EFFECT OF DEBT LITERACY ON THE OVER-INDEBTEDNESS OF EMPLOYEES WORKING IN THE FORMAL SECTOR OF NEPAL

Abstract

The study aims to investigate the impact of debt literacy on over-indebtedness among employees in Nepal's formal sector and to examine whether personality traits, such as materialism and emotions, moderated this relationship. A quantitative research approach was employed, and convenience sampling was used for data collection. Surveys were distributed to 386 respondents, and the questionnaire was adapted from previous studies by Lusardi and Tufano (2009) and Rahman et al. (2020), with additional questions included to gather demographic details. The collected data were organized and analyzed using Microsoft Excel and SPSS. Descriptive and inferential statistical methods, including frequency, percentage, mean, standard deviation, correlation, and regression analyses, were conducted to address the study's objectives. The findings revealed that employees in Nepal's formal sector possessed a high level of basic debt literacy and an above-average level of advanced debt literacy. The results demonstrated significant associations between components of debt literacy— such as knowledge of compound interest, the time value of money, and debt management—and over-indebtedness. Furthermore, the study provided empirical evidence that materialism and emotions moderated the relationship between knowledge of compound interest and time value of money with over-indebtedness. However, these traits did not moderate the relationship between debt management knowledge and over-indebtedness. These findings may prove valuable to educational institutions, financial organizations, individual employees, policymakers, and government bodies. They offer a basis for developing strategies to enhance debt literacy and reduce the risk of over indebtedness among employees.