Financial Literacy, Risk Perception and Investment Intention Among Youth in Pakistan

Author(s)

Muhammad Nauman Sadiq , Raja Ased Azad khan ,

Download Full PDF Pages: 85-93 | Views: 1570 | Downloads: 426 | DOI: 10.5281/zenodo.3484202

Volume 7 - May 2018 (05)

Abstract

The purpose of this study was to examine the financial literacy, risk perception and investment intention among youth in Pakistan.Using quantitative approach, a sample of 310 business students and teachers were drawn from different universities located in Rawalpindi and Islamabad. The study used the four steps approach proposed by Baron and Kenny (1986) where several regression analyses were conducted and significant of the coefficients is examined at each step. These steps were processed using Statistical package SPSS. Analysis of the data reveals that most of the respondents have adequate basic and advance financial literacy. The further study disclosed financial literacy has a significant positive impact on individual’s intention for short-term and long-term investment. Further, Study disclosed that risk perception does not act as a mediator between financial literacy and investment intention (short-term investment and long-term investment). The present study has implications for financial managers, financial advisors, and government and for individuals to comprehend the role of financial literacy and risk perception on the intention of individuals toward investment. The relationship of financial literacy of individual investors with their investment decisions is widely studied in the literature. But no significant study is observed which explore the relationship between financial literacy, risk perception and investment intention among Youth in Pakistan. Present study fills the gap in the literature with the perspective of Pakistan.

Keywords

Financial literacy, Risk perception, Investment intention

References

         i.        Agarwalla, S. K., Barua, S. K., Jacob, J., & Varma, J. R. (2013). Financial Literacy among Working Young in Urban India. IIMA Working Paper No. 2013-10-02, 1-27.

ii.      Aren, S., Aydemir, S.D. (2015). The moderation of financial literacy on the relationship between individual factors and risky investment intention. International business research; Vol 8, No 6.

iii.    Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51, 1173-1182. DOI: 10.1037/0022-3514.51.6.1173 paper

iv.     Basu, S. (2005), Financial Literacy and the Life Cycle, Financial Planning Association, Washington, DC.

v.       Blais, A-R. and E. U. Weber. 2006. “A Domain-specific Risk-taking (DOSPERT) Scale for Adult Populations.” Judgment and Decision Making, 1, 33-47.

vi.     Cho, J. and Lee, J. (2006) An integrated model of risk and risk-reducing strategies. Journal of Business Research 59(1): 112–120.

vii.   Enescu, M. and Enescu, M. (2009) ‘Psihonomy – psychology investors’, Annals of the University of Petrosani, Economics, Vol. 9, pp.249–252.

viii. Gustafsson, C., & Omark, L. (2015). Financial literacy’s effect on financial risk tolerance: A quantitative study on whether financial literacy has an increasing or decreasing impact on financial risk tolerance.

ix.     Guiso, L. Japelli, T. (2009). “Financial Literacy and Portfolio Diversification”, CSEF Working Papers Series, 212, 03.02.2016 http://www.csef.it/WP/wp212.pdf

x.       Hogarth Jeanne M. (2006), Financial Education and Economic Development Federal Reserve Board, U.S.A. Paper prepared for Improving Financial Literacy, International Conference hosted by the Russian G8 Presidency in Cooperation with the OECD 29-30 November 2006.

xi.     Honohan, P. (2008). Cross – country Variation in Household Access to Financial Services.

xii.   Hussein A. Hassan Al-Tamimi Al Anood Bin Kalli, (2009),"Financial literacy and investment decisions of UAE investors", The Journal of Risk Finance, Vol. 10 Iss 5 pp. 500 – 516

xiii. Jureviciene Daiva and Jermakova Kristina (2012), The Impact of Individuals ‘Financial Behaviour on Investment Decisions, Electronic International Interdisciplinary Conference, 242-250.

xiv. Klapper, L., Lusardi, A., & Panos, G. A. (2012). Financial Literacy and the Financial Crisis. NETSPAR Discussion Papers, 03/2012-007, 1-52.

xv.   Lachance, M., Tang, N. (2012), Financial advice and trust, Financial Services Review, Vol. 21, pp. 209-226.

xvi. Lusardi, A., Mitchell, O.S. (2007b), Financial literacy and retirement preparedness: Evidence and implications for financial education,Business Economics, Vol.42, Iss.1, pp.35-44.

xvii.                       Lusardi Annamaria and Tufano Peter (2009), Debt Literacy, Financial Experiences, and Over-indebtedness, National Bureau Of Economic Research (NBER), Working Paper: 14808.

xviii.                     Mahdi Salehi, Nahid Mohammadi, (2017) "The relationship between emotional intelligence, thinking style, and the quality of investors’ decisions using the log-linear method", Qualitative Research in Financial Markets, Vol. 9 Issue: 4, pp.325-336, https://doi.org/10.1108/QRFM-04-2017-0025

xix. Masters, R. (1989). “Study Examines Investors’ Risk Taking Propensities”, Journal of Financial Planning, 2(3), 151-155

xx.   Mayfield, C., Perdue, G. and Wooten, K. (2008), “Investment management and personality type”, Financial Services Review, Vol. 17 No. 3, pp. 219-236.

xxi.   Nosic, A. and Weber, M. (2010). How Riskily Do I Invest? The Role of Risk Attitudes, Risk Perceptions, and Overconfidence, Decision Analysis, 7(3), 282-301. Nunnally, J. C. (1978). Psychometric theory (2nd Ed.). New York: McGraw-Hill.

xxii.                       Pidgeon, N., C. Hood, and D. Jones, 1992, Risk perception, Risk: Analysis, Perception and Management, Report of a Royal Society Study Group. (The Royal Society, London), 89–134.

xxiii.                     Pellinen, A., Tormakangas, K., Uusitalo, O. and Raijas, A. (2011) ‘Measuring the financial capability of investors: a case of the customers of mutual funds in Finland’, International Journal of Bank Marketing, Vol. 29, pp.107–133.

xxiv.                      Ritter, J.R. (2003), “Behavioral finance”, Pacific-Basin Finance Journal, Vol. 11 No. 4, pp. 429-37.

xxv.                        Roszkowski, M.J., Davey, G. and Grable, J.E. (2005), “Insights from psychology and psychometrics on measuring risk tolerance”, Journal of Financial Planning, Vol. 18 No No. 4, pp. 66-77.

xxvi.  Sabri, N.A.A. (2016). The Relationship between the Level of Financial Literacy and Investment Decision-Making Millennials in Malaysia. Taylor’s Business Review, Vol 6, August 2016

xxvii.                    Sadiq, M.N. & Ishaq, H.M. (2014). The effect of demographic factors on the behavior of investors during the choice of investment: evidence from Twin Cities of Pakistan. Global Journal of Management and Business Research (C), 14(3), 47-55.

xxviii.                  Samuelson, P. A. 1969. Lifetime portfolio selection by dynamic stochastic programming. Rev. Econom. Statist. 51(3) 239–246.

xxix.                      Selcuk, E., Altinoklar, A. and Aydin, G. (2010), “Financial risk tolerance: scale development and analysis of determinants”, Journal of American Academy of Business, Vol. 15 No. 2,vpp. 89-97.

xxx.                        Shainline, J., Elston, S., Liu, Z., Fernandes, G., Zia, R., & Xu, J. (2009). Subwavelength silicon microcavities. Optics express, 17(25), 23323-23331.

xxxi.                      Siegrist, M., Gutscher, H. and Earle, T.C. (2005), “Perception of risk: the influence of general trust and general confidence”, Journal of Risk Research, Vol. 8 No. 2, pp. 145-156.

xxxii.                    Van Rooij, M., Kool, C.J.M. and Prast, H.M. (2007), “Risk-return preferences in the pension domain: are people able to choose?”, Journal of Public Economics, Vol. 91 Nos 3/4, pp. 701-722.

xxxiii.                  Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449-472.

xxxiv.                  Weber U. Elke and Richard A. Milliman (1997), Perceived Risk Attitudes: Relating Risky Choice, Management Science, 43 (2),123-144.

xxxv.                    Weber, E.U., Blais, A. and Betz, E.N. (2002), “A domain-specific risk- attitude scale: measuring risk perceptions and risk behaviors”, Journal of Behavioral Decision Making, Vol. 15 No. 4, pp. 263-290.

Cite this Article: