Assessing the Impact of Financial Literacy on Investment Awareness: An Empirical Analysis of Retail Investors

Financial Literacy is one of the most important factors in the determination of financial decisions. It is one of the most influential deciding factors which constitute good financial decision-making. This study focuses on the level of financial literacy and its impact on investment awareness among selected retail investors of Madhya Pradesh. The study is empirical in nature and is conducted on a sample size of 210 individuals residing in Madhya Pradesh state. Primary data has been collected through a structured questionnaire.
The study uses statistical tools such as descriptive analysis, correlation, chi-square test and multiple regression analysis to examine the relationship between financial literacy and investment awareness. The reliability of the constructs was tested using Cronbach’s alpha, which showed satisfactory internal consistency for financial literacy (0.842) and investment awareness (0.795).
The findings reveal that majority of the individuals are not fully aware about financial literacy and some of its important components. They do not prefer moderate risk instruments because of lack of knowledge and face difficulty in taking proper investment decisions regarding certain financial products. The correlation analysis shows a moderate positive relationship between financial literacy and investment awareness (r = 0.451, p < 0.01). The regression analysis indicates that financial literacy, income and education have a significant positive impact on investment awareness, explaining 40.2% of the variation (R² = 0.402). Among all the variables, financial literacy has the highest impact on investment awareness.
The study further reveals that majority of the respondents prefer low-risk investment avenues such as Fixed Deposits and Post Office Investments. The study provides valuable insights regarding the basic state of awareness of individuals towards financial literacy and investment decisions. It can be useful for policymakers, financial institutions and corporate organizations in designing effective financial literacy programs and strategies to improve investment awareness among retail investors.

Financial Literacy, Investment Awareness, Financial Decisions, Retail Investors, Investment Behaviour

1. https://www.openriskmanual.org/wiki/Financial_Products [Google Scholar] [Crossref]

2. https://www.uwyo.edu/uwe/programs/money/spending/budgeting/.html [Google Scholar] [Crossref]

3. https://www.oecd.org/investment [Google Scholar] [Crossref]

4. Ruchi Agrawal. (2008). 100% financial inclusion: A challenging task ahead. Conference on Global Competition & Competitiveness of Indian Corporate, Indian Institute of Management Kozhikode and Indian Institute of Management Lucknow. [Google Scholar] [Crossref]

5. Luís Gomes Almeida., João Chanoca., & Fernando Tavares. (2024). Financial literacy: A case study for Portugal. Journal of Risk and Financial Management, 17(5), 215. https://doi.org/10.3390 [Google Scholar] [Crossref]

6. Tan Hui Boon., Hooi Shin Yee., & Ting Hung Wei. (2011). Financial literacy and personal financial planning in Klang Valley, Malaysia. International Journal of Economics and Management, 5(1), 149–168. [Google Scholar] [Crossref]

7. Nicky Cardenas., & Julieta Fonte. (2021). Decision making, attitudes, and behaviours on financial literacy among Filipino college students: Factorial and correlational analyses. Journal of Education and Research, 1, 1–9. https://doi.org/10.21016/5.062022.19.027 [Google Scholar] [Crossref]

8. Dhan Chalise., Jagat Timilsena., & Sujana Acharya. (2024). Women investors and financial literacy in Nepal. The Efforts: Journal of Education and Research, 5(1), 105–120. https://doi.org/10.3126/ejer.v5i1.65643 [Google Scholar] [Crossref]

9. Albert Mothey Chettri., & Albert Mothey. (2024). An empirical analysis of financial literacy and its impact on financial wellbeing. Educational Administration: Theory and Practice, 30(3). https://doi.org/10.53555/kuey.v30i3.3661 [Google Scholar] [Crossref]

10. Vikas Hooda., & Dr. Singh. (2023). Financial literacy for personal financial matters: A study of Indian Army officers. Journal of Advanced Zoology, 44(S7), 74–86. https://doi.org/10.17762/jaz.v44iS7.2723 [Google Scholar] [Crossref]

11. Harsha Jariwala. (2015). Analysis of financial literacy level of retail individual investors of Gujarat state and its effect on investment decision. Journal of Business & Finance Librarianship, 20(2), 133–158. https://doi.org/10.1080/08963568.2015.977727 [Google Scholar] [Crossref]

12. Nujmatul Laily. (2014). Pengaruh literasi keuangan terhadap perilaku mahasiswa dalam mengelola keuangan. Universitas Negeri Malang. [Google Scholar] [Crossref]

13. Annamaria Lusardi. (1999). Information, expectations, and savings for retirement. In Behavioral Dimensions of Retirement Economics (pp. 81–115). Brookings Institution Press. [Google Scholar] [Crossref]

14. Annamaria Lusardi., & Olivia S. Mitchell. (2007). Financial literacy and retirement preparedness: Evidence and implications for financial education. Business Economics, 42(1), 35–44. [Google Scholar] [Crossref]

15. Annamaria Lusardi., & Olivia S. Mitchell. (2011). Financial literacy and planning: Implications for retirement wellbeing. In Financial Literacy: Implications for Retirement Security and the Financial Marketplace (pp. 17–39). Oxford University Press. [Google Scholar] [Crossref]

16. Annamaria Lusardi., Olivia S. Mitchell., & Vilsa Curto. (2010). Financial literacy among the young. Journal of Consumer Affairs, 44(2), 358–380. [Google Scholar] [Crossref]

17. Annamaria Lusardi., & Peter Tufano. (2009). Debt literacy, financial experiences, and overindebtedness (NBER Working Paper No. 14808). National Bureau of Economic Research. [Google Scholar] [Crossref]

18. Mwathi., & Wangeci. (2017). Impact of financial literacy on personal financial decisions among university employees. International Journal of Economics and Finance, 9(3), 45–57. [Google Scholar] [Crossref]

19. Swathi Nirula. (2015). Financial literacy and personal investment decisions of retail investors in Delhi. International Journal of Science, Technology & Management, 4(1). [Google Scholar] [Crossref]

20. Yashasvi Panwar., & Vidya Telang. (2024). A study on the impact of financial literacy on financial investment decisions among women: A review of selected literature. Journal of Global Economy, 19(4), 297–304. https://doi.org/10.1956/jge.v19i4.696 [Google Scholar] [Crossref]

21. Pratap Singh., L. Chauhan., & Rangarajan R.. (2002). Analysis of investors’ behaviour pattern in Tamil Nadu. Indian Journal of Accounting, 32, 53–65. [Google Scholar] [Crossref]

22. Victor Stango., & Jonathan Zinman. (2009). Exponential growth bias and household finance. Journal of Finance, 64(6), 2807–2849. [Google Scholar] [Crossref]

23. Joanne Yoong. (2011). Financial illiteracy and stock market participation: Evidence from the RAND American Life Panel. In Olivia S. Mitchell & Annamaria Lusardi (Eds.), Financial literacy: Implications for retirement security and the financial marketplace (pp. 76–97). Oxford University Press. [Google Scholar] [Crossref]

24. Maarten Van Rooij., Annamaria Lusardi., & Rob Alessie. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449–472. [Google Scholar] [Crossref]

25. Maarten Van Rooij., Annamaria Lusardi., & Rob Alessie. (2012). Financial literacy, retirement planning, and household wealth. Economic Journal, 122(560), 449–478. [Google Scholar] [Crossref]

• The Correlation of Marketing Strategies and Financial Performance of Motor Parts Businesses in the City of Mati
• The Role of Blockchain-Based Smart Contracts in Enhancing Financial Transparency and Efficiency in the Emerging Market
• Exploring Intention among Universiti Teknologi Mara Terengganu Community to Donate into Education Waqf Fund
• Utilizing AHP Method to Rank Preference of Waqf Fund Usage for UiTM Terengganu, Malaysia
• The Influence of Portfolio Diversification on Financial Performance: Evidence from Listed Banks on the Ghana Stock Exchange