International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue X, October 2022|ISSN 2454-6186
Effect of Debt Experiences on The Indebtedness of Employees in The Formal Sector in Kenya
Morris Irungu Kariuki PhD
Lecturer, Department of Finance and Accounting, University of Nairobi, Kenya
Abstract: This study examined the relationship between debt experiences and indebtedness of formal sector employees in Kenya. Positivism paradigm was used in this study. The study adopted a cross sectional and correlational descriptive research design. The study targeted about 2.4 million employees in the formal sector. Three stage sampling was done, first, cluster sampling and then, stratified sampling and finally random sampling. The study used primary data collected by use of self-administered questionnaires. A pilot test of the questionnaire was conducted on 40 respondents to check its validity and reliability. 384 questionnaires were circulated. Of the returned 337, 292 questionnaires were considered usable. Cronbach’s alpha for likert type items was found reliable (over 0.7). Data analysis used IBM SPSS statistics 21 for descriptive and correlation analysis. Further, OLS Multiple regression models were used to examine the relationship between debt experiences and indebtedness. The findings reveal that debt experiences have a significant effect on indebtedness.
Keyword: Debt experiences, Indebtedness, Formal Sector
I. INTRODUCTION
Personal finance researchers have referred to taking goods and services on credit or borrowing money by individuals by terms such as household debt, consumer debt, personal loan and personal debt (Chawla & Uppal, 2012). In other cases, personal debt is packaged as a product such as car loan, housing loan, education loan, bank loan, bank overdraft, micro-credit, medical loan and mortgage loan. When individuals take debt of whatever nature, they become indebted to the lender or supplier.
Debt experiences refer to the practices individuals undergo in the credit and loan market as they manage their financial resources (Moore, 2003). These practical experiences detail the processes undergone in the debt cycle such as obtaining the loan, how to avoid, reduce, repay debt while maintain a good credit rating. Suboptimal debt experiences are therefore related to over indebtedness, and the inability to reduce existing levels of debt (Lusardi & Tufano, 2009). Deployment of sound debt experiences ultimately determines the overall financial position (Zakaria, Jaafar & Marican, 2012). Theoretically, individuals with poor debt experience make suboptimal debt decisions, which lead to financial difficulty (Suwanaphan, 2013). Following extensive literature review, the study explored debt experiences such as debt access, credit counselling, and debt advice. The quality of debt experiences significantly predicts financial outcomes. Specifi¬cally, good debt experiences are related to lower levels