The Mediation of Financial Behavior to Financial Literacy and Spending Habits of Gen Z: An Exploratory Factor Analysis

The study aims to explain the relationship of financial literacy with spending habits and behavior. Financial behavior is a mediator of Generation Z. Financial literacy is a very important dimension in making financial decisions, and this research highlighted the direct and indirect impacts that financial literacy exerts on spending behavior. Data is collected from 317 respondents using a structured questionnaire measuring financial literacy, financial behavior, and spending behavior. Correlation, regression, mediation analysis, and Structural Equation Modeling have been used in evaluating these relationships. Financial literacy directly reflects a strong relationship with spending behavior, and its coefficient is 1.167. Financial behavior, therefore, exercises a strong mediation effect on this relationship with a mediation coefficient of 0.797, thus indicating that financial behavior is an essential tool in successfully translating financial knowledge into responsible spending. From these findings, greater financial literacy and responsible financial behavior may increase the aggregate financial efficacy of Generation Z. Although the current study heavily focuses on the fact that financial literacy and behavior are highly associated with financial well-being, it shows that targeted financial literacy education programs on either behavior or financial literacy enhance healthier spending behavior. The scope of future studies involves considering the role of income and personality characteristics as well as an elongation of the time horizon to uncover the impact of financial literacy on shifts in the individual's financial well-being.