the Perry and Morris (2005) study were the generally nonsignificant differences between Asians and non-Hispanic whites in terms of financial management behavior and interactions with external locus of control, income, and knowledge in the context of consumer financial management behavior. Perry and Morris did note a moderately significant difference between Asians and non-Hispanic whites, with Asians being more responsible in terms of financial management; however, much of the statistical difference was due to the large sample size (n = 11,862) used in their study. In all other situations, being Asian did not moderate findings related to locus of control, income, or financial knowledge. In effect, Asians and non-Hispanic whites were similar.
Whether or not Asians differ from Americans when exhibiting consumer and personal finance behavior is a question of broad interest. Consider research published by Hsee and Weber (1999). They noted that Chinese and Americans differ in terms of risk tolerance (i.e., Chinese being more risk tolerant) and risk-taking financial management behavior (i.e., Chinese more willing to take investment risks). Hsee and Weber attributed some of these differences to specific cultural dissimilarities between Mainland China and the United States. Weber, Ames, and Blais (2004) described the distinction this way: "... American-Chinese differences in the relative balance struck between individualism and collectivism in social interactions" (92) may explain cross-cultural differences in risk taking. Hsee and Weber hypothesized that the higher likelihood of receiving collectivist help from society and family within China, if a financial decision results in an individual loss--a cultural difference--likely influences financial management behavior. They termed this phenomenon the cushion hypothesis. In effect, Hsee and Weber hypothesized that cultural bias in favor of collectivist action and support helps cushion Chinese against outcomes associated with loss (Weber and Hsee 1998).
Whether or not the cushion hypothesis can be extended beyond Chinese-American situations, and whether Perry and Morris's (2005) findings can be generalized more broadly are questions yet unanswered. The purpose of this research was to further examine, by replicating Perry and Morris's study with a different sample, the role locus of control, self-assessed financial knowledge, and income--and interactions between and among these variables--have on financial management behavior for Koreans and Americans. Among the various Asian cultural groups, Koreans were selected for the following reasons. First, nearly all Asian cultural studies have focused exclusively on China as a representative collectivist culture. Examining the cushion hypothesis using a targeted sample of Koreans, as a nationality that is positioned between traditional collectivist China and a more individualistic western tradition, can help verify the cushion hypothesis. Second, among the various East Asian countries, Korea has experienced dramatic financial progress and wealth fluctuations. Within Korean, the concept of personal financial management has emerged in recent years and permeated throughout the entire population. Examining the financial management behavior of Koreans could shed light on behavioral implications within this traditionally collectivist culture. As suggested by Gutter and Fontes (2006), findings from this and similar studies of financial management behavior based on cultural background can help illustrate the importance that cultural similarities and differences play in shaping various financial decision-making processes. Additionally, research reported here adds to the existing body of knowledge by expanding on the work conducted by Weber and Hsee (1998, 1999) and Perry and Morris.
BACKGROUND REVIEW
Cultural Conceptualization of Financial Decision Making
Differences in financial decision-making styles can generally be conceptualized using either an external or a cultural orientation. The external argument focuses on the role discrimination plays in a societal context. Choudhury (2001) used the external conceptualization to explain differences in financial management behavior among racial groups in the United States. Choudhury argued that minority groups in the United States have been given, historically, limited access to financial services, financial information, and more generally, education that would allow a person to navigate successfully through the financial marketplace (see also Perry 2008). One result, as conceptualized in the literature, is a wide-ranging skepticism and negative perception of the factors associated with positive financial decision making among people who are not non-Hispanic white (Gutter and Fontes 2006; Williams 1999).
While there certainly may be discrimination issues at play cross-nationally, when assessing cross-cultural similarities and differences in financial decision making, the analysis of this phenomenon most often is conducted within a cultural context. Weber et al. (2004) defined culture "as the set of long-standing values, attitudes, beliefs, social structures and institutions which have been shaped by local conditions that include geography, climate, history, economics and politics as a way of coping with these conditions" (92). Cultural differences are known to influence financial management behaviors and the level of one's confidence when making decisions (Tigges et al. 2000; Yates, Lee, and Bush 1997).
One theoretical hypothesis that is often used to explain culturally based financial behavior differences is the "cushion hypothesis." According to Hsee and Weber (1999, 165), the cushion hypothesis states that people who share a cultural belief in society- and household-based collectivism "are more likely to receive financial help if they are in need (i.e., they could be "cushioned" if they fell)." In keeping with this hypothesis, people from collectivist cultures should have different financial decision-making styles compared to people from individualistic cultures, such as the United States.
This research examined the effects of locus of control, knowledge, and income on financial management behavior using a cultural conceptual context. Specifically, differences and similarities were reviewed for Koreans living in the United States and Americans. This research tested eight hypotheses, which were re-identified from the Perry and Morris (2005) study. The following section reviews germane literature on culturally based differences in financial management behavior, locus of control, and other factors connected to financial management behavior as related to each hypothesis.
Locus of Control and Financial Management Behavior
Rotter (1966) was among the first to document and explain the psychosocial phenomenon known as locus of control. Locus of control is best conceptualized as a person's perception of their place in the world. More specifically, locus of control is a measure of an individual's belief about cause and effect within their life. Locus of control has two extremes--external and internal. Someone, for instance, who has an external locus of control believes or perceives that outside forces and events dictate their actions, decisions, and behavior. Often, externals have a strong conviction...
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