Psychology, Financial Decision-Making, and Management of Household

The main purpose of this research study is to understand the psychology of decision-making and management of households with respect to Arab students living abroad. The study will take into consideration the impact of the difference in culture and also the influence of such culture in dealing with bank interest. The research model used in this study is the addition of a moderating variable. The data will be collected through questionnaires that will be designed, piloted, and distributed to the target population. Questionnaires will be designed in a way that can manage to gather accurate information on the aspects of psychology, financial decision-making and management of households. It is expected that the construction of accounts subsequent to considering the ambiguous expense, classification of expenses into different categories and psychology of belief in Islamic law, have a positive relationship with the level of spending and financial decision-making. Secondly, classification of expenses into different categories influences the level of spending and financial decision-making. Another expected result is that the psychology of belief in Islamic law and lack of extensive Islamic banking abroad have a positive correlation with spending and financial decision-making.

The aspect of financial education and understanding has become a contentious and significant issue. Its importance has been realized largely because there is increasing intricacy of financial products and also the increasing accountability and liability of people with respect to their own financial well-being. It is imperative to note that knowledgeable, financially educated customers are more capable of making proper decisions for their households and as a result are better suited to enhance their economic and financial security and welfare (Hilgert and Hogarth, 2003). What is more, in accordance to behavioral economics, psychology plays a significant role in the financial and economic decisions made within the household. For instance, consumers with a great amount of money will spend less as compared to consumers with smaller amounts. The same case applies to individuals that spend more money in a current account as compared to money in a savings account. Mental budgets are linked to the end point, which is the spending or saving of the money. In this constricted perspective, mental accounting is referred to as mental budgeting and is deemed to encroach upon the supposition of the fungibility of money (Antonides et al., 2011).

This research paper will take into account Arab students who study abroad. It is imperative to note that there is a distinctive difference between Arabian and overseas cultures. This has an influence on how they deal with bank interest. Islamic law precludes Muslims from paying or receiving any interest accrued on debt. The belief in Islamic law is that Muslims ought to sustain economic harmony in all kinds of financial transactions. Therefore, it is not acceptable for a wealthy and affluent individual to benefit from loaning money to a less privileged individual. In turn, this belief can have an adverse impact on how Muslims finance their education, cars, houses, and the manner in which they pay bills and how they use credit cards (Abdirizak, 2016).

Thaler (1999) describes mental accounting as the set of perceptive operations utilized by individuals and households to organize, assess and keep up with financial activities. The author makes the assumption that individuals have the perception of results in terms of value function, where the incremental change from the orientation point determines ensuing selections. By large, Thaler (1999) asserts that the role played by the value function in mental accounting is to delineate the manner in which events are observed and implied when making decisions. What is more, the author lays emphasis that every element of mental bookkeeping intrudes upon the economic standard of fungibility, implying that individuals discriminate money in relation to which mental account money is stored. As a result, Thaler (1999) states that mental accounting influences choice.

Cheema and Soman (2006) outline that mental accounting can be delineated as a perceptive kind of accounting and a set of rules to keep up-to-date with expenses. It aids individuals in controlling their level of consumption. The authors examine malleable mental accounting, which encompasses flexibility in categorizing ambiguous expenses. It also encompasses flexibility in forming mental accounts to accommodate uncategorized expenses. This permits consumers to make their justifications of attractive spending prospects. The first experiment of the study asks participants to rate the likelihood of having either an unambiguous expense or a more ambiguous expense and how well the expense is categorized into either category. Results indicated that when the expense is ambiguous, individuals apportioned it to whichever account had surplus finances. Participants made the most of the flexibility in the accounts, facilitating them to categorize and justify the expense. In general, the research study indicated that individuals are more likely to spend when they form the accounted after considering the ambiguous expense. What is more, participants form accounts in a manner that vindicated the expense. The inference is that where there is ambiguity in an individual's mental account, there is an opportunity for creative accounting.

According to Heath and Soll (1996), consumers set budgets for categories of expenses and go on to track them against the budget they have set. Taking into account that budgets are not able to expect consumption prospects precisely, individuals might earmark excessive money or less money for a certain category. In particular, this causes the consumers to under consume or over consume products in that particular category. The authors indicate that consumers set budgets that amount to under consumption. In addition, to demonstrate that consumers track their expenses and costs, the authors outline that budgeting effects are greater for buys that are largely characteristic of their category. These buys reduce the amount consumers spend in a category and hinders the ability to buy other typical products. Comment by babyliza: Not referenced

Brendl et al. (1998) put forward that mental accounting is a manifestation of a significant self-regulatory approach. The authors assert that separate mental accounts are organized on active objectives that can be detailed or abstract and continuous objectives. In addition, Thaler (1999) exemplifies the self-control structures of mental accounts, and he defines that distributing spending into budget groupings enables sensible interchanges. The author labels money into accounts at three levels. First, expenditures are clustered into budgets for food and housing. Second, wealth is apportioned into accounts of savings, pension, and emergency days. Lastly, income is separated into groupings for example regular or bonus.

Hypothesis (4) please explain them in detail (important thing in this paper it's all about the hypothesis) for 2 pages

The main purpose of this research study is to understand the psychology of decision-making and management of households with respect to Arab students living abroad. The study will take into consideration the impact of the difference in culture and also the influence of such culture in dealing with bank interest. For the purpose of this study, the researcher has developed a series of questions, which will serve as a guide to facilitate the course of the discussion. In particular, these research questions are aimed at generating an understanding of the influence of psychology on financial decision-making and the management of households. These questions are as follows:

Q1. How does the construction of accounts have an impact on spending and financial decision-making for the students?

Q2. How does the belief and adherence to Islamic law have an impact on spending and financial decision-making for the students?

Q3. How does the lack of extensive Islamic Banking have an impact on spending and financial decision-making for the students?

Q4. How does the classification of expenses into various categories have an impact on spending and financial decision-making for the students?

Given the goal of this particular study, the proponent has formulated a set of hypotheses, which will serve as a guide in inferring the results.

H1: Construction of accounts subsequent to considering the ambiguous expense influences level of spending and financial decision-making.

This hypothesis is meant to encompass the aspect of malleable accounting. The aspect of malleability in mental accounting takes into consideration the consumer being flexible in categorizing ambiguous expenses or in creating mental accounts to accommodate uncategorized expenses. In particular, this element of flexibility enables consumers to discover ambiguities and to by-pass the self-discipline enforced by mental accounts.

H2: The psychology of belief in Islamic law influences level of spending and financial decision-making.

This hypothesis tries to make inference as to whether belief and adherence to Islamic law have an impact on the financial decisions made and the level of spending. Muslims adhering to the law are not allowed to be spendthrifts and are supposed to be responsible in their financial decisions. In turn, this can limit the participants' level of spending, especially with respect to ambiguous expenses.

H3: The lack of extensive Islamic banking abroad influences level of spending and financial decision-making.

This hypothesis tries to make inference on whether the lack of proper Islamic banking overseas has an influence on the level of spending and the financial decisions made. Muslim consumers face a great deal of challenges in adhering to Islamic law, taking into account the lack of Islamic banking in overseas expanses. This can present several challenges to students, especially in attaining student loans. According to Islamic law, Muslims are not supposed to pay or receive interest. This implies that banks might find it difficult not to provide such students with student loan as they have the belief of not paying the interest that accrues from such loans.

H4: Classification of expenses into different categories influences level of spending and financial decision-making.

Mental accounting is different from economic accounting in the sense that the labeling of money is done for certain spending or saving categories, and the budgets earmarked for spending or saving are deemed compulsory. This particular aspect influences the financial behavior of households. To begin with, labeling money for certain spending categories might result in overspending and under spending. For instance, if the budget is higher, there is likelihood of high spending and vice versa. Therefore, mental budgeting helps evade undesirable balances within certain mental budgets.

A research methodology and model offers a basis from which means of collecting data and processing it will be supported. In addition to that, it offers a way through which the questions outlined in the research will be taken into account. The research model used in this study is the addition of a moderating variable. The strong point and form of a relation between two variables might be reliant on the value of a moderating variable. A moderator is a variable that adjusts the form or strength of the relation between an independent and a dependent variable. Moderator influences are also referred to as interactions for the reason that the third variable interrelates with the relationship between two other variables. The main reason why this research model is selected is the recognition of the intricacy of behavior. The examination of moderating variables recognizes the intricacy of behavior, familiarities, and relationships. It is imperative to note that people are not the same. It would be uncommon if there were no dissimilarities across persons (Mackinnon, 2011).

The data will be collected through questionnaires that will be designed, piloted, and distributed to the target population. Questionnaires act as a valuable tool that can be able to elicit the feelings, perception, experience, attitude and belief of an individual or a group of people regarding a particular subject under investigation. Questionnaires will be designed in a way that can manage to gather accurate information on the aspects of psychology, financial decision-making and management of households. The research will utilize restricted form of web-based questionnaire because it facilitates gathering of precise information that is pertinent to this research. Restricted questionnaire form is also referred to as closed form, and it permits the respondent to give a yes or no response to the questions asked. The provision of positive answers to the questions makes it easy to formulate, construe, and summarize the required information that was being obtained. In particular, the researcher will collect primary data through telephone interviews with banking institutions that deal with Arab students abroad. Data collection will be done with the assistance of five well-trained fieldwork researchers who will be manned by the senior researcher.

The expected results are four-fold, with respect to the four different hypotheses addressed in the research study. To begin with, it is expected that the construction of accounts subsequent to considering the ambiguous expense has a positive relationship with the level of spending and financial decision-making. Secondly, classification of expenses into different categories influences the level of spending and financial decision-making. Another expected result is that the psychology of belief in Islamic law can influence the level of spending and financial decision-making. This is in the sense that it can limit the level of spending in order to abide by the Islamic law. It is also expected that the lack of extensive Islamic banking abroad have a positive correlation with spending and financial decision-making. Taking into account that students are not able to access loans, their decision-making and management of funds will limit their spending levels and evade any kind of extravagant spending.