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Strategic Financial Review

Strategic Financial Review is dedicated to advancing the understanding of strategic financial management and its role in driving organizational success. Our journal aims to provide a platform for researchers, practitioners, academics, and policymakers to share insights, research findings, and strategies that contribute to informed financial decision-making and sustainable growth.

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Strategic Financial Review welcomes original research articles, reviews, case studies, and theoretical papers that explore various dimensions of strategic financial management across diverse sectors. Our scope encompasses a wide range of topics within strategic financial management, including but not limited to:

1. Financial Strategy Formulation:

Analyses of financial planning, goal setting, resource allocation, and risk management strategies to achieve organizational objectives.

2. Corporate Finance:

Research on capital structure, financing decisions, dividend policy, and value creation for shareholders and stakeholders.

3. Investment Analysis and Portfolio Management:

Studies on investment decision-making, asset allocation, risk assessment, and portfolio diversification strategies.

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Evaluations of financial performance indicators, metrics, and tools to assess and enhance organizational financial health.

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Research on the impact of financial technology (FinTech), digital transformation, and innovation on financial management practices.

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Analyses of risk assessment, hedging strategies, derivatives, and financial instruments to manage financial risk.

8. Corporate Governance and Ethics:

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Editorial Board Iiris Aaltio – Turku School of Economics and Business Administration, Finland John Armitage – Winchester School of Art – University of Southampton, UK Bobby Banerjee – Cass Business School, London Jo Brewis – Department of People and Organizations, Open University Business School, Walton Hall, UK Peter Case – University of the West of England, UK Andrew Chan – City University of Hong Kong, Hong Kong Stewart Clegg – University of Technology, Sydney (UTS), Australia Barbara Czarniawska – Gothenburg University, Sweden Christian De Cock – Copenhagen Business School, Denmark Vincent Degot – Ecole Polytechnique, France Patricia A.L. Ehrensal – George Washington University, USA Mike Featherstone – Nottingham Trent University, UK John Forester – Cornell University, USA Silvia Gherardi – Università di Trento, Italy Pierre Guillet de Monthoux – Stockholm University, Sweden Michael Owen Jones – UCLA, USA Nina Kivinen – Åbo Akademi University, Finland Monika Kostera – The Jagiellonian University, Poland and Södertörn University, Sweden Thomas Taro Lennerfors – Uppsala University, Sweden Hugo Letiche – University of Humanistic Studies, Utrecht, The Netherlands Simon Lilley – University of Leicester, UK Stephen Linstead – University of York, UK Damian O’Doherty – University of Manchester, UK Yvon Pesqueux – Conservatoire National des Art et Métier , France Alf Rehn – Åbo Akademi University, Finland Ann Rippin – University of Bristol, UK Annette Risberg – Copenhagen Business School, Denmark Dan Rose – University of Pennsylvania, USA Richard Rottenburg – University of the Witwatersrand, Johannesburg, South Africa Brian Rusted – University of Calgary, Canada Helen Schwartzman – Northwestern University, USA David Silverman – University of London, UK Dorothy E. Smith – Ontario Institute for Studies in Education, Canada Antonio Strati – Università degli Studi di Trento, Italy John Van Maanen – Massachusetts Institute of Technology, USA Robert Westwood – University of Queensland, Australia Julie Wolfram Cox – Monash University, Australia Steve Woolgar – University of Oxford, UK

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The Editorial board is a panel of researchers with expertise in the relevant field. They are appointed by the publishers in consent with the Editor-in-Chief of the journal. Editorial board members are involved in:

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Strategic management accounting and performance implications: a literature review and research agenda

• Jafar Ojra 1 ,
• Abdullah Promise Opute   ORCID: orcid.org/0000-0001-6221-1856 2 , 3 &
• Mohammad Mobarak Alsolmi 4  

Future Business Journal volume  7 , Article number:  64 ( 2021 ) Cite this article

36k Accesses

9 Citations

Metrics details

The important role that management accounting plays in driving organisational performance has been reiterated in the literature. In line with that importance, the call for more effort to enhance knowledge on strategic management accounting has increased over the years. Responding to that call, this study utilised a qualitative approach that involved a systematic review to synthesise existing literature towards understanding the strategic management accounting foundation, contingency factors, and organisational performance impact. Based on the evidence in reviewed literature, we flag key directions for advancing this theoretical premise towards providing further insights that would enable practitioners strategically align their strategic management accounting practices for optimal organisational performance. The limitations of this study have been acknowledged.

Introduction

Successful managerial decisions enable organisational profitability and accounting aids effective managerial decisions [ 75 ]. Aimed at optimising the decision-enabling substance of accounting, management was criticised in 1980s as being too focused on internal operational issues that offer little to management from the point of strategy formulation and sustaining competitive advantage (CIMA Report Footnote 1 ). Recognising the importance for a broader impact of accounting on managerial decision-making, Simmonds [ 82 , p. 26] introduced and defined strategic management accounting (SMA) as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” .

Subsequently there has been increasing efforts that stress the importance for organisations to embrace strategic management accounting theory towards boosting strategic decision-making and organisational performance (e.g. [ 4 , 8 , 9 , 17 , 23 , 53 , 58 , 86 , 90 , 48 ], amongst others). As rightly noted by Turner et al. [ 86 ], organisations that aim to enhance their competitiveness and performance, must not only develop but also “implement internal policies and procedures such as strategic management accounting that are consistent with their business strategies and account for changing competitive demands” (p. 33). Doing that will enable the strategic management accounting tool to be effectively used to drive corporate success. This is the underlying argument in this study.

The task of profitably satisfying customers is becoming more challenging [ 61 , 65 , 67 ]. Meeting that challenge requires that organisations recognise the importance for effective decision-making. Accountants play a significant role in enabling effective decision-making in organisations (e.g. [ 21 , 23 , 27 ]). Accounting information enables the organisation determine the going concern [ 6 , 36 ]. Accounting provides the management with relevant information for ensuring and sustaining growth and profitability. The strategic management accounting foundation emphasises that in order to fully fulfil its management decision-making enabling function, accounting practices must not only focus on the internal but also on the external components relating to the organisation's operations. In other words, accounting should embrace a much broader and market-oriented approach and focus on costing (e.g. [ 8 , 17 , 58 , 78 ]); planning, control and performance measurement (e.g. [ 17 , 58 ]), strategic decision-making (e.g. [ 8 , 58 ]), customer accounting (e.g. [ 58 , 86 ]) and competitor accounting (e.g. [ 17 , 58 , 86 ]).

Given the importance of strategic management accounting to effective management decision-making and corporate success, there remains a growing interest in understanding the topic. Little wonder therefore that the advocacy for more research towards a better understanding of what strategic management accounting practices organisations adopt and what motivates their preference for one technique over the other (e.g. [ 4 , 53 , 58 , 86 , 90 ]) remains current. While embracing strategic management accounting is a critical path for enabling effective managerial decision-making and boosting organisational performance (e.g. [ 3 , 9 , 58 ]), the enablement outcome of strategic management accounting practice would hinge on the effectiveness of the organisation in tailoring its strategic management accounting practices to its strategy and environment [ 9 , 11 , 58 ].

Following that contingency logic, this research is a response to the aforementioned call and the aim in this study is to contribute to strategic management accounting discourse by critically analysing the body of knowledge towards enhancing the understanding of how knowledge has evolved in this theoretical domain and also to contribute to knowledge by flagging directions for further knowledge development. To achieve the aim of this study, the theoretical focus in this study is premised along three questions:

What strategic management accounting techniques can organisations use towards driving organisational performance?

What factors would influence strategic management accounting techniques usage and performance association? and

What future research gaps exist based on the explored literature?

Literature review

This study follows the theoretical foundation that strategic management accounting would aid effective management decision-making, and ultimately boost organisational performance. In line with the aim of this study, relevant literature is reviewed to explain the theoretical premise of this study. The literature review is organised along three core themes in strategic management accounting discourse, namely, strategic management accounting techniques, contingency factors of strategic management accounting usage, and the impact of strategic management accounting on organisational performance.

Strategic management accounting: definition and techniques

Management accounting is noted to involve the “generation, communication, and use of financial and non-financial information for managerial decision-making and control activities” ([ 28 ] p. 3). One major criticism of accounting in the 1980s relates to the fact that accountants have hardly taken a proactive role in the strategic management process [ 7 , 8 ]. According to Nixon and Burns [ 55 , p. 229], although strategic management has been variously defined, there is “broad consensus that the key activities are (1) development of a grand strategy, purpose or sense of direction, (2) formulation of strategic goals and plans to achieve them, (3) implementation of plans, and (4) monitoring, evaluation and corrective action”. The role of management accounting is to enable effective decision-making, and it involves typically information gathering and analysis, identifying options, implementation, monitoring and evaluation [ 16 ]. Thus, the focus in strategic management accounting, rephrased also as accounting for strategic positioning [ 73 , 74 ], is to embrace a broader approach that incorporates a strategic management focus into its dynamics towards effectively enabling management decision-making and organisational performance [ 8 , 80 ]).

Since the first attempt by Simmonds [ 82 , p. 26] who defined strategic management accounting as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” , there have been numerous attempts to enhance that definition and identify core techniques of strategic management accounting. For example, CIMA [ 16 ] describes strategic management accounting as a management accounting form that emphasises focusing on information relating to external factor of the entity and also on non-financial information as well as information that is generated internally. In a much earlier contribution, Bromwich [ 7 , p. 28] offers a description of strategic management accounting as involving “the provision and analysis of financial information on the organisation’s product markets and competitors’ costs and cost structures and the monitoring of the organisation’s strategies and those of its competitors in the market over a number of periods” (Cited in [ 56 , p. 14]).

In their 2008 study, Cadez and Guilding asked the question “what is strategic management accounting?” (p. 838). In that same study, they conclude, based on evidence from reviewed literature, that there are two perspectives of strategic management accounting. While one perspective focuses on strategically oriented accounting techniques, the other focuses on the actual involvement of accountants in the strategic decision-making process. Following the former perspective (e.g. [ 8 , 9 , 17 , 58 ]), existing literature distils sixteen (16) strategic management accounting techniques that are categorised under five SMA themes (e.g. [ 9 , 11 , 58 ]):

Strategic costing;

Strategic planning, control and performance measurement;

Strategic decision-making;

Competitor accounting; and

Customer accounting.

Strategic costing

According to literature (e.g. [ 8 , 11 , 23 ]), strategic and marketing information-based cost data can be leveraged by organisations to ensure effective strategies for achieving sustainable competitive advantage. Thus, organisations must recognise the importance of integrating cost strategies and undertake multiple strategic cost analyses. Literature distils five key costing techniques: attribute costing (e.g. Roslender and Hart 2003), life-cycle costing (e.g. [ 8 , 17 ]), quality costing (e.g. [ 17 ]), target costing (e.g. [ 8 , 17 ]) and value chain costing (e.g. [ 8 ]).

Strategic planning, control and performance measurement

Literature has also underlined the need for organisations to give due attention to planning, control and performance measurement features of the strategic management accounting, as doing that is important in the pro-active market orientation approach for competing effectively in the marketplace (e.g. [ 8 , 58 ], Chenhall 2005). Core components under the strategic planning, control and performance measurement tool includes benchmarking (e.g. [ 8 , 17 ]) and integrated performance management (Balanced Scorecard) (e.g. [ 8 , 17 ]).

Strategic decision-making

As a strategic management accounting tool, strategic decision-making is a critical tool for supporting strategic choice [ 11 ]. Core strategic decision-making options include strategic costing (e.g. [ 58 ]), strategic pricing (e.g. [ 11 , 58 ]) and brand valuation (e.g. [ 11 , 58 ]).

The importance of addressing strategic costing as a key strategic decision-making element has been emphasised in the literature (e.g. [ 58 , 78 , 79 ]). In this discourse, it is underlined that effectively driving competitive advantage requires cost analysis that explicitly considers strategic issues. In line with that viewpoint, Cadez and Guilding [ 8 ] note that strategic costing involves “the use of cost data based on strategic and marketing information to develop and identify superior strategies that will produce a sustainable competitive advantage” (p. 27).

In the literature too, strategic pricing is underlined as another core element the strategic decision-making typology of strategic management accounting (e.g. [ 8 , 58 ], Simmonds 1982). According to scholars, understanding market competition level, which as noted by Guilding et al. [ 29 , p. 120] entails the appraisal of the following factors: “competitor price reaction, price elasticity; projected market growth; and economies of scale and experience”, is important (e.g. [ 8 , 11 , 58 ]).

Within the strategic management accounting literature, brand valuation is the third element of the strategic decision-making technique. The brand valuation component “involves combining projected brand earnings (an accounting-orientated measure) with a multiple derived from the brand’s strength on strategic factors such as the nature of the brand’s market, its position in that market and its level of marketing support” [ 29 , p. 118]. In the view of Cescon et al. [ 11 ], brand valuation enables organisations to understand market reputation trends over time and potential implications for marketing executives and strategic accounting. Cescon et al. [ 11 ] contend that organisations would achieve a variable brand valuation that would provide a potential measure of marketing achievement when perceived quality and branded products are considered, while Guilding et al. [ 29 ] remind that achievable impact of brand valuation would hinge, amongst others, on the valuation method used.

Competitor accounting

According to Porter [ 72 ], strategy involves developing appropriate tools that enable a firm to analyse and determine its position in a competitive market. Thus, a firm selects suitable strategies that enables it compete more effectively over its rivals. To effectively do that, a firm needs to collect competitor accounting information. The importance of giving due attention to competitor accounting has been underlined in the literature (e.g. [ 11 , 17 , 58 ]). Three forms of competitor accounting tools are described in the literature, namely, competitor cost assessment (e.g. [ 11 , 17 , 58 ]), competitor position monitoring (e.g. [ 11 , 58 ]) and competitor performance appraisal (e.g. [ 11 , 17 , 58 ]).

Customer accounting

The fifth cluster of strategic management accounting techniques described in the literature relates to customer accounting (e.g. [ 49 , 58 ]). Customer accounting concerns practices aimed at appraising profit, sales or costs related to customers or customer segments [ 58 ]. Core customer accounting techniques include customer profitability analysis (e.g. [ 30 , 58 ]), lifetime customer profitability analysis (e.g. [ 58 ]) and valuation of customers as assets (e.g. [ 30 , 58 ]).

The contingency factors of strategic management accounting

According to management accounting discourse, when organisations carefully embrace appropriate strategic management accounting practices, they would ensure successful managerial decisions that would ultimately lead to optimising organisational performance (e.g. [ 48 , 53 , 56 , 58 ]). Thus, the extent of improved performance that an organisation would achieve would depend on its careful utilisation of appropriate strategic management techniques. As noted by Roslender and Hart (2003), p. 4 and further supported by subsequent literature (e.g. [ 34 , 58 ]), “the adoption of strategically oriented management accounting techniques and accountants’ participation in strategic management processes”, is a core research premise. In line with the carefulness notion mentioned above, the contingency perspective has been widely utilised in the effort to understand strategic management accounting practices and performance impact (e.g. [ 8 , 12 , 30 , 34 , 58 ]). The underlying foundation in the contingency perspective is based on the notion “that an organisation maximises its efficiency by matching between structure and environment” [ 22 , p. 49]. According to Otley [ 68 ]:

The contingency approach to management is based on the premise that there is no universally appropriate accounting system that applies equally to all organisations in all circumstances. Rather, it is suggested that particular features of an appropriate accounting system will depend on the specific circumstances in which an organisation finds itself. Thus, a contingency theory must identify specific aspects of an accounting system which are associated with certain defined circumstances and demonstrate an appropriate matching (p. 413).

Thus, the central foundation in the contingency perspective is that no one single accounting system is universally fit for all organisation in all circumstances (e.g. [ 41 ]). No one accounting control system can be seen as “best” for all situations; rather, the appropriateness of any control system would depend on the organisation's ability to adapt effectively to the environment surrounding its operations [ 41 , 58 , 86 ].

From reviewed literature, numerous researchers have flagged key contingency factors that should be considered in relation to strategic management accounting practice. Four factors were identified as critical contingency factors in the strategic management accounting systems design in Cadez and Guilding's [ 8 ] study, namely: business strategy, strategy formulation pattern, market orientation and firm size. On their part, Islam and Hu [ 41 ] identify core organisational effectiveness factors to include technology, environmental volatility, organisational structure, information system and size of the organisation.

Analysed together, the conceptualisation in the aforementioned studies [ 8 , 41 ] reflect perspectives that have been recognised in the 1980s. For example, Merchant [ 50 ] describe contingency factors to include firm size, product diversity, extent of decentralisation and budgetary information use. In their study of accounting information systems, Gordon and Narayanan [ 26 ] classify three core contingency factors to include perceived environmental uncertainty, information characteristics and organisational structure. Based on a study that examined the extent to which accountants were involved in the strategic management process, CIMA Footnote 2 reports three key contingency factors: “organisational influences, accountant led influences and practicalities” (p. 12). Exploring strategic management accounting practices in the Palestinian context, Ojra [ 58 ] conceptualised a comprehensive contingency perspective that considered (1) organisational structure (involving formalisation and decentralisation), (2) organisational size, (3) technology and (4) organisational strategy. In more recent literature, Pavlatos [ 70 ] suggests seven factors that affect strategic management accounting usage in the hospitality industry (hotels) in Greece, namely, “perceived environmental uncertainty, structure, quality of information systems, organisational life cycle stage, historical performance, strategy and size” (p. 756).

The contingency framing in this study draws from the theoretical guideline which suggests that both the internal and external environments of organisations should be considered in the effort to advance strategic management accounting literature (e.g. [ 58 , 70 ]). The conceptual framing in this study includes two external (perceived environmental uncertainty—competitive intensity, and market turbulence) and three internal (organisational structure—formalisation, and decentralisation, and organisational strategy) factors.

Perceived environmental uncertainty and strategic management accounting usage

From the perceptual lens, the environment could be viewed as certain or uncertain only to the extent that decision makers perceive it to be (e.g. [ 1 , 11 ]). Perceived environmental uncertainty is described as the absence of information relating to organisations, activities and happenings in the environment [ 20 ]. According to Cescon et al. [ 11 ], organisations must give due attention to their operational environment because engaging with environmental uncertainty factors would enable them identify key change drivers.

Prior literature has documented that perceived uncertainty significantly influences the extent to which firms would embrace strategic management accounting practices (e.g. [ 49 , 58 , 70 ]). According to that foundation, how firms respond from the point of strategic management accounting practices that they would endorse would depend on the nature of environmental uncertainties that surround their operational activities.

Studying the hotel property setting, Pavlatos [ 70 ] documents a positive correlation between the degree of environmental uncertainty and the use of strategic management accounting tools. In other words, the higher the perceived environmental uncertainty, the higher the need for use of strategic management accounting tools. Intensified use of strategic management accounting tools is essential because that will enable the hotels to manage the uncertainties, and be more effective in managerial decision-making, and ultimately improves organisational performance [ 70 ]. The notion of a significant influence of environmental uncertainty on strategic management accounting practices is supported by prior literature (e.g. [ 15 ]). According to them, managers who operate in highly uncertain environments would require information that is timely, current and frequent. Other scholars have also argued that environmental uncertainty would be associated with more pro-active and externally focused accounting systems (e.g. [ 32 , 38 ]).

In their study of Italian manufacturing companies, Cescon et al. [ 11 ] found a positive association of perceived environmental uncertainty and strategic pricing usage as a feature of the strategic decision-making SMA technique. In other words, the more the perceived environmental uncertainty, the higher the usage of the strategic pricing feature of the strategic decision-making SMA component.

In the perceived environmental uncertainty literature, two core dimensions have been distilled, namely competitive intensity and market turbulence (e.g. [ 30 , 58 ]). Market turbulence—a subset of environmental turbulence [ 47 ], is defined by Calantone et al. [ 10 ] as characterised by continuous changes in customers’ preference/demands, in price/cost structures and in the composition of competitors. In settings where there is high market turbulence, organizations would need to modify their products and approaches to the market more frequently [ 44 ]. On the other hand, the notion of competitive intensity relates to the logic that organisations compete for numerous resources, such as raw materials, selling and distribution channels, as well as quality, variety and price of products [ 26 , 46 ]. Achieving organisation-environment alignment in highly competitive environments requires that organisations have the capacity to effectively detect environmental signals and timely communicate environmental information (e.g. [ 88 ]).

Exploring Australian hospitality industry, McManus [ 49 ] examined the association of competition intensity and perceived environmental uncertainty on customer accounting techniques usage. The study suggests that competition intensity positively associates with customer accounting practices but also found that higher perceived environmental uncertainty would not lead to greater usage of customer accounting techniques in the explored hotels. In a much similar conceptualisation, Cescon et al. [ 11 ] examined the association of environmental uncertainty and competitive forces on strategic management accounting techniques usage in large Italian manufacturing firms. Empirically, that study found that external factors (environmental uncertainty and competitive forces) positively associate with SMA usage (strategic pricing, balanced scorecard, risk analysis, target costing, life-cycle costing). Based on the two-dimensional conceptualisation, Ojra [ 58 ] examined the relationship between perceived environmental uncertainty and SMA usage in Palestinian firms. Ojra [ 58 ] hypothesised a positive correlation of perceived environmental uncertainty (conceptualised to include competition intensity and market turbulence) but found no support. To the contrary, Ojra [ 58 ] documents a potential for negative influence of perceived environmental uncertainty on strategic management accounting techniques usage, however only significant for the market turbulence dimension. In other words, Ojra [ 58 ] suggests that market turbulence associates negatively with strategic management accounting techniques usage in medium Palestine firms.

Organisational structure (formalisation) and strategic management accounting usage

Across the various streams of management, formalisation has been mentioned as a key contingency factor in understanding the operational dynamics of organisations (e.g. [ 58 , 63 , 64 ]). With regard to strategic management accounting discourse, this notion has been numerously supported (e.g. [ 26 , 58 , 85 ]).

Studying the influence of formalisation in the functional relationship between the accounting and marketing departments, Opute et al. [ 64 ] suggest a positive association. In other words, they argue that the more formalised the processes in the firm, the higher the achieved integration between both functional areas. However, Opute et al. [ 64 ] note that whether this positive association is achieved would depend on the integration component (information sharing, unified effort and involvement) considered.

In the strategic management accounting domain, there is mixed evidence of the association of organisational structure on strategic management accounting usage. For example, Ojra [ 58 ] hypothesised that less formalised organisational structure would lead to higher use of strategic management accounting techniques in Palestinian firms but found no support for that hypothesis. In that study, no support was found for the notion that less formalised structures would lead to higher use of strategic management accounting techniques, both for total SMA as well as for all the dimensions of SMA. Thus, that study concludes that formalisation has no significant influence on strategic management accounting techniques usage in Palestinian firms. That conclusion supports the findings in Gordon and Narayanan [ 26 ], but contrast the view in Tuan Mat’s [ 85 ] exploration of management accounting practices.

Organisational structure (decentralisation) and strategic management accounting usage

Similar to formalisation, management scholars have noted decentralisation as a core organisational structure factor that should be given due attention in the drive to enhance the understanding of contingency theory (e.g. [ 58 , 62 , 63 ]). Organisational structure has been noted to influence the strategic management accounting practices of a firm (e.g. [ 58 , 70 ]). Within that foundation, decentralisation (or its opposite) has been flagged as a major factor. A contention that has been underlined numerously in the discourse is that strategic management accounting usage would be higher in organisations that embrace decentralised structure. Following that foundation, Pavlatos [ 70 ] hypothesised that SMA usage is higher in decentralised hotels than in centralised hotels in Greece. The results support the hypothesis: there is higher need for strategic management accounting practices in decentralised firms, as lower-level managers require more information to aid decision-making.

The above conclusion supports as well as contrasts prior literature, namely Chenhall [ 14 ] and Verbeeten [ 87 ], respectively. According to Chenhall [ 14 , p. 525], “strategic management accounting has characteristics related to aspects of horizontal organisation as they aim to connect strategy to the value chain and link activities across the organisation…”. Chenhall [ 14 ] adds that a typical approach in horizontal organisation is identifying customer-oriented strategic priorities and then exploiting process efficiency, continuous improvements, flattened structures and team empowerment, to initiate change, a conclusion that suggests that higher use of strategic management accounting practices would seem ideal in such decentralised organisational structure. The reason for that outcome is that in decentralised structure, lower-level managers can adapt their MACS as necessary to meet requirements [ 52 ], a logic that finds support in McManus [ 49 ] who found that customer accounting usage is higher in Australian hotels that are decentralised than those that are centralised. In contrast to that logic, Verbeeten [ 87 ] found decentralisation to associate negatively with major changes in the decision-influencing components of MACS.

Insight about the less developed context, namely about Palestinian firms lend support to, as well as contrast past literature. According to Ojra [ 58 ], decentralisation has a tendency to associate negatively with strategic management accounting usage. Therefore, although statistically insignificant, the results indicate that explored Palestinian firms that endorse decentralised decision-making process would seemingly have lesser need for strategic management accounting practices. On the evidence that decentralisation may have a negative influence on strategic management accounting usage, Ojra [ 58 ] supports Verbeeten [ 87 ] but contrasts Pavlatos [ 70 ].

Organisational strategy and strategic management accounting usage

An internal organisational factor that has been considered important in the understanding of contingency perspective of management accounting relates to organisational strategy (e.g. [ 8 , 17 , 58 ]). Hambrick [ 33 ] defined strategy as:

A pattern of important decisions that guides the organisation in its relationship with its environment; affects the internal structure and processes of the organisation; and centrally affects the organisation’s performance (p.567).

In the strategic management accounting discourse, organisational strategy has been mentioned as one of the key factors that would condition strategic management accounting practices of a firm (e.g. [ 9 , 58 , 70 , 86 ]). For example, Turner et al. [ 86 ] note that in hotel property setting, strategic management accounting use would hinge on the market orientation business strategy of the firm. Given the notion that strategic management accounting would aid management decision-making and lead ultimately to improved organisational performance, there is some legitimacy in expecting that organisations that align their strategic management accounting practices to the strategic orientation of the firm would achieve a higher organisational performance.

Following Miles and Snow’s [ 51 ] strategy typology (prospector, defender, analyser, and reactor), efforts to understand the association of strategy to strategic management accounting tools usage have also tried to understand how the various strategy typologies play out in this association. For example, Cadez and Guilding [ 9 ] considered the prospector, defender and analyser typologies in the Slovenian context, while Ojra [ 58 ] considered the prospector and defender typologies in the Palestinian contexts.

Cadez and Guilding [ 9 ] report that companies that endorse the analyser strategy, which is a deliberate strategy formulation approach, are not highly market oriented, but tend to show high usage of SMA techniques, except for competitor accounting technique. Further, they report that prospector strategy-oriented companies also pursue a deliberate strategy formulation approach, but are highly market oriented, and SMA techniques usage is fairly high (for competitor accounting) and averagely high (for strategic costing). For very high prospector-oriented companies, they are highly market oriented, have a strong strategy drive and a very high SMA techniques usage. For the defender strategy-type companies, they suggest that such companies are not only average in their market orientation, but also in their usage of SMA techniques.

In the study of Palestinian companies, Ojra [ 58 ] offers insights that resonate relatively with the findings in Cadez and Guilding [ 9 ]. Ojra [ 58 ] suggests that prospector companies have a higher usage of SMA techniques than defender-type companies. So, SMA technique usage is positively associated to prospector strategy (see also [ 8 ]. Elaborating the findings, Ojra [ 58 ] reports that prospector-type companies focused more on four SMA techniques (mean values reported), namely SMAU-Planning, Control and Performance Measurement (4.601), SMAU-Strategic Decision Making (4.712), SMAU-Competitor Accounting (4.689) and SMAU-Customer Accounting (4.734), statistical results that are significantly higher than the results for 'defender'-type companies. Cinquini and Tenucci [ 17 ] lend support to Ojra [ 58 ]: 'defender'-type companies give more attention to the Costing dimension of SMA.

Without emphasising the strategy typologies, Pavlakos (2015) comments that organisational strategy affects SMA usage in the Greek hotel industry.

Strategic management accounting and organisational performance

A central tenet in the strategic management accounting foundation is that management accounting would significantly aid organisations to achieve sustained competitiveness [ 7 , 82 ]. Implicitly, these scholars argue that in order to stay competitive in the marketplace, organisations should not only focus on cost-volume-profit issues, but rather embrace a broad externally focused management accounting approach that is strategically driven and provides financial information that enables management to effectively formulate and monitor the organisation's strategy. Thus, management accounting should also focus on competitor information as that will enable management effectively organise the firm's strategic structure.

Over the years, there is growing recognition of the importance of strategic management accounting to organisations, leading therefore to increasing research attention. One area that has received attention in the strategic management accounting discourse relates to the organisational performance enhancement notion (e.g. [ 23 , 56 , 58 , 77 , 86 ]).

Insights from Malaysia also add to the discourse on the impact of strategic management accounting usage on organisational performance. In their study of Malaysian electrical and electronic firms, Noordin et al. [ 56 ] examined the extent of usage of strategic management accounting and influence on the performance of the participating firms. The study found that in explored Malaysian companies, the extent of strategic management accounting usage was significantly related to organisation’s performance. That conclusion supports Cadez and Guilding [ 8 ] who contend that there is a positive association between strategic management accounting usage and organisational performance.

In a performance perspective that considers the ISO 9000 Quality Management System (QMS) aspect, Sedevich-Fons [ 77 ] examined the connection between strategic management accounting and quality management systems performance. The findings show that strategic management accounting and quality management are complementary and their effective implementation would enhance overall performance. Sedevich-Fons [ 77 ] notes further that when both are used in conjunction that would spread SMA techniques and enable full exploitation of Quality Management Systems.

Insights from the less developed economy context also associate organisational performance to the implementation of strategic management accounting practices (e.g. [ 3 , 57 , 58 ]). In a conceptual approach that aimed to address one major gap in previous literature, Ojra [ 58 ] examined both the financial and non-financial dimensions of organisational performance. According to Ojra [ 58 ], strategic management accounting usage does not impact the financial dimension of organisational performance but exerts significant positive impact on non-financial performance. That finding resonates with Perera et al. [ 71 ] conclusion that various forms of management accounting associate positively with the use of non-financial measures.

On their part, Oboh and Ajibolade [ 57 ], in their investigation of the association between strategic management accounting practices and strategic decision-making in Nigerian banks, found that explored Nigerian banks “practice SMA not as a concept, but as a principle of operation, and that SMA contributes significantly to strategic decision-making in the area of competitive advantage and increased market share” (p.119).

Alabdullah [ 3 ] offers evidence that adds support to the insights in the aforementioned studies [ 57 , 58 ]. In a study that explored the Jordanian service sector, Alabdullah [ 3 ] found that strategic management accounting enables performance in the service sector in Jordan. If strategic management accounting is effectively implemented, that will enable optimal strategic decision-making and ultimately improve organisational performance.

Research methodology

Research design.

Qualitative research method [ 18 , 76 ] is used in this study to achieve the objectives of this research. Following the methodological approach, as well as responding to the research call, in a past study on the contingency perspective of strategic management accounting [ 41 ], a study which was literature review-based, literature review-based qualitative research approach was deemed fit in this study.

A systematic review approach (e.g. [ 5 , 39 , 81 ]) is used in this research on the topic of strategic management accounting. Using the systematic review approach in this study is appropriate because it enables a systematic and transparent approach in identifying, selecting, and evaluating relevant published literature on a specific topic or question [ 42 , 83 ]. Furthermore, systematic review approach was deemed appropriate for this study as it has been documented to aid core research gaps identification and steering future research (e.g. [ 40 , 59 , 66 ]).

Alves et al. [ 5 ] forward a two-stage guideline for systematic review of literature: planning the review and conducting the review and analysis. As they noted, researchers should describe how the systematic approach was planned (in the former) and also describe the phases of the review and selection of literature (in the latter). In this research, effort was made to combine the best evidence: careful planning was used to determine literatures for inclusion or exclusion (e.g. [ 5 , 65 , 67 ]). The planning was focused at identifying relevant publications in various academic journals on the topic of strategic management accounting. First, the theoretical themes to be considered in the conceptual premise of this study were confirmed and academic resource for tracking relevant publications determined [ 5 , 66 , 83 ].

In the preliminary stage of the literature review, electronic search was carried out to identify relevant literature relating to strategic management accounting. Three steps were taken in the systematic review: we searched the literature, analysed and synthesised the literature, and wrote the review. Several databases were scanned using key search terms to capture relevant literature [ 81 ]. Core search terms were used, such as strategic management accounting, historical aspects of strategic management accounting, contingencies of strategic management accounting practices, strategic management accounting and organisational strategy, strategic management accounting and organisational performance, amongst others. Relevant publications were also found using data extraction tools such as Google Scholar, Emerald Insight and Research Gate.

Using the aforementioned methodological approach, a collection of relevant articles published in academic journals was identified. Identifying the relevant literature in this study followed methodological guideline [ 69 ]: criteria of language, relevance and type of research to identify relevant studies were embraced, and articles that contained non-English contents and also articles that did not fit closely to the thematic premise of this study were excluded. It is important to emphasise here that this study recognises that not all publications relating to the topic of strategic management accounting may have been considered in this research. However, for the scope of this piece of research, the body of literature covered in this study was deemed adequate for the conceptual framing.

Table 1 shows a sample of selected literature covered in this piece of research, pinpointing clearly the focus, context of the studies and findings from the studies.

The analysis

The interpretive approach of analysis was followed in processing the qualitative data to achieve reliable meaning in this study (e.g. [ 59 , 65 , 67 , 84 ]). Following that precedence, an iterative approach that involved reading reviewed literature back and forth, was used in this study. Using that approach, a synthesis of literature was undertaken to capture the core threads, debates and themes in the literature (e.g. [ 65 , 67 ]). Guided also by that methodological approach, relevant directions for future research have been flagged towards enhancing the knowledge about strategic management accounting and performance association.

Subjectivity is a major concern in qualitative researches (e.g. [ 18 , 76 ]). To address that concern, steps taken in this research to validate the articles incorporated into this research include rigor of conduct and strength of evidence by cross-referencing, as well as undertaking a duplicate check (e.g. [ 76 , 81 ]).

The findings

Prompted by the central threads that emerged from the analysis of the selected literature, the findings from this study are organised along three core themes: strategic management accounting techniques, contingencies of strategic management accounting techniques usage and the organisational performance implications of strategic management accounting usage.

The importance of management accounting, and in particular the strategic management accounting element as a tool for enabling top management to make effective decisions that enable organisation compete effectively in the marketplace, is gaining increasing mention in management discourse. In that discourse, five core categorisations of SMA techniques: strategic costing; strategic planning, control and performance measurement; strategic decision-making; competitor accounting; and customer accounting. While literature distils numerous forms of strategic management accounting techniques that organisations may embrace towards enabling effective management decision-making and organisational performance, evidence was found in reviewed literature that in some organisations, practitioners do not believe that strategic management accounting as a separate concept is a notion they subscribe to (e.g. CIMA Footnote 3 ; [ 48 , 55 ]). For example, CIMA Footnote 4 documents that participants unanimously do not subscribe to the notion, a conclusion which lends support to prior literature [ 48 , 55 ] that notes that strategic management accounting as a term, did not exist in the lexicon of accounting practitioners.

Grounded on the substance that effective use of the SMA techniques would improve organisational performance, immense research effort has focused on how organisations can effectively align the SMA usage towards achieving desired performance improvement. Premised in that theoretical domain, this study examined existing literature on the contingency factors of competitive intensity, market turbulence, formalisation, decentralisation and organisational strategy and SMA usage. Cumulative evidence obtained from the review of literature reinforces the need for organisations to pay particular attention to their operational environment in their use of SMA techniques. Reinforcing the fit principle, the cummulative evidence underlines that optimising the benefits of the strategic management accounting techniques in enabling effective customer orientation and boosting organisational performance is dependent on the organisation's ability to effectively align strategic management accounting practices to its operational environment. In other words, what works for an organisation would depend on the organisational dynamics, internal, as well as external. For example, formalisation may work for some but not for some, as decentralisation could work for some but not for some. Similarly, the utility of SMA techniques would hinge on the competitive intensity and market turbulence features of an organisation. Thus, aligning SMA practices to the internal and external features of an organisation is essential to enable them adapt effectively to their circumstances, make rational decisions and optimise their performance. So, alignment is critical because there is no one-size fits all approach for achieving customer orientation and organisational performance goals.

The third focal point of this study relates to the association of SMA techniques usage to organisational performance. Reviewed literature shows that organisations are achieving higher performance through the use of SMA techniques. In other words, effective use of SMA techniques would improve organisational performance. The plausibility in that performance outcome lies in the fact that organisations are able to utilise appropriate SMA measures to ensure effective, customer, competitor, strategic decision-making, costing, and planning and control orientation in their operational activities. Further on the performance point, literature also suggests that management control systems (MCS)–performance relationship is mediated by business strategy (e.g. [ 2 ]). Also, that study documents that the impacts (both indirect and total) of MCS on performance are stronger for family businesses than non-family businesses.

Conclusions

Conclusions and implications.

One of the major challenges that organisations are facing in today's dynamic marketplace is to steer their organisations in a way that they can stay competitive. In the contemporary world, where globalisation and technological evolution have expanded the options that customers have (e.g. [ 31 , 61 , 65 , 67 ]), organisations must strive hard to win the loyalty of customers. For organisations wishing to achieve that, strategic management accounting practices offer a strategic pathway. Organisations must embrace strategic management accounting practices that would enable them understand the market, their competitors, and the customers and leverage the intelligence from that knowledge to organise their operations towards profitably satisfying the customer. To effectively do that, organisations must avoid the mistake of focusing only on the internal issues; rather, their effort must be tailored towards embracing strategic management accounting practices that would enable them to be fully informed of the market trends, customer dynamics and competitor trends. Thus, organisations must ensure that good costing, planning, control and performance measurement; strategic decision-making, customer accounting and competitor accounting measures are embraced to enable them compete effectively.

Furthermore, in that drive to compete effectively in the market and profitably satisfy customers, organisations would not only need to embrace appropriate strategic management accounting techniques but also do that bearing in mind the environments that surround the operational activities. In other words, organisations must give due attention to the contingencies of their operational setting. Organisations must ensure a good blend of critical factors that would enable their optimal operation. Due attention must be given to organisational structure (centralisation or decentralisation of decision-making process), external environment (dynamism and turbulence), technological development, strategic approach, size of the organisation, amongst others. Doing that is critical for corporate success because there is no one size fits all approach—the outcome achieved would depend significantly on the dynamics surrounding the operational activities of the firm.

Thirty-three months on after Covid 19 was documented, Footnote 5 the pandemic is still ever present and has remained a daunting global challenge. Competing effectively in the dynamic marketplace is a major challenge for organisations, and with the Corona pandemic exerting unprecedent effects on organisations globally, most organisations are facing a more daunting challenge to survive (e.g. [ 65 , 67 ]). Organisations must strive to strategically orientate their management accounting practices to enable them find ways to effectively navigate the daunting challenges they face in this Corona era.

Implications of this study

The implications of this study are organised along managerial and theoretical implications.

Managerial Implications —Managers are reminded that optimal use of strategic management accounting techniques would boost organisational performance. Achieving high levels of organisational performance would however hinge on an organisation's ability to effectively align its SMA techniques usage to its internal and external dynamics. In other words, managers must bear in mind that there is no one-size fits all approach; therefore, they should endorse SMA techniques usage that fits their operational dynamics.

Theoretical Implications —In line with the central objective of this paper to sensitise the need for enhancing the understanding of the contingency perspective of strategic management accounting, the theoretical implications of this study are tailored towards specifying core gaps in the reviewed literature.

Overall, evidence from reviewed literature underlines the criticality of SMA techniques usage to organisational performance. Thus, if organisations strategically align SMA techniques usage to their operational setting, this would positively impact organisational performance. Within the goal of enhancing the literature on how to optimise the performance impact, much gaps still exist from the point off illuminating how differences in marketing and national culture differentiate SMA acceptance, usage, contingencies and performance impact.

Finally, on the point of performance, reviewed literature documents an obvious gap in the literature from the point of illuminating SMA techniques usage impact along the performance dimensions. As noted by Ojra [ 58 ], for some societies (especially ones that are Islamic cultured), non-financial performance is of central importance. Theoretical development from the point of SMA techniques usage, contingencies and non-financial performance impact is scanty.

Limitations of the study

Based on systematic review approach, this study aimed to drive further knowledge development on the contingency perspective of strategic management accounting, drawing on the evidence from reviewed literature to understand the core debates in the literature and pinpoint directions for future research. Two core limitations of this research relate to the conceptual framework and volume of literature reviewed.

The conceptual framing of this study embraced only three themes in the SMA discourse, namely perceived environmental uncertainty, organisational structure and organisational strategy. Elaborated, the contingency premise considered in this study relates to perceived environmental uncertainty (competitive intensity, and market turbulence), organisational structure (formalisation and decentralisation), and organisational strategy. This study recognises that there are other contingencies of strategic management accounting practices that have not been included in the conceptual framing of this study.

To capture the central debates in the SMA discourse, extant literature was reviewed. It is however important to acknowledge that this study may have ignored some literature relevant to the conceptual premise of this study. Finally, although efforts were made by the researchers to ensure validity in this research by adopting an analytical approach that involved thorough reading of literature to ensure valid meaning in the interpretation, it must be reminded that subjectivity is a concern in every qualitative research.

Future research directions

In explaining the theoretical implications of this study, core gaps in the literature were underlined (Section “ Implications of this study ”), while the limitations of this study were acknowledged in Section “ Limitations of the study ”. Building on these, this Section “ Future research directions ” extends the contribution of this study by specifying core directions for further knowledge development on the contingency perspective of strategic management accounting.

No doubt, this study has limitations, amongst which are the conceptual framework and the literature review scope. In their study, Naranjo-Gil et al. [ 54 , p. 688] note that “future research is needed to examine other factors to add a more comprehensive view of management accounting”. Given the conceptual limitation of this study, this study reinforces the research call by Naranjo-Gil et al. [ 54 ]. Future research could expand the work done in this research and knowledge development by incorporating contingency factors that have not been considered in the conceptual framing of this study. More research is required in that regard, both from the point of a systematic literature review approach, as well as from the point of empirical investigations that seek to illuminate the contextual (industrial sectors and geographical settings) differentiators to the contingency impacts on the use of strategic management accounting techniques.

Furthermore, more research effort is required from the point of gaining deeper understanding of the various strategic management accounting techniques. Marketing dynamics (e.g. [ 62 ]) and national culture [ 35 , 60 ] differ from one setting to another, therefore exploring the nature of strategic management accounting techniques that organisations endorse and why are core premises for research.

As flagged in the findings, there is a growing support of the notion that accounting practitioners do not subscribe to the use of the term strategic management accounting (e.g. CIMA Footnote 6 ; [ 48 , 55 ]). Further research could help to shed more light not only on why practitioners may not subscribe to the use of the term strategic management accounting, but also on the understanding of how practitioners would prefer to describe the management accounting practices that they embrace, and also why the specific practices are prioritised.

Furthermore, on the point of the content of strategic management accounting, researchers have also noted that not much effort is given to highlighting clearly the accounting information that organisations should give much attention to towards boosting organisational performance (e.g. [ 53 , 89 ]). Future research should aim to fill this gap. Doing that is critical to fully optimising the performance benefits of strategic management accounting [ 56 ].

Reviewed literature has documented that the extent to which strategic management accounting practices would aid management decision-making and organisational performance would depend on the contingency dynamics of the organisation (e.g. [ 11 , 58 ]). Understanding the contingency premise of strategic management accounting utility in driving effective management decision-making and organisational performance is a critical research premise, and future research should aim to shed more light on that. No one size fits all approach that works for all organisations in all contexts. Therefore, future research should seek to enhance the 'fit' foundation of strategic management accounting relevance and performance outcome. In that regard, future research should seek to illuminate further how perceived environmental uncertainty, decentralisation, formalisation, strategy and other contingency factors not considered in this study, would influence strategic management accounting techniques usage and organisational performance impact. In the particular case of perceived environmental uncertainty, more research is not only required from the point of understanding the influence of the construct, but also clarifying the competitive intensity and market turbulence associations.

An insight that emerged from the reviewed literature relates to the fact that majority of efforts to improve strategic management accounting discourse have considered mainly financial aspects of organisational performance (e.g. [ 58 , 86 ]). Focusing only on financial performance is inadequate as the customer perspective of performance is neglected [ 45 , 58 ]. The importance of focusing on customer performance has been re-echoed in further literature: organisational-level customer satisfaction associates positively to financial performance (e.g. [ 24 , 86 ]), and customer performance enables business strategy and an organisation's ability to deliver value to its shareholders as well as customers [ 25 ]. Supporting prior research (e.g. [ 49 , 58 , 86 ]), this study underlines the need for more studies that illuminate non-financial performance aspects and strategic management accounting association.

Finally, the Corona pandemic, which remains a global crisis, has exerted unprecedent global economic damage. Organisations are facing daunting challenges as a result of the Corona pandemic and are still seeking ways to successfully navigate these challenges. Future research should illuminate what strategic management accounting practices organisations are endorsing in the effort to effectively navigate the Corona-crisis-induced challenges.

Availability of data and materials

This study is based on the review of literature.

Management Accounting in support of the strategic management process. https://www.cimaglobal.com/Documents/Thought_leadership_docs/Management%20and%20financial%20accounting/Academic-Research-Report-Strategic-Management-Process.pdf .

January 9—WHO Announces Mysterious Coronavirus-Related Pneumonia in Wuhan, China.

Abbreviations

• Strategic management accounting

Strategic management accounting usage

Chartered Institute of Management Accountants

Management accounting and control system

Management control systems

Quality management system

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Ojra, J., Opute, A.P. & Alsolmi, M.M. Strategic management accounting and performance implications: a literature review and research agenda. Futur Bus J 7 , 64 (2021). https://doi.org/10.1186/s43093-021-00109-1

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The Organisation for Economic Co-operation and Development Financial Literacy Survey of 2018 response is used to study the impact of financial knowledge, financial inclusion, and socio-demographic characteristics on financial resilience. The measurement of financial resilience considers elements related to keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress, and having financial planning. Using a sample of 3395 individuals across Malaysia, we find that greater financial knowledge is associated with the probability of being financially resilient. Greater financial inclusion in terms of having more bank accounts and holding more financial products is linked to the probability of being financially resilient. We also find that financial resilience varies across certain socio-demographic characteristics. Implications of the findings are discussed.

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Introduction

Research related to the financial situation of households has gained momentum since the worsening of economic conditions in the recent years. Increasingly, more individuals are negatively affected during these challenging times. The recent Organisation for Economic Co-operation and Development (OECD) survey on 125,787 adults in twenty-six countries shows a worrying trend (OECD 2020a , b ). Almost a third of the respondents only have savings that can last them for a week and almost half of the respondents acknowledge that they are concerned about ability in meeting their everyday living expenses. This shows that large number of individuals within many economies have limited ability in facing financial challenges. Lack of financial resilience do not just affect the households, but it also has a bearing on the economy at large. Many regulators and policy makers across the globe are concerned about it as less resilient individuals will have a greater tendency to rely on state for handouts. Moreover, lower financial resilience also may affect the overall stability of the financial system.

Having financial resilience is one of the major contributor to financial wellbeing (Russell et al. 2020 ). Financial resilience relates to individuals’ ability in coping with financial shock or recovering from financial difficulties (Mcknight and Rucci 2020 ). Individuals often face challenges in dealing with unexpected shocks such as illness, death of a family member, job loss or natural disaster. Individuals who have planned their finances well would rely on their savings during the difficult times. Alternatively, they may borrow money from financial institutions, family, or friends. Some may also rely on insurance payouts. Individuals who are not able to cope with financial challenges are classified as financially vulnerable (Lusardi et al. 2021 ).

This paper aims to investigate financial resilience in the context of an emerging economy. In doing so, it explores the multidimensional nature of the construct. Malaysia is chosen as it is one of the countries that is categorised as an upper middle-income nation. Absolute poverty eradication is not the major concern of the policy makers in the country as it has moved higher in the economic ladder. However, relative poverty remains a major issue that requires attention. The households in Malaysia face various types of financial challenges. The household debt to Gross National Product (GDP) of 93.4 percent in 2020 is the highest in the region. A higher debt level raises individuals’ vulnerability to adverse shock (Jappelli et al. 2013 ). Increasingly more Malaysians, especially those living in the urban areas, are struggling with rising cost of living. World Bank ( 2019 ) reports that there is a high degree of unaffordability among the low-income and middle-income households. Additionally, the report also states that household savings in Malaysia is low compared to OECD countries. These suggest that studying financial resilience from the context of an emerging economy like Malaysia is very relevant and timely as it can provide a different perspective about the topic.

In studying the state of financial resilience in Malaysia, this paper takes into consideration of the five components of financial resilience proposed by OECD ( 2020a ; b ) Footnote 1 which includes elements related keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress and having a financial planning. These components enable us to identify the level of resilience among individuals by considering various aspects of personal financial management that are important for the financial wellbeing of individuals. We draw conclusion using the Organisation for Economic Co-operation and Development (International Network on Financial Education) Financial Literacy Survey. The 2018 OECD (INFE) Financial Literacy survey response is used to analyse financial resilience among Malaysians. Implications for research and policy are then presented.

This paper is organised as follows. “ Literature review ” section includes the literature review. “ Data and methodology ” section describes the methodology and the data used in this study. “ Regression results ” section presents the results while “ Discussion and conclusion ” section presents the discussion and conclusion of the study. The final section provides the implications of the findings.

Literature review

Financial resilience is one of the aspects of resilience that has been investigated in the literature. The earlier study by Lusardi et al. ( 2011 ) has defined financial resilience as the individuals’ ability to raise emergency funds from various sources when needed. The theoretical background of precautionary motive can be derived from the Life-Cycle Hypothesis model of consumption and savings. This theory postulates that individuals save to smooth consumption over their lifetime. Modigliani and Brumberg ( 1954 ) postulates that savings enable individuals to face emergencies that may either arise due to a temporary reduction in income or unexpected increase in expenses. In contrast, Muir et al. ( 2016 ) and Salignac et al. ( 2019 ) define financial resilience as the ability of individuals in relying on their internal and external resources during adverse shock. The internal resource refers to individuals’ ability in managing their finances by saving and taking care or their expenses, while external resource refers to the reliance on family, friends, or other form of social support during a financial shock.

Salignac et al. ( 2019 ) argue that focusing only on the individual’s ability in managing financial shock is not sufficient as it takes into consideration of the other aspects such as context, structures and supports. They develop a framework that helps us understand financial resilience from the viewpoint of financial inclusion. Their framework incorporates four interconnected factors related to economic resources; financial products and services; financial knowledge and behaviour and social capital. Similarly, Goyal et al. ( 2021 ) incorporated individuals reliance on both internal and external resources in studying financial resilience among Indians during the COVID-19 pandemic.

Meanwhile, OECD ( 2020a ; b ) conceptualisation of financial resilience incorporates elements related to keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress, having a financial planning and being aware of fraud. This conceptualisation of financial resilience corresponds mainly to the individual’s ability in assessing and using internal resources when facing financial challenges. These elements mostly relate to the economic resource factor in the study by Salignac et al. ( 2019 ).

Kass-Hanna et al. ( 2021 ) and Lusardi et al. ( 2021 ) studied the role of financial literacy in influencing financial resilience. Kass-Hanna et al. ( 2021 ) find that higher financial literacy is linked to more saving, more borrowing, better risk management behaviours related to having life and health insurance and better emergency preparedness. Lusardi et al. ( 2021 ) observe that higher financial literacy is linked to better emergency preparedness, less debt constrains, better planning for the future and greater tendency to save and plan for retirement.

The role of financial inclusion in influencing financial resilience has also been studied in the literature. Even though the definition of financial inclusion varies in the literature, most studies have defined it in terms of the comprehensive financial product holdings (Lyons and Kass-Hanna 2021 ). However, initial studies focused more on basic account access (Cihak et al. 2016 ). Salignac et al. ( 2021 ) asserts that financial inclusion enables access to suitable and reasonable financial product and services. This facilitates investment in various aspects including business, education and health. Financially excluded individuals have a higher tendency in engaging in informal financing that is often more costly (Lamb 2016 ). Kass-Hanna et al. ( 2021 ) state that having financial products related to savings, loans and insurance allows individuals to make more strategic financial decisions that can mitigate risk and allow individuals to be more prepared to face financial shock. Based on the development economic perspective, Salignac et al. ( 2021 ) postulate that financial inclusion can serve as a catalyst that stimulates economic development since countries that are low in financial inclusion often have higher poverty rate, greater income inequality and lower economic growth. Belayeth Hussain et al. ( 2019 ) observed greater resilience among bank account holders compared to non-account holders, whereas Lyons and Kass-Hanna ( 2021 ) finds that greater financial inclusion is linked to lower financial vulnerability.

Additionally, studies have also scrutinised the role of socio-demographic characteristics in influencing financial resilience. Belayeth Hussain et al. ( 2019 ), Kass-Hanna et al. ( 2021 ), Lusardi et al. ( 2011 ), and Salignac et al. ( 2021 ) find that financial resilience varies across gender, income level, education level, employment status, regions, urbanisation, ethnicity, and number of dependent in the household. There are limited studies that have looked at financial resilience among Malaysians. Most of the studies on financial management among Malaysians have focused on issues related to financial preparedness (Loke 2016 ), financial wellbeing (Mahdzan et al. 2019 ), financial planning (Boon et al. 2011 ), financial literacy (Yew et al. 2017 ), and debt repayment behaviour (Hamid and Loke 2021 ). This study aims to fill the gap in the literature by identifying the determinants of financial resilience among Malaysians.

Considering the above discussions, Fig.  1 shows the conceptual framework of this study. Firstly, we would like to confirm whether economic resource factors influence financial resilience. Secondly, we would like to identify effect of financial literacy on financial resilience. Thirdly, we would like to study how financial inclusion influences financial resilience. Lastly, we would like to consider the effect of social demographic variables on financial resilience.

Conceptual framework

Data and methodology

The data used in this study are provided by the Bank Negara Malaysia, the central bank of Malaysia. It is sourced from the OECD (INFE) Financial Literacy survey that was collected in 2018. The survey was conducted nationwide, covering the East and West of Malaysia. A total of 3,394 individuals participated in the study. The survey included questions on financial literacy which incorporates financial knowledge, behaviour, and attitudes. In addition, the survey also included questions related to money management, short- and long-term financial planning and financial product choice. Questions related to the socio-demographic characteristics of respondents were also included in the survey.

Dependent variable

Financial resilience is a concept that is dynamic as it incorporates the individuals’ ability to recover from an adverse financial shock. In practise, longitudinal data are required to capture the individuals’ financial condition when the shock happens and observe their ability in dealing with it in the subsequent years. However, it is time consuming and costly to carry out such analysis. As such, cross-sectional analysis is mostly used in studying individuals’ financial resilience. In line with OECD ( 2020a ; b ), five components of financial resilience are considered. The survey questions used to measure each component of the financial resilience are included in Table 1 . The first component (Resil 1) is related to keeping control of money which includes elements associated with planning financial matters and keeping a budget. This component is measured using three questions with a total score ranging from 3 to 11. The second component (Resil 2) is related to taking care of expenditure assesses elements linked to managing expenses and fulfilling financial obligations on time to ensure that no late charges or penalty are incurred. This component is estimated using two questions with a total score ranging from 2 to 10. The third component (Resil 3) is related to having financial cushion, taking into consideration elements connected to the ability in withstanding financial shock. This component is analysed using two questions with a total score ranging from 2 to 7. The fourth component (Resil 4) is related to handling financial stress accounts for elements that considers experiencing financial shortfall and stress related to financial matters. This component is estimated using three questions with a total score ranging from 3 to 13. The last component (Resil 5) is related to having a financial planning includes elements linked to actively saving and having financial goals in the future. This component is analysed using three questions with a total score ranging from 3 to 12.

Based on the 13 questions used, the raw value of Total Resilience will range from 13 to 53. However, the range of scores is not uniform across each component. As such, respondents score for each component is estimated by dividing the score for each component with the total value of each component, and multiplying the sum obtained by 53 (the maximum score of Total Resilience). The weighted value for Total Resilience is estimated by adding the weighted scores from each of the five components. In doing so, we have assumed that each component contributes equally to the financial resilience. , Footnote 2 Footnote 3 The weighted values of component of financial resilience ranges from 2.12 to 10.6. Based on these values, each component’s score is classified into three categories: low, medium, and high. This is done by dividing the range into three groups. The score between 2.12 and 4.95 is classified as low (0), the score between 4.96 and 7.79 is classified as medium (1), and the score between 7.8 and 10.6 is classified as high (2). Meanwhile, the weighted value for Total Resilience ranges from 13.22 to 53. Based on these values, the Total Resilience score is divided into three categories: low, medium, and high. The Total Resilience score between 13.22 and 26.48 is classified as low (0), the score between 26.49 and 39.75 is classified as medium (1), and the score between 39.76 and 53 is classified as high (2).

Table 2 presents the distribution of the respondents into the three categories for Total Resilience and five components. 25.37 percentage of the respondents falls into the low category of Total Resilience, which is considered as financially vulnerable. Almost half of the respondents (51.09 percent) fall into the medium category for Total Resilience, displaying moderate financial resilience. On the other hand, 23.54 percent of the respondents belong to the high category group of Total Resilience, which is considered as financially resilient. As far as the components of financial resilience are concerned, only 18.77 percent of the respondents fall into the low category group for Resil 1. The remaining 42.1 and 39.13 percent consist of those who belong to the medium and high category group for Resil 1, respectively. This demonstrates that those who are good at keeping control of money are almost double compared to those who are not. Additionally, it is observed that almost half of the respondents (50.15 percent) are good at taking care of the expenditure (Resil 2). Only 15.67 percentage of the respondents are weak at managing their expenditure, while the remaining 34.18 percent are moderate at it. When it comes to having financial cushion (Resil 3), it is noticed that 44.81 percent of the respondents are weak at it, 50.85 percent are moderate at it, and only 4.33 percent are good at it. As far as handling financial stress (Resil 4) is concerned, majority of the respondents (52.3 percent) are moderate at it. The remaining 36.8 percent of the respondents are good at handling financial stress, while only 10.9 percent of the respondents are weak at it. Finally, it is observed that majority of the respondents (51.97 percent) are good at financial planning (Resil 5). Those who are weak in financial planning account for 22.98 of the respondents, while the balance 25.04 percent are moderate at it.

Additional analysis is done by using an alternative measure of financial resilience. Access to savings has been used by Mcknight and Rucci ( 2020 ) to study resilience. Even though it is just one of the elements of financial resilience proposed by Salignac et al. ( 2019 ), Mcknight and Rucci ( 2020 ) postulates that adequacy of saving is in itself is a good indicator to assess financial resilience since sufficient savings allow individuals to survive during challenging times without large borrowing. In assessing adequacy of saving, respondents were asked how much of their current earnings do they save. The response is classified into five categories. The categories range from less than 5 percent, 5 to 10 percent, 10 to 20 percent, 20 to 35 percent, 35 to 50 percent and above 50 percent. Individuals with higher savings are considered more resilient.

Explanatory variables

The explanatory variables used in the analyses are financial knowledge, financial inclusion, and socio-demographic variables. Financial knowledge is measured using seven questions related to time value of money, interest paid on a loan, simple interest calculation, compound interest calculation, risk and return, inflation, and risk diversification. For each question, respondents are allowed to choose any of the given answer or choose “I don’t know”. Each correct answer will be given a value of 1. Hence, the total value for financial knowledge ranges from 0 to 7. A value between 0 and 2 is considered as low financial knowledge, a value between 3 and 4 is considered moderate financial knowledge, and a value between 5 and 7 is considered high financial knowledge.

Financial inclusion is measured from two aspects: using bank products and services and level of financial product holding. Using bank products and services is classified into not using any banking products and services, using banking products and services from a single bank, and using banking products and services from several banks. Using products and services from several banks is used as the reference group. Level of financial product holdings consider respondents holding of deposit account, loan account, credit or debit card, insurance or takaful products, investment products and retirement products. Low product holding is classified as those holding two products and less, moderate product holding is classified as those holding three or four products and high product holding is classified as those holding five to six products.

Several socio-demographic characteristics are included as the control variables in the analyses. Gender is included in the analyses with value 1 assigned to male and 0 to female. Age is classified into six categories: 24 years and less; 25 to 29; 30 to 39; 40 to 49; 50 to 59; 60 years and above. Age category of 24 years and less is used as the reference group. Respondents’ education level is categorised into four, no formal education or primary education, secondary education, vocational education beyond secondary school and university education. Having university education is used as the reference group. Income is divided into four categories which are RM1500 and less; RM1501 to RM5000; RM5001 to RM10,000 and above RM10,000. Earning income of RM1500 and less is used as the reference group. Ethnicities considered are Malays, Chinese, Indian and others, with Malays used as the reference group. Marital status in divided into single, married and divorced or widowed. Being married is used as the reference group. Dependents is classified into three categories based on whether the income is used to support oneself, immediate family, or extended family, with supporting oneself used as the reference group.

According to World Bank ( 2021 ), there are economic disparity among the regions in Malaysia. In line with that, region of residence is included in the analysis. Peninsula Malaysia is represented by four regions which includes the northern, central, eastern, and southern regions. East Malaysia is considered the fifth region. The central region of Peninsula Malaysia is used as the reference group. Additionally, location of residence in terms of whether the respondent resides in a city centre, urban or rural area are also controlled for with living in city centre used as the reference group.

Econometric specification

The ordered logistic regression was used to identify the determinants five components of resilience and the Total Resilience. This regression model is appropriate when the dependent variable consist of choices between more than two options and these choices display a natural order of options (Cameron and Trivedi 2010 ). The following ordered logit model is used:

Based on the above equation, y * is a latent variable that is not directly observed. It is a continuous measure of financial resilience level that is coded as 0, 1 and 2, whereas x is the vector of explanatory variables that takes into account of financial knowledge, financial inclusion and socio-demographics factors. The β ′s are the related coefficient, and ε is the error term.

The discrete financial resilience level variable that is observed, y, is derived as following from the model:

where \(\mu_{1}\) and \(\mu_{2}\) are threshold variables in the logit model. The threshold variables are unknown and determine the maximum likelihood estimation procedure for the ordered logit. Using the cumulative normal function, the probability for each level of financial resilience is:

The explanatory variables used in this study are all categorical variables. All the ordered logit estimation was done using robust standard errors.

Descriptive statistics

Table 3 presents the distribution of Total Resilience based on financial knowledge, financial inclusion, and socio-demographics characteristics of the respondents. With regard to financial knowledge, 37.89 percent of the respondents have higher financial knowledge, 36.56 percent have moderate financial knowledge and 25.55 percent have lower financial knowledge. A lower percentage of those with low Total Resilience have high financial knowledge. Meanwhile, a higher percentage of those with high Total Resilience have high financial knowledge. When it comes to financial inclusion, we find that more than half of the respondents only uses products and services of a single bank. 36.92 percent of respondents uses product and services of several banks, while 10.58 percent of the respondents do not have any bank account. It is observed that those a higher percentage of those with low Total Resilience have a single bank account, while a higher percentage of those with high Total Resilience have several bank accounts. Almost half of the respondents only have a low level of financial products holding. The remaining 30.47 percent of the respondents have a moderate level of financial products holding and 19.68 percent have a high level of financial products holding. A lower percentage of those with low Total Resilience have a high level of products holding. Whereas a higher percentage of those with high Total Resilience have a moderate level of products holdings.

The respondents are divided almost equally in terms of gender, with a higher percentage of both genders having a moderate Total resilience. The largest group of respondents in terms of age category are those aged 24 and less (30.76%) while the smallest group are those aged 60 and above (4.51%). A lower percentage of respondents in all age categories have high Total Resilience. The majority of the respondents are Malays (57.45%). This is followed by Chinese (26.49%), others (8.25%) and Indians (7.81%). A higher percentage of the respondents in all ethnic categories have moderate Total Resilience. Majority of the respondents only have secondary school education (71.03%). Respondents with university education accounts for 17.11 percent of the total respondents, vocational education accounts for 6.02 percent while those primary or no education accounts for 5.84 percent. A higher percentage of those with university degree have a high Total Resilience.

More than half of the respondents are married (56.41%), while 41.53 percent are single. A higher percentage of married and single individuals have moderate Total Resilience. Bulk of the respondents belongs to the low-income category (51.49%). This is followed by middle-income (27.91%), high-income (13.91%) and very low-income (6.69%). A lower percentage of individuals with very low or low income have high Total Resilience. Almost half of the respondents use their income to support themselves and their immediate family (50.63%), while 42.68 percent of the respondents only support themselves. Those who support themselves and their extended family accounts for 6.69 percent of the respondents. A higher percentage of those who support themselves and their immediate family have higher Total Resilience.

Additionally, that the data shows that 46.55 percent of respondents live in urban areas, 27.87 percent lives in rural areas and 25.57 percent lives in city centre. A lower percentage of those who live in rural area have a higher Total Resilience. As for the geographical location, 25.22 percent of the respondents are from the central region of Peninsula Malaysia, 24.19 percent are for the northern region, 12.85 percent are from the eastern region, and 18.09 percent are form the southern region. Those from East Malaysia accounts for 19.65 percent of the total respondents. A lower percentage of those living in the eastern region of Peninsula Malaysia and East Malaysia have a low Total resilience.

Regression results

The ordered logit regression is used to analyse the relationship between the dependent variable (Total Resilience and five components of resilience) and independent variables (financial knowledge, financial inclusion, and socio-demographic characteristics). Table 4 shows the regression results for Total Resilience and all components of resilience. As can be seen, the coefficients of high and moderate financial knowledge are positive and significant. This indicates that, in comparison with having low financial knowledge, having moderate and higher financial knowledge increases the probability of being financially resilient and reduces the probability of being financially vulnerable. Similar results are observed for all components of financial resilience.

For financial inclusion, the coefficients of having single bank account and no bank account are negative and significant. This suggest that, in comparison with having several bank accounts, having single bank account and no bank account reduces the probability of being financially resilient and increases the probability of being financially vulnerable. Similar observations are found for resilience components related to keeping control of money, having financial cushion and having financial planning. As for product holdings, a positive and significant relationship is observed between high product holdings and total resilience. This implies that, compared to low product holding, having high product holdings increases the probability of being financially resilient and reduces the probability of being financially vulnerable. Similar findings apply to for the resilience components related to keeping control of money and having financial cushion.

Compared to being female, being male is negatively and significantly related to total financial resilience. This shows that being male lowers the probability of being financially resilient and increases the probability of being financially vulnerable. Similar findings are also observed for male with regard to resilience components related to keeping control of money and handling financial stress. Meanwhile, positive and significant relationship are observed between total resilience and higher age categories. This indicates that being older raises the probability of being financially resilient and lowers the probability of being financially vulnerable. In addition, it also raises the probability of taking a better care of expenditure and having financial cushion. There is a positive and significant relationship between total resilience and higher income categories, demonstrating that higher earning raises the probability of being financially resilient and lowers the probability of being financially vulnerable. Moreover, in results for resilient components, higher earning also raises the probability of having a financial cushion, being able to handle financial shortfall or stress and having a financial planning.

In terms of the relationship between education and total resilience, it is found that being less educated lowers the probability of being financially resilient and raises the probability of being financially vulnerable. Marital status has no bearings on total resilience. As for marital status, compared to married individuals, those who are single are linked to higher probability of handling financial stress but lower probability of having a financial planning. Even though no significant relationship observed between total resilience and supporting family members, supporting immediate and extended family members are associated with greater probability of being able to take care of expenditure. With regard to ethnicity, it is noticed that only the coefficient of other ethnicity is negative and significant. This confirms that, in comparison with being from the Malay ethnic origin, being from the other ethnic origin (other than Indian and Chinese) reduces the probability of being financially resilient and increases the probability of being financially vulnerable. In comparisons to being a Malay, being a Chinese reduces the probability of being able to keep control of money, take care of expenditure, and have a financial planning. On the other hand, it raises the probability of being able to have financial cushion and handle financial shortfall and stress.

Additionally, the findings confirm that place of residence based on the degree of urbanisation do not have any bearing on the probability of being financially resilient. Nevertheless, the findings confirm that, in comparison with living in the city centre, living in the urban or rural areas are linked are associated with greater probability of being able to keep control of money. When it comes to regional location, the findings confirm that in comparison with living in the centre of Peninsula Malaysia, living in the east of Peninsula Malaysia and East Malaysia are associated with higher probability of being financially resilient. Nevertheless, living in the north and south of Peninsula Malaysia, and East Malaysia reduces the probability of being able to keep control of money. Meanwhile, living in the south of Peninsula Malaysia and East Malaysia reduces the probability of being able to take care of the expenditure. It is also observed that in comparison with living in the centre of peninsula Malaysia, living in the rest of the regions lower the probability of having financial cushion. Additionally, the findings confirm that living in the East of Peninsula Malaysia and East Malaysia raise the probability of being able to handle financial stress and having a financial planning.

Additional analysis was done using the five categories of savings as the alternative measure of financial resilience. The findings of the ordered logit regression reported in Table 5 confirm the importance of financial knowledge and financial inclusion in improving savings. The results show that higher financial knowledge and more financial product holdings are associated with the probability of having higher savings. Additionally, being 30 and above and earning higher income are linked to the probability of having higher savings. It is also observed that those with secondary and lower than secondary education are linked with the probability of having lower savings compared to those with university degree. Compared to the Malays, individuals from other ethnic group are associated to the probability of having lower savings. Individuals living in the north, south, and east of Peninsula Malaysia are associated with the probability of having lower savings compared to those living in the centre of Peninsula Malaysia. However, those living is East Malaysia are linked with probability of having higher savings.

Discussion and conclusion

Financial resilience of consumers is an essential element for the well-functioning of an economy. Consumers who are financially resilient are able face adverse shock and recover from it by returning to their normal state or having a positive outcome. As such, investigating the factors that contributes to greater financial resilience will not only add value to the existing literature but will also benefit the consumers and policy makers. Malaysia is an emerging country with a growing economy, rising cost of living and high consumer loan. Consumers can be very vulnerable to negative economic shock under this condition. Therefore, it is crucial to understand the determinants of financial resilience among Malaysians. The 2018 OECD (INFE) Financial Literacy nationwide survey is used for this purpose. In particular, the respondents’ total financial resilience and five components of financial resilience as proposed by OECD ( 2020a ; b ) are examined. This includes elements related to keeping control of money, taking care of expenditure, having financial cushion, handling financial shortfall and stress, and having a financial planning.

Three main determinants of financial resilience considered are financial knowledge, financial inclusion, and socio-demographic characteristics. Overall, it is found that higher final knowledge increases the probability of being financially resilient. This finding correspond with Kass-Hanna et al. ( 2021 ) and Lusardi et al. ( 2011 , 2021 ), as the results confirm the importance of financial knowledge in improving financial resilience. Furthermore, higher financial knowledge improves all the five components of financial resilience considered in this study. This suggests that higher financial knowledge facilitates individuals in managing their finances and handling financial shortfall and stress.

When comparisons are made with regard to having several bank accounts, it is found that having no bank account or only having a single bank account increases the probability of being financially vulnerable. It is observed that compared to low financial product holdings, high financial product holdings raise the probability of being financially resilient. However, moderate financial product holding financial resilience does not have a bearing on financial resilience when compared to low financial product holdings. The positive impact of financial inclusion measures on financial resilience has been observed in the literature before. Belayeth Hussain et al. ( 2019 ) find that individuals in Bangladesh with savings and borrowings accounts are more financially resilient. Lyons and Kass-Hanna ( 2021 ) identifies that individual having an individual or a joint account in a formal financial institution in MENA region are better able to come up with emergency funds. Cihak et al. ( 2016 ) observe that greater financial product holdings can contribute to financial stability.

Additionally, the results indicate that various socio-demographic characteristics also have impact on financial resilience. It is discovered that men are less resilient compared to women. This is in contrast to studies by Salignac et al. ( 2021 ), Belayeth Hussain et al. ( 2019 ) and Lyons and Kass-Hanna ( 2021 ) observe that women have lower financial resilience. Nevertheless, Daud et al. ( 2019 ) find that there is no significant difference in the financial vulnerability of men and women in Malaysia. Older have more financial resilience compared the younger ones. Lusardi et al. ( 2011 ) also observe lower financial resilience among younger generations. In line with Belayeth Hussain et al. ( 2019 ), Daud et al. ( 2019 ), Lusardi et al. ( 2011 ) and Salignac et al. ( 2021 ), this study finds that those who earn more and have higher education are more resilient. Goyal et al. ( 2021 ) argue that individuals with higher income and education have more financial resources and greater awareness about the need to be financially prepared in facing adverse shock, making them more resilient.

Ethnicity’s influence on financial resilience is mixed. More specifically, it is found that those who belong to other ethnic group than Chinese, and Indians are less financially resilient compared to Malays. Variations are also observed among the races in the components of financial resilience. Similarly, Abdullah Yusof ( 2019 ) also observed that there is an ethic difference in terms of financial fragility among Malaysians. Differences in financial resilience among the ethnic group is also identified by Lusardi et al. ( 2011 ) in the USA. Additionally, compared to individuals living in the central region of Peninsula Malaysia, it is found that those living in the eastern region and East Malaysia have higher financial resilience. Variations are also observed in the components of financial resilience based on the geographical locations. Regional differences in financial resilience were also confirmed by Salignac et al. ( 2021 ) in Indonesia with those living in Bali reporting higher resilience compared those living in Central Java, while those living in the rest of regions reporting lower resilience.

Implications of the findings

This study contributes to the literature by studying the determinants of financial resilience from an emerging economy’s perspective. Individuals’ ability in withstanding an adverse shock by having a good financial management makes them less reliable on state funding and contributes towards greater stability of the financial system. As such, policy makers need to take measures to improve household’s financial resilience. Based on the findings of this study and conclusion derived from the existing literature, the measures taken must consist of elements that integrate financial education with financial inclusion. Development in the financial sector in Malaysia has increased the types of financial products and services with complex structures and terms. Even though the consumers have gained from this through greater product choices, they need to be equipped with sufficient financial knowledge to ensure that they reap the full benefits of greater financial inclusion and are protected from its negative consequences such as over indebtedness.

In line with this, the Financial Education Network (FEN), an inter-agency group co-chaired by Bank Negara Malaysia (BNM) and the Securities Commission (SC), has been established in 2016 with the aim of improving financial literacy among Malaysians via the 5-year National Strategy for Financial Literacy 2019–2023. Among the strategies that have been proposed are to incorporate financial education into the school syllabus and make sure that financial education information is easily accessible and understood. Proper implementation of these strategies is paramount in ensuring that consumers have proactive financial behaviour that can help them persevere during challenging times. Apart from this, the findings here show that there is still room to improve financial inclusion among Malaysians. Financial institutions should take advantage of this through greater marketing of their products and services. However, this needs to be accompanied by appropriate information disclosure that can facilitate consumers decision making. Finally, the findings show financial resilience among Malaysian vary according to their socio-demographic characteristics. As such, policy makers need to ensure that measures taken are designed in a way that all segment of the population, especially the most vulnerable groups, reap the benefits from it.

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Acknowledgements

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Hamid, F.S., Loke, Y.J. & Chin, P.N. Determinants of financial resilience: insights from an emerging economy. J. Soc. Econ. Dev. 25 , 479–499 (2023). https://doi.org/10.1007/s40847-023-00239-y

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Determinants of financial resilience: insights from an emerging economy

Fazelina sahul hamid.

1 Bristol Business School, University of the West of England, BS16 1QY Bristol, United Kingdom

Yiing Jia Loke

2 School of Social Science, Universiti Sains Malaysia, 11800 George Town, Penang Malaysia

Phaik Nie Chin

3 Graduate Business School, Universiti Sains Malaysia, 11800 George Town, Penang Malaysia

Associated Data

We would like to thank Bank Negara Malaysia for providing the access to the Ficancial Capability and Inclusion (FCI) Demand Side Survey Data of 2018. The authors have been given access to Malaysian Financial Capability and Inclusion Demand Side Survey Data by the Central Bank of Malaysia (Bank Negara Malaysia).

The Organisation for Economic Co-operation and Development Financial Literacy Survey of 2018 response is used to study the impact of financial knowledge, financial inclusion, and socio-demographic characteristics on financial resilience. The measurement of financial resilience considers elements related to keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress, and having financial planning. Using a sample of 3395 individuals across Malaysia, we find that greater financial knowledge is associated with the probability of being financially resilient. Greater financial inclusion in terms of having more bank accounts and holding more financial products is linked to the probability of being financially resilient. We also find that financial resilience varies across certain socio-demographic characteristics. Implications of the findings are discussed.

Introduction

Research related to the financial situation of households has gained momentum since the worsening of economic conditions in the recent years. Increasingly, more individuals are negatively affected during these challenging times. The recent Organisation for Economic Co-operation and Development (OECD) survey on 125,787 adults in twenty-six countries shows a worrying trend (OECD 2020a , b ). Almost a third of the respondents only have savings that can last them for a week and almost half of the respondents acknowledge that they are concerned about ability in meeting their everyday living expenses. This shows that large number of individuals within many economies have limited ability in facing financial challenges. Lack of financial resilience do not just affect the households, but it also has a bearing on the economy at large. Many regulators and policy makers across the globe are concerned about it as less resilient individuals will have a greater tendency to rely on state for handouts. Moreover, lower financial resilience also may affect the overall stability of the financial system.

Having financial resilience is one of the major contributor to financial wellbeing (Russell et al. 2020 ). Financial resilience relates to individuals’ ability in coping with financial shock or recovering from financial difficulties (Mcknight and Rucci 2020 ). Individuals often face challenges in dealing with unexpected shocks such as illness, death of a family member, job loss or natural disaster. Individuals who have planned their finances well would rely on their savings during the difficult times. Alternatively, they may borrow money from financial institutions, family, or friends. Some may also rely on insurance payouts. Individuals who are not able to cope with financial challenges are classified as financially vulnerable (Lusardi et al. 2021 ).

This paper aims to investigate financial resilience in the context of an emerging economy. In doing so, it explores the multidimensional nature of the construct. Malaysia is chosen as it is one of the countries that is categorised as an upper middle-income nation. Absolute poverty eradication is not the major concern of the policy makers in the country as it has moved higher in the economic ladder. However, relative poverty remains a major issue that requires attention. The households in Malaysia face various types of financial challenges. The household debt to Gross National Product (GDP) of 93.4 percent in 2020 is the highest in the region. A higher debt level raises individuals’ vulnerability to adverse shock (Jappelli et al. 2013 ). Increasingly more Malaysians, especially those living in the urban areas, are struggling with rising cost of living. World Bank ( 2019 ) reports that there is a high degree of unaffordability among the low-income and middle-income households. Additionally, the report also states that household savings in Malaysia is low compared to OECD countries. These suggest that studying financial resilience from the context of an emerging economy like Malaysia is very relevant and timely as it can provide a different perspective about the topic.

In studying the state of financial resilience in Malaysia, this paper takes into consideration of the five components of financial resilience proposed by OECD ( 2020a ; b ) 1 which includes elements related keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress and having a financial planning. These components enable us to identify the level of resilience among individuals by considering various aspects of personal financial management that are important for the financial wellbeing of individuals. We draw conclusion using the Organisation for Economic Co-operation and Development (International Network on Financial Education) Financial Literacy Survey. The 2018 OECD (INFE) Financial Literacy survey response is used to analyse financial resilience among Malaysians. Implications for research and policy are then presented.

This paper is organised as follows. “ Literature review ” section includes the literature review. “ Data and methodology ” section describes the methodology and the data used in this study. “ Regression results ” section presents the results while “ Discussion and conclusion ” section presents the discussion and conclusion of the study. The final section provides the implications of the findings.

Literature review

Financial resilience is one of the aspects of resilience that has been investigated in the literature. The earlier study by Lusardi et al. ( 2011 ) has defined financial resilience as the individuals’ ability to raise emergency funds from various sources when needed. The theoretical background of precautionary motive can be derived from the Life-Cycle Hypothesis model of consumption and savings. This theory postulates that individuals save to smooth consumption over their lifetime. Modigliani and Brumberg ( 1954 ) postulates that savings enable individuals to face emergencies that may either arise due to a temporary reduction in income or unexpected increase in expenses. In contrast, Muir et al. ( 2016 ) and Salignac et al. ( 2019 ) define financial resilience as the ability of individuals in relying on their internal and external resources during adverse shock. The internal resource refers to individuals’ ability in managing their finances by saving and taking care or their expenses, while external resource refers to the reliance on family, friends, or other form of social support during a financial shock.

Salignac et al. ( 2019 ) argue that focusing only on the individual’s ability in managing financial shock is not sufficient as it takes into consideration of the other aspects such as context, structures and supports. They develop a framework that helps us understand financial resilience from the viewpoint of financial inclusion. Their framework incorporates four interconnected factors related to economic resources; financial products and services; financial knowledge and behaviour and social capital. Similarly, Goyal et al. ( 2021 ) incorporated individuals reliance on both internal and external resources in studying financial resilience among Indians during the COVID-19 pandemic.

Meanwhile, OECD ( 2020a ; b ) conceptualisation of financial resilience incorporates elements related to keeping control of money, taking care of expenditures, having a financial cushion, handling financial shortfall or stress, having a financial planning and being aware of fraud. This conceptualisation of financial resilience corresponds mainly to the individual’s ability in assessing and using internal resources when facing financial challenges. These elements mostly relate to the economic resource factor in the study by Salignac et al. ( 2019 ).

Kass-Hanna et al. ( 2021 ) and Lusardi et al. ( 2021 ) studied the role of financial literacy in influencing financial resilience. Kass-Hanna et al. ( 2021 ) find that higher financial literacy is linked to more saving, more borrowing, better risk management behaviours related to having life and health insurance and better emergency preparedness. Lusardi et al. ( 2021 ) observe that higher financial literacy is linked to better emergency preparedness, less debt constrains, better planning for the future and greater tendency to save and plan for retirement.

The role of financial inclusion in influencing financial resilience has also been studied in the literature. Even though the definition of financial inclusion varies in the literature, most studies have defined it in terms of the comprehensive financial product holdings (Lyons and Kass-Hanna 2021 ). However, initial studies focused more on basic account access (Cihak et al. 2016 ). Salignac et al. ( 2021 ) asserts that financial inclusion enables access to suitable and reasonable financial product and services. This facilitates investment in various aspects including business, education and health. Financially excluded individuals have a higher tendency in engaging in informal financing that is often more costly (Lamb 2016 ). Kass-Hanna et al. ( 2021 ) state that having financial products related to savings, loans and insurance allows individuals to make more strategic financial decisions that can mitigate risk and allow individuals to be more prepared to face financial shock. Based on the development economic perspective, Salignac et al. ( 2021 ) postulate that financial inclusion can serve as a catalyst that stimulates economic development since countries that are low in financial inclusion often have higher poverty rate, greater income inequality and lower economic growth. Belayeth Hussain et al. ( 2019 ) observed greater resilience among bank account holders compared to non-account holders, whereas Lyons and Kass-Hanna ( 2021 ) finds that greater financial inclusion is linked to lower financial vulnerability.

Additionally, studies have also scrutinised the role of socio-demographic characteristics in influencing financial resilience. Belayeth Hussain et al. ( 2019 ), Kass-Hanna et al. ( 2021 ), Lusardi et al. ( 2011 ), and Salignac et al. ( 2021 ) find that financial resilience varies across gender, income level, education level, employment status, regions, urbanisation, ethnicity, and number of dependent in the household. There are limited studies that have looked at financial resilience among Malaysians. Most of the studies on financial management among Malaysians have focused on issues related to financial preparedness (Loke 2016 ), financial wellbeing (Mahdzan et al. 2019 ), financial planning (Boon et al. 2011 ), financial literacy (Yew et al. 2017 ), and debt repayment behaviour (Hamid and Loke 2021 ). This study aims to fill the gap in the literature by identifying the determinants of financial resilience among Malaysians.

Considering the above discussions, Fig.  1 shows the conceptual framework of this study. Firstly, we would like to confirm whether economic resource factors influence financial resilience. Secondly, we would like to identify effect of financial literacy on financial resilience. Thirdly, we would like to study how financial inclusion influences financial resilience. Lastly, we would like to consider the effect of social demographic variables on financial resilience.

Conceptual framework

Data and methodology

The data used in this study are provided by the Bank Negara Malaysia, the central bank of Malaysia. It is sourced from the OECD (INFE) Financial Literacy survey that was collected in 2018. The survey was conducted nationwide, covering the East and West of Malaysia. A total of 3,394 individuals participated in the study. The survey included questions on financial literacy which incorporates financial knowledge, behaviour, and attitudes. In addition, the survey also included questions related to money management, short- and long-term financial planning and financial product choice. Questions related to the socio-demographic characteristics of respondents were also included in the survey.

Dependent variable

Financial resilience is a concept that is dynamic as it incorporates the individuals’ ability to recover from an adverse financial shock. In practise, longitudinal data are required to capture the individuals’ financial condition when the shock happens and observe their ability in dealing with it in the subsequent years. However, it is time consuming and costly to carry out such analysis. As such, cross-sectional analysis is mostly used in studying individuals’ financial resilience. In line with OECD ( 2020a ; b ), five components of financial resilience are considered. The survey questions used to measure each component of the financial resilience are included in Table ​ Table1. 1 . The first component (Resil 1) is related to keeping control of money which includes elements associated with planning financial matters and keeping a budget. This component is measured using three questions with a total score ranging from 3 to 11. The second component (Resil 2) is related to taking care of expenditure assesses elements linked to managing expenses and fulfilling financial obligations on time to ensure that no late charges or penalty are incurred. This component is estimated using two questions with a total score ranging from 2 to 10. The third component (Resil 3) is related to having financial cushion, taking into consideration elements connected to the ability in withstanding financial shock. This component is analysed using two questions with a total score ranging from 2 to 7. The fourth component (Resil 4) is related to handling financial stress accounts for elements that considers experiencing financial shortfall and stress related to financial matters. This component is estimated using three questions with a total score ranging from 3 to 13. The last component (Resil 5) is related to having a financial planning includes elements linked to actively saving and having financial goals in the future. This component is analysed using three questions with a total score ranging from 3 to 12.

Financial resilience components

Based on the 13 questions used, the raw value of Total Resilience will range from 13 to 53. However, the range of scores is not uniform across each component. As such, respondents score for each component is estimated by dividing the score for each component with the total value of each component, and multiplying the sum obtained by 53 (the maximum score of Total Resilience). The weighted value for Total Resilience is estimated by adding the weighted scores from each of the five components. In doing so, we have assumed that each component contributes equally to the financial resilience. , 2 3 The weighted values of component of financial resilience ranges from 2.12 to 10.6. Based on these values, each component’s score is classified into three categories: low, medium, and high. This is done by dividing the range into three groups. The score between 2.12 and 4.95 is classified as low (0), the score between 4.96 and 7.79 is classified as medium (1), and the score between 7.8 and 10.6 is classified as high (2). Meanwhile, the weighted value for Total Resilience ranges from 13.22 to 53. Based on these values, the Total Resilience score is divided into three categories: low, medium, and high. The Total Resilience score between 13.22 and 26.48 is classified as low (0), the score between 26.49 and 39.75 is classified as medium (1), and the score between 39.76 and 53 is classified as high (2).

Table ​ Table2 2 presents the distribution of the respondents into the three categories for Total Resilience and five components. 25.37 percentage of the respondents falls into the low category of Total Resilience, which is considered as financially vulnerable. Almost half of the respondents (51.09 percent) fall into the medium category for Total Resilience, displaying moderate financial resilience. On the other hand, 23.54 percent of the respondents belong to the high category group of Total Resilience, which is considered as financially resilient. As far as the components of financial resilience are concerned, only 18.77 percent of the respondents fall into the low category group for Resil 1. The remaining 42.1 and 39.13 percent consist of those who belong to the medium and high category group for Resil 1, respectively. This demonstrates that those who are good at keeping control of money are almost double compared to those who are not. Additionally, it is observed that almost half of the respondents (50.15 percent) are good at taking care of the expenditure (Resil 2). Only 15.67 percentage of the respondents are weak at managing their expenditure, while the remaining 34.18 percent are moderate at it. When it comes to having financial cushion (Resil 3), it is noticed that 44.81 percent of the respondents are weak at it, 50.85 percent are moderate at it, and only 4.33 percent are good at it. As far as handling financial stress (Resil 4) is concerned, majority of the respondents (52.3 percent) are moderate at it. The remaining 36.8 percent of the respondents are good at handling financial stress, while only 10.9 percent of the respondents are weak at it. Finally, it is observed that majority of the respondents (51.97 percent) are good at financial planning (Resil 5). Those who are weak in financial planning account for 22.98 of the respondents, while the balance 25.04 percent are moderate at it.

Distributions of dependent variables

Resil 1 relates to keeping control of money; Resil 2 relates to taking care of expenditures; Resil 3 relates to having a financial cushion; Resil 4 relates to experiencing financial shortfall or stress and Resil 5 relates to having a financial planning

Additional analysis is done by using an alternative measure of financial resilience. Access to savings has been used by Mcknight and Rucci ( 2020 ) to study resilience. Even though it is just one of the elements of financial resilience proposed by Salignac et al. ( 2019 ), Mcknight and Rucci ( 2020 ) postulates that adequacy of saving is in itself is a good indicator to assess financial resilience since sufficient savings allow individuals to survive during challenging times without large borrowing. In assessing adequacy of saving, respondents were asked how much of their current earnings do they save. The response is classified into five categories. The categories range from less than 5 percent, 5 to 10 percent, 10 to 20 percent, 20 to 35 percent, 35 to 50 percent and above 50 percent. Individuals with higher savings are considered more resilient.

Explanatory variables

The explanatory variables used in the analyses are financial knowledge, financial inclusion, and socio-demographic variables. Financial knowledge is measured using seven questions related to time value of money, interest paid on a loan, simple interest calculation, compound interest calculation, risk and return, inflation, and risk diversification. For each question, respondents are allowed to choose any of the given answer or choose “I don’t know”. Each correct answer will be given a value of 1. Hence, the total value for financial knowledge ranges from 0 to 7. A value between 0 and 2 is considered as low financial knowledge, a value between 3 and 4 is considered moderate financial knowledge, and a value between 5 and 7 is considered high financial knowledge.

Financial inclusion is measured from two aspects: using bank products and services and level of financial product holding. Using bank products and services is classified into not using any banking products and services, using banking products and services from a single bank, and using banking products and services from several banks. Using products and services from several banks is used as the reference group. Level of financial product holdings consider respondents holding of deposit account, loan account, credit or debit card, insurance or takaful products, investment products and retirement products. Low product holding is classified as those holding two products and less, moderate product holding is classified as those holding three or four products and high product holding is classified as those holding five to six products.

Several socio-demographic characteristics are included as the control variables in the analyses. Gender is included in the analyses with value 1 assigned to male and 0 to female. Age is classified into six categories: 24 years and less; 25 to 29; 30 to 39; 40 to 49; 50 to 59; 60 years and above. Age category of 24 years and less is used as the reference group. Respondents’ education level is categorised into four, no formal education or primary education, secondary education, vocational education beyond secondary school and university education. Having university education is used as the reference group. Income is divided into four categories which are RM1500 and less; RM1501 to RM5000; RM5001 to RM10,000 and above RM10,000. Earning income of RM1500 and less is used as the reference group. Ethnicities considered are Malays, Chinese, Indian and others, with Malays used as the reference group. Marital status in divided into single, married and divorced or widowed. Being married is used as the reference group. Dependents is classified into three categories based on whether the income is used to support oneself, immediate family, or extended family, with supporting oneself used as the reference group.

According to World Bank ( 2021 ), there are economic disparity among the regions in Malaysia. In line with that, region of residence is included in the analysis. Peninsula Malaysia is represented by four regions which includes the northern, central, eastern, and southern regions. East Malaysia is considered the fifth region. The central region of Peninsula Malaysia is used as the reference group. Additionally, location of residence in terms of whether the respondent resides in a city centre, urban or rural area are also controlled for with living in city centre used as the reference group.

Econometric specification

The ordered logistic regression was used to identify the determinants five components of resilience and the Total Resilience. This regression model is appropriate when the dependent variable consist of choices between more than two options and these choices display a natural order of options (Cameron and Trivedi 2010 ). The following ordered logit model is used:

Based on the above equation, y * is a latent variable that is not directly observed. It is a continuous measure of financial resilience level that is coded as 0, 1 and 2, whereas x is the vector of explanatory variables that takes into account of financial knowledge, financial inclusion and socio-demographics factors. The β ′s are the related coefficient, and ε is the error term.

The discrete financial resilience level variable that is observed, y, is derived as following from the model:

where μ 1 and μ 2 are threshold variables in the logit model. The threshold variables are unknown and determine the maximum likelihood estimation procedure for the ordered logit. Using the cumulative normal function, the probability for each level of financial resilience is:

The explanatory variables used in this study are all categorical variables. All the ordered logit estimation was done using robust standard errors.

Descriptive statistics

Table ​ Table3 3 presents the distribution of Total Resilience based on financial knowledge, financial inclusion, and socio-demographics characteristics of the respondents. With regard to financial knowledge, 37.89 percent of the respondents have higher financial knowledge, 36.56 percent have moderate financial knowledge and 25.55 percent have lower financial knowledge. A lower percentage of those with low Total Resilience have high financial knowledge. Meanwhile, a higher percentage of those with high Total Resilience have high financial knowledge. When it comes to financial inclusion, we find that more than half of the respondents only uses products and services of a single bank. 36.92 percent of respondents uses product and services of several banks, while 10.58 percent of the respondents do not have any bank account. It is observed that those a higher percentage of those with low Total Resilience have a single bank account, while a higher percentage of those with high Total Resilience have several bank accounts. Almost half of the respondents only have a low level of financial products holding. The remaining 30.47 percent of the respondents have a moderate level of financial products holding and 19.68 percent have a high level of financial products holding. A lower percentage of those with low Total Resilience have a high level of products holding. Whereas a higher percentage of those with high Total Resilience have a moderate level of products holdings.

Financial knowledge, financial inclusion and socio-demographic variable by total resilience

The respondents are divided almost equally in terms of gender, with a higher percentage of both genders having a moderate Total resilience. The largest group of respondents in terms of age category are those aged 24 and less (30.76%) while the smallest group are those aged 60 and above (4.51%). A lower percentage of respondents in all age categories have high Total Resilience. The majority of the respondents are Malays (57.45%). This is followed by Chinese (26.49%), others (8.25%) and Indians (7.81%). A higher percentage of the respondents in all ethnic categories have moderate Total Resilience. Majority of the respondents only have secondary school education (71.03%). Respondents with university education accounts for 17.11 percent of the total respondents, vocational education accounts for 6.02 percent while those primary or no education accounts for 5.84 percent. A higher percentage of those with university degree have a high Total Resilience.

More than half of the respondents are married (56.41%), while 41.53 percent are single. A higher percentage of married and single individuals have moderate Total Resilience. Bulk of the respondents belongs to the low-income category (51.49%). This is followed by middle-income (27.91%), high-income (13.91%) and very low-income (6.69%). A lower percentage of individuals with very low or low income have high Total Resilience. Almost half of the respondents use their income to support themselves and their immediate family (50.63%), while 42.68 percent of the respondents only support themselves. Those who support themselves and their extended family accounts for 6.69 percent of the respondents. A higher percentage of those who support themselves and their immediate family have higher Total Resilience.

Additionally, that the data shows that 46.55 percent of respondents live in urban areas, 27.87 percent lives in rural areas and 25.57 percent lives in city centre. A lower percentage of those who live in rural area have a higher Total Resilience. As for the geographical location, 25.22 percent of the respondents are from the central region of Peninsula Malaysia, 24.19 percent are for the northern region, 12.85 percent are from the eastern region, and 18.09 percent are form the southern region. Those from East Malaysia accounts for 19.65 percent of the total respondents. A lower percentage of those living in the eastern region of Peninsula Malaysia and East Malaysia have a low Total resilience.

Regression results

The ordered logit regression is used to analyse the relationship between the dependent variable (Total Resilience and five components of resilience) and independent variables (financial knowledge, financial inclusion, and socio-demographic characteristics). Table ​ Table4 4 shows the regression results for Total Resilience and all components of resilience. As can be seen, the coefficients of high and moderate financial knowledge are positive and significant. This indicates that, in comparison with having low financial knowledge, having moderate and higher financial knowledge increases the probability of being financially resilient and reduces the probability of being financially vulnerable. Similar results are observed for all components of financial resilience.

Ordered logit regressions on the determinants of financial resilience

Robust standard errors in parentheses

*** p  < 0.01; ** p  < 0.05; * p  < 0.1

For financial inclusion, the coefficients of having single bank account and no bank account are negative and significant. This suggest that, in comparison with having several bank accounts, having single bank account and no bank account reduces the probability of being financially resilient and increases the probability of being financially vulnerable. Similar observations are found for resilience components related to keeping control of money, having financial cushion and having financial planning. As for product holdings, a positive and significant relationship is observed between high product holdings and total resilience. This implies that, compared to low product holding, having high product holdings increases the probability of being financially resilient and reduces the probability of being financially vulnerable. Similar findings apply to for the resilience components related to keeping control of money and having financial cushion.

Compared to being female, being male is negatively and significantly related to total financial resilience. This shows that being male lowers the probability of being financially resilient and increases the probability of being financially vulnerable. Similar findings are also observed for male with regard to resilience components related to keeping control of money and handling financial stress. Meanwhile, positive and significant relationship are observed between total resilience and higher age categories. This indicates that being older raises the probability of being financially resilient and lowers the probability of being financially vulnerable. In addition, it also raises the probability of taking a better care of expenditure and having financial cushion. There is a positive and significant relationship between total resilience and higher income categories, demonstrating that higher earning raises the probability of being financially resilient and lowers the probability of being financially vulnerable. Moreover, in results for resilient components, higher earning also raises the probability of having a financial cushion, being able to handle financial shortfall or stress and having a financial planning.

In terms of the relationship between education and total resilience, it is found that being less educated lowers the probability of being financially resilient and raises the probability of being financially vulnerable. Marital status has no bearings on total resilience. As for marital status, compared to married individuals, those who are single are linked to higher probability of handling financial stress but lower probability of having a financial planning. Even though no significant relationship observed between total resilience and supporting family members, supporting immediate and extended family members are associated with greater probability of being able to take care of expenditure. With regard to ethnicity, it is noticed that only the coefficient of other ethnicity is negative and significant. This confirms that, in comparison with being from the Malay ethnic origin, being from the other ethnic origin (other than Indian and Chinese) reduces the probability of being financially resilient and increases the probability of being financially vulnerable. In comparisons to being a Malay, being a Chinese reduces the probability of being able to keep control of money, take care of expenditure, and have a financial planning. On the other hand, it raises the probability of being able to have financial cushion and handle financial shortfall and stress.

Additionally, the findings confirm that place of residence based on the degree of urbanisation do not have any bearing on the probability of being financially resilient. Nevertheless, the findings confirm that, in comparison with living in the city centre, living in the urban or rural areas are linked are associated with greater probability of being able to keep control of money. When it comes to regional location, the findings confirm that in comparison with living in the centre of Peninsula Malaysia, living in the east of Peninsula Malaysia and East Malaysia are associated with higher probability of being financially resilient. Nevertheless, living in the north and south of Peninsula Malaysia, and East Malaysia reduces the probability of being able to keep control of money. Meanwhile, living in the south of Peninsula Malaysia and East Malaysia reduces the probability of being able to take care of the expenditure. It is also observed that in comparison with living in the centre of peninsula Malaysia, living in the rest of the regions lower the probability of having financial cushion. Additionally, the findings confirm that living in the East of Peninsula Malaysia and East Malaysia raise the probability of being able to handle financial stress and having a financial planning.

Additional analysis was done using the five categories of savings as the alternative measure of financial resilience. The findings of the ordered logit regression reported in Table ​ Table5 5 confirm the importance of financial knowledge and financial inclusion in improving savings. The results show that higher financial knowledge and more financial product holdings are associated with the probability of having higher savings. Additionally, being 30 and above and earning higher income are linked to the probability of having higher savings. It is also observed that those with secondary and lower than secondary education are linked with the probability of having lower savings compared to those with university degree. Compared to the Malays, individuals from other ethnic group are associated to the probability of having lower savings. Individuals living in the north, south, and east of Peninsula Malaysia are associated with the probability of having lower savings compared to those living in the centre of Peninsula Malaysia. However, those living is East Malaysia are linked with probability of having higher savings.

Determinants of the ratio of savings as an alternative financial resilience measure

Discussion and conclusion

Financial resilience of consumers is an essential element for the well-functioning of an economy. Consumers who are financially resilient are able face adverse shock and recover from it by returning to their normal state or having a positive outcome. As such, investigating the factors that contributes to greater financial resilience will not only add value to the existing literature but will also benefit the consumers and policy makers. Malaysia is an emerging country with a growing economy, rising cost of living and high consumer loan. Consumers can be very vulnerable to negative economic shock under this condition. Therefore, it is crucial to understand the determinants of financial resilience among Malaysians. The 2018 OECD (INFE) Financial Literacy nationwide survey is used for this purpose. In particular, the respondents’ total financial resilience and five components of financial resilience as proposed by OECD ( 2020a ; b ) are examined. This includes elements related to keeping control of money, taking care of expenditure, having financial cushion, handling financial shortfall and stress, and having a financial planning.

Three main determinants of financial resilience considered are financial knowledge, financial inclusion, and socio-demographic characteristics. Overall, it is found that higher final knowledge increases the probability of being financially resilient. This finding correspond with Kass-Hanna et al. ( 2021 ) and Lusardi et al. ( 2011 , 2021 ), as the results confirm the importance of financial knowledge in improving financial resilience. Furthermore, higher financial knowledge improves all the five components of financial resilience considered in this study. This suggests that higher financial knowledge facilitates individuals in managing their finances and handling financial shortfall and stress.

When comparisons are made with regard to having several bank accounts, it is found that having no bank account or only having a single bank account increases the probability of being financially vulnerable. It is observed that compared to low financial product holdings, high financial product holdings raise the probability of being financially resilient. However, moderate financial product holding financial resilience does not have a bearing on financial resilience when compared to low financial product holdings. The positive impact of financial inclusion measures on financial resilience has been observed in the literature before. Belayeth Hussain et al. ( 2019 ) find that individuals in Bangladesh with savings and borrowings accounts are more financially resilient. Lyons and Kass-Hanna ( 2021 ) identifies that individual having an individual or a joint account in a formal financial institution in MENA region are better able to come up with emergency funds. Cihak et al. ( 2016 ) observe that greater financial product holdings can contribute to financial stability.

Additionally, the results indicate that various socio-demographic characteristics also have impact on financial resilience. It is discovered that men are less resilient compared to women. This is in contrast to studies by Salignac et al. ( 2021 ), Belayeth Hussain et al. ( 2019 ) and Lyons and Kass-Hanna ( 2021 ) observe that women have lower financial resilience. Nevertheless, Daud et al. ( 2019 ) find that there is no significant difference in the financial vulnerability of men and women in Malaysia. Older have more financial resilience compared the younger ones. Lusardi et al. ( 2011 ) also observe lower financial resilience among younger generations. In line with Belayeth Hussain et al. ( 2019 ), Daud et al. ( 2019 ), Lusardi et al. ( 2011 ) and Salignac et al. ( 2021 ), this study finds that those who earn more and have higher education are more resilient. Goyal et al. ( 2021 ) argue that individuals with higher income and education have more financial resources and greater awareness about the need to be financially prepared in facing adverse shock, making them more resilient.

Ethnicity’s influence on financial resilience is mixed. More specifically, it is found that those who belong to other ethnic group than Chinese, and Indians are less financially resilient compared to Malays. Variations are also observed among the races in the components of financial resilience. Similarly, Abdullah Yusof ( 2019 ) also observed that there is an ethic difference in terms of financial fragility among Malaysians. Differences in financial resilience among the ethnic group is also identified by Lusardi et al. ( 2011 ) in the USA. Additionally, compared to individuals living in the central region of Peninsula Malaysia, it is found that those living in the eastern region and East Malaysia have higher financial resilience. Variations are also observed in the components of financial resilience based on the geographical locations. Regional differences in financial resilience were also confirmed by Salignac et al. ( 2021 ) in Indonesia with those living in Bali reporting higher resilience compared those living in Central Java, while those living in the rest of regions reporting lower resilience.

Implications of the findings

This study contributes to the literature by studying the determinants of financial resilience from an emerging economy’s perspective. Individuals’ ability in withstanding an adverse shock by having a good financial management makes them less reliable on state funding and contributes towards greater stability of the financial system. As such, policy makers need to take measures to improve household’s financial resilience. Based on the findings of this study and conclusion derived from the existing literature, the measures taken must consist of elements that integrate financial education with financial inclusion. Development in the financial sector in Malaysia has increased the types of financial products and services with complex structures and terms. Even though the consumers have gained from this through greater product choices, they need to be equipped with sufficient financial knowledge to ensure that they reap the full benefits of greater financial inclusion and are protected from its negative consequences such as over indebtedness.

In line with this, the Financial Education Network (FEN), an inter-agency group co-chaired by Bank Negara Malaysia (BNM) and the Securities Commission (SC), has been established in 2016 with the aim of improving financial literacy among Malaysians via the 5-year National Strategy for Financial Literacy 2019–2023. Among the strategies that have been proposed are to incorporate financial education into the school syllabus and make sure that financial education information is easily accessible and understood. Proper implementation of these strategies is paramount in ensuring that consumers have proactive financial behaviour that can help them persevere during challenging times. Apart from this, the findings here show that there is still room to improve financial inclusion among Malaysians. Financial institutions should take advantage of this through greater marketing of their products and services. However, this needs to be accompanied by appropriate information disclosure that can facilitate consumers decision making. Finally, the findings show financial resilience among Malaysian vary according to their socio-demographic characteristics. As such, policy makers need to ensure that measures taken are designed in a way that all segment of the population, especially the most vulnerable groups, reap the benefits from it.

Acknowledgements

We would like to Bank Negara Malaysia for providing the access to the Organisation for Economic Co-operation and Development (International Network on Financial Education) Financial Literacy 2018 Survey Data.

No funding was received.

Data availability

Declarations.

The authors declare that they have no conflict of interest.

1 The 2018 OECD survey conducted in Malaysia does not include question related to fraud awareness.

2 We acknowledge that this may not necessarily be the case.

3 For example, in the case where Resil 1 = 5.5, Resil 2 = 5, Resil 3 = 3.5, Resil 4 = 6.5, and Resil 5 = 6, the weighted value of Total Resilience = (5.5/11)*53*0.2 + (5/10)*53*0.2 + (3.5/7)*53*0.2 + (6.5/13)*53*0.2 + (6/12)*53*0.2 = 26.5.

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Contributor Information

Fazelina Sahul Hamid, Email: [email protected] .

Yiing Jia Loke, Email: ym.msu@ekoljy .

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The Best Practices of Financial Management in Education: A Systematic Literature Review

2023, International Journal of Research and Innovation in Social Science

This study explored the literature on the best practices of Financial Management in Education utilizing a systematic review analysis design. This study aimed to answer the following questions: 1. The demographic data in the existing literature on the the best practices of Financial Management in Education in terms of country, research design, and the number of participants. 2. The best practices of Financial Management in Education, and 3. Suggestions for further research can be identified by exploring the current literature on an educational strategic direction based on the elements of financial management. As a result of the systematic analysis showed themes on the best practices of Financial Management in Education as According to the demographics of the literature, Western countries and Southeast Asia conducted very few studies on best practices of financial management in education Therefore, this integrated and systematic study of the educational literature on the best practices and financial management sought to identify the key best practices of financial management in education. Finally, we hope that the framework offered by this study and the overview of the difficulties presented here will help to improve school leaders' practices in strategic financial management and serve as the basis for future research and policy decisions.

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Abstract The objective of the study is to assess financial Management skills among the university level students enrolled in different universities and colleges in Peshawar city by employing both t-tests and Analyses of Variances (ANOVA). Six universities (three public sectors and three private sectors) and five private sector business and management sciences colleges were selected randomly for this research study. By and large the results of the study based on the total mean score male students have more financial management skills than female students. There was a significant difference in the financial management skills both students of public and private universities and colleges. Students of public sector universities and colleges have higher financial management skills score (Mean 39.05) than students of private sector universities and colleges score (Mean 38.01).

Zenodo (CERN European Organization for Nuclear Research)

Nathaniel Gido

Carolina Lita Permatasari

Financial literacy is an important part of the realization of student management in relation to improving financial literacy so that it creates knowledge and behavior in financial management that has been carried out so far. Students need to realize financial management by increasing financial literacy which is what they learn during lectures. Therefore, students are able to carry out financial management with the existence of financial literacy. This research was conducted at the SWCU FKIP Economic Education using a qualitative method with a snowball sampling technique and with data collection techniques, namely primary data, interviews and documentation, which aims to determine student literacy towards financial management of SWCU FKIP economic education students. The results of this study indicate that students already understand the basics of finance but there are several things that must be underlined in financial literacy, namely knowledge of investment and insurance which is ...

The purpose of this study was to determine the school&#39;s financial management strategy for improving the quality of education in Islamic Senior High School Ukhuwah Banjarmasin. This research uses a qualitative approach with the type of case study, taking the research location at the Islamic Senior High School Ukhuwah Banjarmasin. Data collection methods were carried out by 1) Interviews; 2) Observation; 3) Documentation. The analysis technique uses Miles and Huberman&#39;s interactive analysis model: data reduction, data presentation, and conclusion drawing. Meanwhile, checking the validity of the data was carried out by extending the research time and persistence in observing, triangulating, and using references. The research findings show that the school&#39;s financial planning strategy in improving the quality of education at the Islamic Senior High School Ukhuwah Banjarmasin through a) Conducting meetings at the beginning of the school year; b) Formulating programs; c) Estab...

African Journal of …

Leila Falahati

Nur Syakirah

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About SoFi Invest

• Overall Rating
• Pros and Cons
• Ways to Invest
• How SoFi Compares
• Related Terms
• Methodology

SoFi Invest Review 2024

Paid non-client promotion: Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate investing products to write unbiased product reviews.

Get up to $1,000 in stock when you fund a new account.

$0 ($1 to start investing); $5 fractional shares; $2,000 for margin trading

0% for active trading and automated investing

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No minimum to start investing
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No account or trading fees, and low fees to own funds
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Access to Certified Financial Planners at no additional charge
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. IPOs available
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. SoFi 1% IRA match
• con icon Two crossed lines that form an 'X'. No tax-loss harvesting, an advanced investing technique where you sell a stock or mutual fund at a loss for a tax benefit
• con icon Two crossed lines that form an 'X'. No option for stop-loss orders when actively investing. SoFi's active investing account only uses market orders
• con icon Two crossed lines that form an 'X'. Currently only available to US residents

SoFi Invest us a great platform for US investors who are looking for an intuitive online trading experience, an open active or automated investing account.

• Promotion: Get up to $1,000 in stock when you fund a new account.
• App store rating: 4.8 iOS/4.1 Android
• Consider it if: You want an easy-to-use platform paired with rock-bottom pricing.

SoFi Invest is an all-inclusive online brokerage for both passive and active investors. Buy IPO stock, build your nest egg, or invest in alternative investments like venture capital, private credit, and commodities. Cryptocurrency trading on SoFi Invest is no longer available. 

The easy-to-use platform provides investors with portfolio-balancing tools, financial planners, and curated content from SoFi's educational content hub. As one of the best robo-advisors , SoFi's cost-effective automated trading platform offers goal-based investing strategies, simple diversification, and auto-rebalancing. 

You can trade stocks, ETFs , fractional shares, IPOs, options, commodities, and other alternative investments. Retirement-focused investors can earn a 2% match on all SoFi contributions through Tax Day on April 15. Stocks, fractional shares, and ETFs are available for commission-free trading with SoFi Invest.

But if you're simply looking to start investing, SoFi has all you need, with complimentary access to Certified Financial Planners ( CFPs ). Only US residents are eligible to open an account.

Who is SoFi Best For? 

SoFi Invest is best for traders wanting to invest in commission-free stocks, ETFs, and options. It offers a good selection of accounts, including a self-managed brokerage account, a robo-advisor , and retirement savings accounts (both active and automatic options available). 

Educational resources and financial advice from SoFi make it ideal for beginner investors looking for low-cost trades and strong financial planning resources. It's also a great option for folks with other SoFi accounts as it is easy to move money between SoFi Checking and Savings and SoFi Invest accounts. 

However, SoFi doesn't offer tax-loss harvesting. Advanced traders can only access stop-limit orders for whole shares during market hours. It's also not great for traders wanting to invest in cryptocurrencies as SoFi no longer supports crypto-trading. The remaining SoFi crypto accounts migrated to Blockchain.com.

SoFi: Overall Rating

Sofi invest pros and cons, is sofi invest trustworthy.

SoFi has received an A+ rating from the Better Business Bureau . The BBB uses a grade range of A+ to F when evaluating company trustworthiness and considers several factors — including customer complaint history, licensing and government actions, and advertising issues — when reaching a final rating.

The BBB says its ratings don't guarantee a company's reliability or performance.

December 6, 2023, FINRA sanctioned four firms (M1 Finance, Public Investing, SogoTrade, and SoFi) to pay $2.6 million for allegedly failing to establish, maintain, and enforce a supervisory system. The brokerages agreed to pay the $2.6 million without admitting or denying the charges. 

Ways to Invest with SoFi

Active investing account.

SoFi Active Invest is a brokerage account that gives you 100% control to buy and sell commission-free stocks, ETFs, and fractional shares. Options trading is also available a multiple trading levels (SoFi currently offers long puts and cover calls and buy writes) and with no contract fees. 

As the name implies, this account is best for active traders wanting to pick and choose their portfolio of investments. Those with a SoFi Active account are automatically eligible to become a SoFi member, which grants you access to product discounts, exclusive events, and more. 

As a member, you can also invest in initial public offerings (IPOs) for no minimum, which are shares sold by privately owned companies to the general public.  In addition, members can access broader portfolio diversification n and growth potential by investing in alternative investments like commodities, foreign currencies, real-estate, and pre-IPO unicorns. Access short-term money market funds, interval funds, and professionally managed mutual funds. 

SoFi Automated

SoFi Automated Investing accounts to invest your funds in a pre-built portfolio of SoFi ETFs and ETFs from other brokerages like Vanguard and BlackRock. SoFi assesses your risk tolerance, time horizon, and investment goals to create your investment portfolio .

Automated investing solutions by SoFi include goal-planning strategies like saving for a home, retirement, getting married, planning to travel, or setting up a college fund. For no extra cost, automated accounts come with one-on-one guidance from financial advisors to help you reach your goals. 

Access investment planning tools like automatic portfolio rebalancing (every quarter), recurring deposits, and portfolio diversification tools. Regarding account types, SoFi Automated Investing supports individual investment accounts, joint accounts, and IRAs.

You only need $1 to start investing. There are no advisory fees with SoFi Automated Investing. 

Retirement savings accounts

All SoFi active and automated IRAs are now eligible to earn an automatic 2% match on contributions. That means every dollar deposited into your account will receive a 2% match from SoFi. Match contributions won't count toward your annual contribution limit. 

Like other automated accounts, SoFi's robo-advisor creates a customized portfolio of stocks and bonds based on your risk tolerance, time horizon, and retirement goals. However, IRAs are also available as active investing accounts.

Retirement account options include: 

• Traditional IRA
• Rollover IRA

You'll also get access to a handful of financial tools and planning resources, including SoFi financial planners, goal-building tools, auto rebalancing (for automated accounts), and member benefits. 

Margin trading accounts

If you're eager to invest but don't currently have the funds to make the purchase, you can open a margin trading account and take a loan from SoFi that finances up to 50% of your next investment purchase. SoFi can also loan you cash at a 10% annual interest rate. The payback feature assists you in paying back your loans on time. 

Toward the bottom of the webpage on margin trading, SoFi warns against inexperienced investors opening a margin account due to the increased risk associated with margin trading. Investors are also required to have at least $2,000 in their accounts.

Investment options

SoFi offers stocks, bonds, fractional shares, ETFs, options, and IPOs with a focus on building long-term wealth. Investment options will vary based on the kind of account you open. For example, only folks with an Active Investing account can access IPO trading. 

Most of SoFi's investing portfolio diversification focuses on low-cost Core ETFs and Thematic ETFs, like:

• SoFi Select 500 ETF (SFY): Assets from 500 of the largest publicly traded US companies
• SoFi Next 500 ETF (SFYX): Assets from 500 mid-level US companies
• SoFi Weekly Income ETF (TGIF): Mix of investment grade and high-yield fixed-income securities 
• SoFi Weekly Dividend ETFs (WKLY): Assets from global companies that consistently pay dividends
• SoFi Web 3 ETF (TWEB): Fast-growing technology companies building the next generation of the internet 
• SoFi Smart Energy ETF (ENRG): Companies that focus on sustainability and building cleaner, reliable energy systems
• SoFi Be Your Own Boss ETF (BYOB): Companies developing new ways to improve access to goods, services, and work 
• SoFi Social 50 ETF (SFYF): SoFi's top 50 stock options

Available alternative investments include a range of commodities, venture capital , real estate, foreign currencies, private credit, hedge funds, and pre-IPO unicorns.

Low fees are one of SoFi's biggest perks. It doesn't charge advisory or management fees, and certain trades are commission-free (stocks, ETFs, and fractional shares). There technically isn't an account minimum to open a SoFi Invest account. But there is a required $1 minimum to start investing for all account types. 

Fractional shares can be bought in quantities of $5. So even though it isn't technically an account minimum, you won't be able to purchase fractional shares of a stock or ETF unless you have at least $5 in your account. Similarly, you need at least $2,000 to open a margin trading account.

Margin trading charges a 10% annual interest rate on your margin loan that is accrued daily and is deducted from your account once per month. Your interest rate is calculated daily by automatically multiplying your outstanding margin debit balance by the 10% annual interest rate and then dividing by 360. 

SoFi — Frequently Asked Questions (FAQs)

SoFi Invest is a popular investment platform suitable for active and passive investors looking for low-cost trading options. Access commission-free stocks, ETFs, and fractional shares with an active SoFi Invest brokerage account. SoFi Automated, the platform's robo-advisor, offers personalized portfolios diversified across a range of low-cost ETFs. Plus, automated accounts get access to one-on-one financial advice so you can better reach your goals. 

SoFi Invest sticks out as one of the best investment platforms for its beginner-friendly interface and low-cost trades. Whether you're looking to hand-pick assets or get an automatic diversified portfolio recommendation, SoFi helps investors reach their goals through low-risk investing strategies. 

There's no minimum to open an active or automated account with SoFi, but you will need at least $1 to start investing. You'll get commission-free trading with SoFi Invest, but only for stocks, ETFs, and fraction als. Options have no contract fees, but you may have to pay a commission. Fractional shares can only be bought in $5 quantities. There's a $2,000 minimum requirement to unlock margin trading. 

SoFi Invest is one of Business Insider's top picks for beginner investors due to the platform's low fees, educational hub, easy-to-use interface, simplified trading strategies, and range of financial products. Whether you're looking to hand-pick stocks, save towards retirement, or diversify your portfolio with commodities — SoFi has got you covered. 

Experienced investors can use SoFi's integrated financial services ecosystem to access a suite of financial and estate planning features. Active investing accounts allow for hands-on portfolio management, with the ability to trade options contracts and IPOs. However, SoFi Invest does not offer as many advanced charting tools and features as other investment platforms. 

Along with investing through SoFi, you can also invest in SoFi. SoFi Technologies , Inc. stock is under the ticker (SOFI) on the Nasdaq. If you're considering investing in SoFi stock, review the company's history and market performance to ensure it's a good idea before buying.

You can earn up to $1,000 in stock when you fund at least $25 in a new SoFi Invest Active account within 30 days of opening. After meeting the requirements, you can choose one promotion piece to identify how much you'll win. There's a 0.028% chance of earning the $1,000 bonus and more than an 85% chance of earning only $5. 

How SoFi Invest Compares

SoFi Invest vs. Robinhood

SoFi Invest and Robinhood are competitive investment options for low fees, simple user interfaces, and IRA matching contributions. However, each platform offers different account types and investment choices.

Robinhood and SoFi Invest are the only online brokerages that offer matching bonuses on IRA contributions. Currently Robinhood provides a 1% match (3% for Gold members), so SoFi's new 2% match has it beat. 

While both are great for traders of stocks, ETFs, margins, and fractional shares, SoFi offers a wider range of account types (e.g., automated investing accounts and more IRA options). Robinhood Investing doesn't offer a robo-advising option or SEP IRAs. 

If you're interested in margin trading, Robinhood offers a lower interest rate for Robinhood Gold members (ranging from 8%) compared to SoFi. But non-Gold members will have to pay up to a 12% interest rate, making SoFi the better option. 

Robinhood review

SoFi Invest vs. Wealthfront

SoFi and Wealthfront mainly differ when it comes to investment types and features. SoFi and Wealthfront Investing both offer self-directed and automated accounts. However, Wealthfront also offers 529 plans, a high-yield bond portfolio, and crypto trusts.

With a Wealthfront brokerage account, you can invest in stocks, fractional shares, ETFs, index funds, and bond ETFs. Self-directed Wealthfront accounts have a $1 account minimum, but automated accounts have a much higher $500 account minimum. So, if you're seeking out a robo-advisor specifically, SoFi could be a better option.

But unlike SoFi, Wealthfront does offer tax-loss harvesting and additional features like US direct indexing and smart beta tools. 

Wealthfront review

Methodology: How We Reviewed SoFi Investing

When reviewing investment apps, we use Personal Finance Insider's rating methodology for investing platforms to compare and examine pricing, account types, investment availability, and overall customer experience. Each platform receives a rating between 0 and 5.

Investment platforms offer varying assets, financial tools, fees, and other resources. Some investment apps are better for more advanced investors or active investors, while others may better suit beginner investors and passive investors. SoFi Invest was evaluated with a focus on how it serves in each category.

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