Behavioral Factors Affecting Household Over-Indebtedness: A Systematic Review


  • B. P. U. K. Biyanwila University of Sri Jayewardenepura, Sri Lanka
  • P. A. N. S. Anuradha University of Sri Jayewardenepura, Sri Lanka



Household over-indebtedness is a significant issue in many parts of the world and has extremely detrimental socioeconomic effects. Separate studies have found that macroeconomic, demographic, and behavioral factors account for the majority of the variance in household over-indebtedness; however, behavioral components have received less attention. The purpose of this study is to review the behavioral factors that affect household over-indebtedness. To identify relevant empirical studies on household over-indebtedness, databases such as Scopus, Web of Science, Emerging Sources Citation Index, and Social Sciences Citation Index were reviewed. During this search, 267 articles were initially screened, but the PRISMA framework (Preferred Reporting Items for Systematic reviews and Meta-Analyses) was applied to select the most appropriate, well-cited, and recent 52 articles. The most significant behavioral factors of household over-indebtedness are financial literacy, risk perception, materialism, and emotions. This review reveals that behavioral factors have not been well established in many developing economies whereas the empirical findings in developed countries are consistent with behavioral theories. Further, this paper discloses that interaction of macroeconomic, demographic, and behavioral determinants on household over-indebtedness still needs further study. According to Keynes' general theory, individual financial decisions are influenced by macroeconomic circumstances. Moreover, Ando and Modigliani's life cycle hypothesis contends that demographic factors significantly influence individuals’ financial behavior. Our suggested conceptual model contains macroeconomic and demographic factors as mediators and moderators, respectively, between behavioral factors and household over-indebtedness. Once this model is tested, the findings may greatly aid governments, central banks, financial institutions, bank managers, credit officers, and other policymakers in their quest to discover answers to the problem of household over-indebtedness.

Keywords: Household Over-Indebtedness, Financial Literacy, Risk Perception, Materialism, Emotions, Macroeconomic and Demographic Factors