The Moderating Effect of Mental Health in Familiarity Bias and Self-Attribution of Financial Planning Behaviour among Malaysians

Abstract

The growth of ageing population with prolonged life expectancy, decreased morbidity and cost of inflation rate among many countries have triggered huge socioeconomic challenges. Malaysia is expected to be labelled as the ageing nation in 2035 and thus, financial planning rests on the personal responsibility of many Malaysians. Financial planning behaviour is not only affected by economic living standard; mental health is one of the predictor variables in financial preparedness. This paper attempts to shed light on the intricacies in the relationships among familiarity bias, self-attribution bias and the mental health in financial planning behaviour among Malaysians by revisiting the Prospect Theory. Individuals who are mentally healthier tend to ignore risks as they get more comfortable and familiar with a particular stock when making decisions in financial planning. Investors who are self-attribution bias are more inclined to have high optimism towards their own capability and abilities under different circumstances moderated by their mental health. For instance, young working adults in Malaysia who have better mental health disposition are found to be overoptimistic and neglect the importance of financial planning.