TAKING CHARGE OF YOUR LIFE: LOCUS OF CONTROL, SELF-EFFICACY AND SAVING BEHAVIOR

Abstract

Individuals’ saving behaviors have always been a key determinant of National Savings. According to social cognitive and life-cycle theory, psychological factors largely influence one’s saving and financial behavior. Additionally, theories of Behavioral Finance i.e. prospect and heuristics theory introduced various behavioral biases that individuals are prone to in making different financial decisions. Taking these as a foundation, this research examined relationship between two psychological factors i.e. locus of control and self-efficacy, with salaried individuals’ saving behaviors: including the mediating effect of behavioral biases (herding behavior, overconfidence and cognitive dissonance bias) on this relationship. 327 surveys were acquired from government and private sector salaried class individuals. Analysis was conducted through structural equation modeling (SEM). Findings suggest that people’s locus of control and self-efficacy affect their saving behaviors and overconfidence bias, while herding behavior and overconfidence bias mediates this relationship. Whereas there is no mediating effect of cognitive dissonance bias found on this relationship.