Intertemporal Decision: Do Financial Literacy and the Framing Effect Matter in the Malaysian Context?

Abstract

Positive-framed and negative-framed messages were delivered to examine the effect of framing on intertemporal decisions through lab experiments while holding the level of financial literacy constant. The three big questions adopted by Lusardi and Mitchell were utilized to assess the financial literacy of our subjects before they were asked to complete 20 incentivized intertemporal decisions. A small, delayed reward and a slightly bigger one were incorporated into the intertemporal decisions with a delay of 30 days. The ordinary least square (OLS) shows that the negative relationship between financial literacy and discount rates was held when the delayed reward was small. Interestingly, when the delayed reward became slightly bigger, their discount rates were reduced significantly with the negatively framed message. These findings suggest that the negatively framed message can motivate individuals to save for a greater return in the real world. Lastly, subjects with the highest level of financial literacy were not responsive to the magnitude effect, proving that a financial literacy program is essential to strengthen the individual's financial plan and reduce their discount rates in the developing country context.

Citation

Ooi, T.-W. and Lau, W.-Y. (2024), "Intertemporal Decision: Do Financial Literacy and the Framing Effect Matter in the Malaysian Context?", Lee, C.-F. and Yu, M.-T. (Ed.) Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 12), Emerald Publishing Limited, Leeds, pp. 337-349. https://doi.org/10.1108/S2514-465020240000012013