The Impact of Financial Stress and Its Determinants on Financial Behavior: Evidence from Pakistan

Abstract

This paper investigates the direct relationships between Current Money Management Stress (CMMS), Expected Future Financial Security (EFFS), Financial Stress (FS) and Digital Literacy (DL and Financial Behavior (FB) in urban Pakistani adults. Based on survey data collected on 187 respondents and Partial Least Squares Structural Equation Modeling (PLS-SEM), the research assesses both the measurement and structural models. The findings illustrate that CMMS produces a positive impact on FS (b = 0.947, p < 0.001) and EFFS produces a smaller yet significant relationship with FS (b = 0.089, p < 0.05). Nevertheless, the relationship between FS and FB is not statistically significant (b = -0.012, p > 0.05). Conversely, there is a positive and significantly strong positive impact of DL on FB (b = 0.688, p < 0.001). The model describes a significant amount of variance in FS and FB (R2 values are shown respectively). These results indicate the comparative relevance of the digital competencies and current financial management stress relative to psychological stress in the formation of financial behavior in the context of the research. The paper is valuable as it empirically investigates the relations between them in a developing economy and provides the implications of the study on the approaches to financial education and digital inclusion.

      Keywords: current money management stress, expected future financial security, financial stress, digital literacy, financial behavior.