CHAPTER-5

FINANCIAL LITERACY AND INVESTMENT

BEHAVIOUR: THE LINKAGE

5.1 Investment Behaviour Analysis

Savings and investments of individuals play a very crucial role in the economic
prosperity of a country. ‘Mobilizing domestic capital can propel an economy into
sustained and inclusive growth. When individuals start businesses, use their capital,
invest their savings --however small-- and provide for their futures, the economy as a
whole takes off’ (Boucher, 2010, pg 1)1. The importance of savings and investments
in economic growth and prosperous future of a country is also highlighted in a study
by C.D. Howe Institute Canada (2017)2. The report shows serious concern about the
Canada’s economic prosperity due to fall in the national savings.

The technological advancement in the financial markets, bewildering choices in

saving and investment instruments and the clever advertising accumulated with lack
of financial knowledge increases the risk and responsibility of individuals in taking
financial and investment decisions. The consequences of wrong decisions are serious
when these are related to long term savings and investments for the reason that these
decisions are irreversible and have an adverse effect on the family well-being and the
society.

Savings and investments decisions of households have a direct bearing on their

quality of life. The financial future of individuals and their families and also the
financial cover protecting them from unforeseen financial shocks depends upon the
correctness of these decisions. In order to maintain the same lifestyle in the future and
also to build up funds to take important decisions like purchase of a house, car,
education of children, marriage of children, meeting retirement needs; optimal
investment plans are required. People are required to make retirement calculations for
their future. They have to decide about the money needed at the time of retirement,
the proportion of income to give up today and the age of their retirement. As a result,
the responsibilities of consumers have grown. With a span of time, these investments
work and people can realize their financial dreams with the returns. But forgoing
consumption today, will results into income generation in the future only if the

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savings are invested in right products. Financial awareness and understanding is
required to decide the proportion of current income to sacrifice to save for a better
future and also to make a judicious decision regarding investments.

Moreover, most of the working people invest in employers administered investment

plans though safe but bear low returns. Therefore, they missed the opportunities
related to market linked instruments that are generally associated with high returns.
Increase in market complexity has prompted the need of identifying financial goals of
investors and formulating goal based investment strategies for them to safeguard their
future. The people must be empowered to assess the financial adequacy of their
pension schemes to move on a safe path towards a prosperous financial future. In
developing economies, financial literacy is required to improve the saving behaviour
of the people and supplementing the efforts of financial inclusion.

Researches from around the world demonstrate low knowledge of investment

concepts among the individuals and the resultant irresponsible behaviour while taking
investment decisions. Individuals display lack of knowledge and understanding about
pensions and investment choice and in complex situations, they take less optimal
decisions in order to avoid risk (Collard, 2009)3. Additionally, lack of optimal
financial planning and management and insufficient savings by people was found
among those conscious people who have a healthy attitude towards savings and
investments (Money SENSE, 2005)4.

In India, people have strong saving habit but they are not good investors.5 Indians
have a special attachment for the yellow metal. The general tendency is that majority
of Indians tend to invest in gold and land (Badarinza, Balasubramaniam and
Ramadorai, 2016)6. India is one of the largest importers of gold. Increase in gold
imports widens the current account deficit and resultantly, affect the economic
development of the country. The gold stock kept in household and bank lockers
remains idle, adding nothing to the existing resources and is non income generating
investment. Moreover, the same investments can be mobilized for productive and
infrastructural needs of the country if invested otherwise. India having a billion-plus
population, saving and investment of just one rupee per month in formal financial
institution by every Indian would result in a large amount of capital infusion in the
country that can be utilized for development of the economy.

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Evidences around the world exhibit the positive implications of financial literacy on
the investment behaviour of the people. The people who are more financially savvy
are more likely to undertake retirement planning (Hastings and Mitchell, 20117;
Lusardi and Mitchell, 20098; Klapper and Panos, 20119). Financial litearcy is strongly
correlated with household wealth and financial well-being of households (Cole,
Sampson and Zia, 2009)10. Furthermore, several studies highlighted the irrational
investment behaviour of less financially literate people. People having low level of
financial literacy have less savings and have less wealth accumulation (Lusardi,
2008)11 and tend to participate less in the stock market (Rooij, Lusardi and Alessie,
2007)12.

Individuals who have undergone high school financial education programme are
subsequently more inclined towards saving and wealth accumulation than others
(Bernheim, Garrett and Maki, 2001)13. This is also evidenced by Clark, Madeleine
and d’Ambrosio (2003)14 in the study conducted to assess the influence of financial
education seminars on retirement planning and retirement saving behaviours. They
found that financial education tends to change the saving behaviour and retirement
plans of all the participants. A similar study by Schwartz (2010)15 reported positive
association between retirement seminars organized by the employers and financial
behaviour of the employees. As a result of offering this education, the participation
and contribution of the participants increased in voluntary savings plans.

Uninformed investment decisions taken by financial illiterate people threaten the

financial stability of a nation. The same was highlighted by the Subprime Mortgage
Crisis that hit the western world. The economic and financial distress was the result of
loose lending standards in the housing sector in USA that permits Subprime housing
loans even to borrowers with blemished payment records. It was supplemented by low
levels of financial literacy of these inferior credit profile people who were unable to
understand the risks involved in the products, entered into the loan agreements in the
lure of becoming home owners which were beyond their repayment capacity and not
in their interest. This huge destruction highlighted the importance of financial
literacy. The findings also depict the social impact of wrong investment decisions
taken by financial illiterate people (Volpe and Mumaw 2010)16. The hard earned
savings of financially illiterate investors did not yield returns. It was not only the

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investors who suffered; banks and financial institutions faced liquidity crisis; the
stock market crashed and financial instability was faced by the western economy

Financial literacy has, thus, become essential to equip the investors with knowledge
and skills necessary to take rational decisions confidently regarding savings and
investments in order to achieve long term objectives.

5.1.1 Investment Behaviour Score

The investment behaviour of the respondents is judged on the basis of six questions
(displayed in Table 5.1) incorporated in the survey instrument. The information about
investment behaviour of the respondents is captured on the basis of financial
instruments possessed by them and the way, in which they behave while purchasing
and maintaining these investments.

All questions carry equal weight in determining the investment behaviour of the
respondents. The correct answer for each question carry one score. The respondents
scoring 80 per cent or above are considered as having positive investment behaviour.
The respondents scoring between 60-80 per cent are classified as possessing neutral
investment behaviour. Finally, the respondents who score less than 60 per cent are
given low rating on investment behaviour aspect.

Table 5.1: Investment Behaviour Score

Questions Asked in the Questionnaire to Examine the Score
Investment Behaviour of the Respondent

Financial Instruments Which type of financial

1 for mutual funds, bonds,
instrument/product you currently
insurance and shares, 0 otherwise
have?
Considerations while How you last chose a product? 1 for considering several
making investments products, 0 otherwise
Source of information Which sources of information do you
1 for product specific and best
feel most influenced your decision
buy guidance, 0 otherwise
about which one to take out?
Reasons for making What are your personal reasons to have 1 for positive attitude towards
investments made savings or investments? investments for future well-
being, 0 otherwise
Monitoring investment How often do you personally check 1 for checking the instruments
products whether your product/instrument still within a period of 6 months, 0
meets your needs? otherwise
Knowledge of return Do you know how much return your 1 for knowing the rate exactly or
on investment investments are currently earning? approximately, 0 otherwise

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 Negative investment
36% behaviour
43% Neutral investment
behaviour
Positive investment
behaviour
21%

Figure 5.1: Overall Investment Behaviour

Source: Survey

The scores of investment behaviour on the basis of all the respondents of the sample
are presented in Figure 5.1. The investment behaviour scores of the respondents report
that nearly half of the respondents have shown negative behaviour regarding
investment decisions. It means they do not take their investment decisions vigilantly
that leads to financial problems in the future. Thirty six per cent of the respondents
show positive investment behaviour whereas the score is 21 per cent in neutral
category. Overall, the results exhibit poor investment behaviour of majority of the
respondents.

100%
90% 23%
28%
Percentage of Respondents

80% 37%
46% 45%
70% 19%
60% 26%
50% 27% Positive investment behaviour
18% 18%
40% Neutral investment behaviour
30% 58% Negative investment behaviour
20% 46%
36% 36% 37%
10%
0%
Bhiwani Fatehabad Hisar Rohtak Sirsa
Region

Figure 5.2: Region and Investment Behaviour

Source: Survey

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Figure 5.2 represents the investment behaviour scores of the respondents on the basis
of region. The results show that negative behavioural skills are prevalent among all
the respondents irrespective of their region. However, in the positive investment
behaviour category, Bhiwani respondents scored the highest with 46 per cent
respondents, followed by Hisar with 45 per cent respondents and Rohtak with 37 per
cent respondents. The lowest proportion belongs to Fatehabad region with 28 per cent
respondents and Sirsa region with 23 per cent respondents in the positive investment
behaviour category. In the negative investment behaviour category, the least
proportion is of Bhiwani and Hisar region (i.e. 36 per cent) with a similar proportion
of Rohtak (i.e. 37 per cent). The worst performance is represented by the respondents
of Sirsa region that consists of maximum number of respondents in negative
investment behaviour class i.e. 58 per cent. The results depict that the investment
behaviour of respondents belonging to Hisar, Bhiwani and Rohtak is better than the
respondents belonging to Fatehabad and Sirsa.

Overall, the results indicate that majority of respondents from all the regions do not
behave rationally while dealing in investment matters.

100%
Percentage of Respondents

90%
28%
80% 41%
70%
60% 19%
50% 23% Positive investment behaviour
40% Neutral investment behaviour
30% 53%
20% Negative investment behaviour
35%
10%
0%
Female Male
Gender

Figure 5.3: Gender and Investment Behaviour

Source: Survey

Figure 5.3 represents the investment behaviour scores of the respondents on the basis
of Gender. The results show that in the positive investment behaviour category, the
proportion of female is 28 per cent whereas male respondents score 41 per cent. In the
negative investment behaviour category, the presence of female respondents is 53 per
cent and the presence of male respondents is 35 per cent. The above findings reveal

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that investment behaviour of male respondents is better than the female respondents.
Overall, the survey indicates significant difference in the investment behaviour scores
of the respondents on the basis of gender.

100%
Percentage of Respondents

90% 24%
80% 42%
70% 20%
60%
50% 22% Positive investment behaviour
40% Neutral investment behaviour
30% 56%
20% Negative investment behaviour
36%
10%
0%
Rural Urban
Residence

Figure 5.4: Residence and Investment Behaviour

Source: Survey

Figure 5.4 represents the investment behaviour scores of the respondents on the basis
of their residence. The results show that in the positive investment behaviour
category, two fifth of the urban respondents appear which is much higher than the
proportion of rural respondents (i.e. one fifth of the respondents), signify that people
living in rural areas have to move towards positive behaviour with regard to
investment decisions in order to safeguard and flourish their funds. However, the
proportion is 20 per cent for rural and 22 per cent for urban respondents in the neutral
investment behaviour category. Moreover, the results reveal that negative behaviour is
widespread among the rural respondents. More than 50 per cent of the rural
respondents exhibit negative behaviour while dealing with investment matters.
Overall, the survey indicates that residing in urban areas has a positive effect on the
investment behaviour of the respondents.

Figure 5.5 represents the investment behaviour scores of respondents on the basis of
marital status. The results show the married respondents outperform single
respondents regarding positive investment behaviour. The presence of 29 per cent
single respondents and 38 per cent of married respondents in the positive investment
behaviour class suggests higher alertness of married people towards their investments
comparative to single respondents. In the negative investment behaviour category, the

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proportion of married respondents is 42 per cent and of single respondents is 45 per
cent.

Overall, the survey indicates that the investment behaviour of married respondents is
superior in comparison to single respondents. Perhaps increase in the responsibilities
after marriage prompts the people to think about the investments and returns
associated therein in order to secure their financial future. The findings are consistent
with the study conducted by Hira and Loibl (2006)17 where the findings reported
marriage as the single largest event that changed the involvement of male as well as
female respondents in investment decisions.

100%
Percentage of Respondents

90%
29%
80% 38%
70%
60% 26%
50% 20% Positive investment behaviour
40% Neutral investment behaviour
30%
20% 42% 45% Negative investment behaviour
10%
0%
Married Single
Marital Status

Figure 5.5: Marital Status and Investment Behaviour

Source: Survey

100%
Percentage of Respondents

90% 27% 26%

80% 33% 34%
45%
70%
15%
60% 23%
19% 22%
50% Positive investment behaviour
40% 23%
Neutral investment behaviour
30% 59%
48% 50% 43% Negative investment behaviour
20%
32%
10%
0%
30-39 40-49 50-59 Above 60 Below 30
Age Group

Figure 5.6: Age and Investment Behaviour

Source: Survey

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Figure 5.6 represents the investment behaviour scores of the respondents on the basis
of their age. The results show that in the positive investment behaviour category, the
highest proportion is 45 per cent that belongs to the age group 30-39 and the least
proportion i.e. 26 per cent belongs to the age group of 60 and above. A similar
proportion is represented by the age group of 50-59 (i.e. 27 per cent). However, in the
negative investment behaviour category, the lowest proportion is 32 per cent shown
by the age group of 30-39, 48 per cent by the age group of 40-49, 43 per cent by the
age group of below 30, 50 per cent by 50-59 and the highest proportion is of the age
group of above 60 i.e. 59 per cent.

Overall, the survey indicates that the respondents falling in higher age groups i.e.
above 50 years are lagging behind the other respondents with respect to their
investment behaviour and the best behaviour is exhibited by the age group of 30-39
years.

100%
Percentage of Respondents

90% 16%
26%
80%
49% 20%
70%
60% 19%
50%
Positive investment behaviour
40% 23%
30% 64% Neutral investment behaviour
55%
20%
28% Negative investment behaviour
10%
0%
Inpaid Not working Self Employed
employment
Work Situation

Figure 5.7: Work Situation and Investment Behaviour

Source: Survey

Figure 5.7 represents the investment behaviour scores of the respondents on the basis
of their work situation. The results show that large number of respondents who are not
in paid employment appears in the negative behaviour category as the proportion is 64
per cent for not working respondents and 55 per cent for self employed respondents.
In the neutral investment behaviour category, the proportion is 20 per cent for not
working, 19 per cent for self employed respondents and 23 per cent for in paid
employment respondents. The behaviour of in paid employees is better than the other
respondents in positive investment behaviour category. Nearly 50 per cent of the in

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paid employees depict positive investment behaviour comparative to 16 per cent of
respondents who are not working and 26 per cent of self employed respondents.

Overall, the survey indicates that work situation is an important determinant of the
investment behaviour of the respondents. Probably, this may be due to the fact that
people’s involvement in investment decisions increases once they enter into job.
Moreover, learning from colleagues and successive dealing in investment matters
might improve their understanding of the concepts subsequently improving their
investment behaviour.

100%
12%
Percentage of Respondents

90%
80% 30%
49% 20%
70%
60% 21%
50%
40% 22% Positive investment behaviour
30% 68%
20% 49% Neutral investment behaviour
10% 29%
Negative investment behaviour
0%
Graduation Post Graduation Senior Secondary
or below Senior
Secondary
Education Level

Figure 5.8: Education Level and Investment Behaviour

Source: Survey

Figure 5.8 represents the investment behaviour scores of the respondents on the basis
of their education. The results show wide prevalence of negative investment
behaviour among the low educated respondents. Nearly 50 per cent of the post
graduate respondents appear in the positive investment behaviour category. However,
the score of graduates in this category is 30 per cent and the least proportion i.e. 12
per cent belongs to the less educated respondents. The situation of respondents who
are less educated is worse than other respondents in all the categories of investment
behaviour. The results depict that the proportion of respondents having senior
secondary or below senior secondary is 68 per cent in negative investment behaviour
category, while the proportion reduces with increase in education as it is 49 per cent
for the graduates and 29 per cent for the post graduates.

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Overall, the survey indicates that investment behaviour sharply improves with higher
education. The findings display better investment behaviour of high educated
respondents relative to less educated ones.

100%
Percentage of Respondents

90% 27% 26%

80% 41% 41%
70% 12%
60% 32%
50% 21% 21%
40%
30% 61%
20% 38% 42% 38% Positive investment behaviour
10%
0% Neutral investment behaviour
Negative investment behaviour

Income Level

Figure 5.9: Income Level and Investment Behaviour

Source: Survey

Figure 5.9 represents the investment behaviour scores of the respondents on the basis
of their income. The results show that the positivity in the investment behaviour of the
respondents increases with increase in the income of the respondents and vice-versa.
In the positive investment behaviour category, the highest proportion is from the
income group of `20000-30000 and more than `30000 i.e. 41 per cent. However, the
proportion is very less for the respondents whose income is less than `20000 (26 per
cent for the income group of `10,000-20000 and 27 per cent for the income group of
below Rs 10000). Moreover, the proportion of people having negative investment
behaviour is highest for the income group of less than `10000. This may be due to the
greater exposure of financially sophisticated people to the financial market. The
results highlighted the acute need to change the investment behaviour of the low
income groups enabling them to manage their limited financial resources optimally
towards their financial well-being.

Overall, the survey indicates that income has a significant effect on the investment
behaviour of the respondents.

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 100%
90%

Percentage of Respondents
23%
80% 39%
70%
23% Positive investment
60%
50% behaviour
21%
40% Neutral investment
30% behaviour
54%
20% 40% Negative investment
10% behaviour
0%
No Yes
Stability of Income

Figure 5.10: Income Stability and Investment Behaviour

Source: Survey

Figure 5.10 represents the investment behaviour scores of the respondents on the basis
of stability of their income. The results show that in the positive investment behaviour
category, 39 per cent is the proportion of the respondents whose income is stable and
23 per cent respondents having unstable income fall in this category. The results also
depict that negative behaviour is widespread among the respondents whose income is
not stable with more than 50 per cent respondents in negative investment behaviour
category. Though the people with unstable income need more investments to meet the
exigencies of life, they reported negative investment behaviour.

Overall, the survey indicates that the respondent whose income is stable seems to
behave better regarding their investment matters. It could be that stable income
creates a sense of security among the people and motivate them to save and invest
more in productive instruments. Therefore, income stability is a determinant of
investment behaviour of the respondents.

5.1.2 Performance on Various Dimensions of Investment Behaviour

The question wise analysis of investment behaviour reports the following results:

 Parents seem to be very much concerned for their children’s financial future as is
evident from their response on the reasons for making investments by most of the
parents. ‘Leaving something for children to inherit’ emerges as the major reason
for making savings and investments by the respondents, followed by ‘meeting
future unexpected expense’s as the next priority for making investments.

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 With respect to the financial instruments possessed by the respondents, 78 per
cent of respondents have a savings account and the second preferable financial
instrument is insurance. Very few respondents have invested in market linked
financial products/vehicles like bonds, mutual funds and shares. Lack of
awareness, lack of trust or investors likings for safer investments might be the
probable causes of fewer investments in these risky instruments.

 Nearly 60 per cent of the respondents make an analysis of the companies and the
products in which they wish to make investments and are more likely to make
wise investment decisions.

 Thirty two per cent of respondents do not analyse the investments made by them
even in 6 months. This depicts the careless approach of investors with respect to
the funds invested by them.

 Forty per cent of respondents are not aware of the returns associated with their
investments.

 More than 50 per cent of the respondents make their investment decisions on the
basis of general information about the product without considering the
specificities of the product and product guidance.

Overall, the results exhibited poor investment behaviour of the respondents. Most of
the users of the investment instruments lack positive investment behaviour, thereby
reducing the probability of meeting the financial challenges successfully in future, for
which they are making investments today.

5.2 Impact of Financial Literacy on Investment Behaviour

The impact of financial literacy on investment behaviour of the respondents is

measured on the basis of six questions. The aspects covered are: respondents’ desire
of taking risk & the resultant behaviour and awareness of return on investments.
Information regarding any regretted financial decision along with the course of action
opted by the respondents and interest towards financial literacy programmes is also
captured.

Table 5.2 depicts the respondents desire to take risk. The findings reveal that out of
the total respondents, 56 per cent respondents have shown their consent towards
taking risk while entering into a financial transaction. While, 34 per cent

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demonstrated their disagreement towards taking risk which shows that they are risk
averters and don’t want to lose their money.

Furthermore, category wise results reveal that a sizeable proportion of people i.e. (45
per cent) who fall in the category of high financial literacy level are less desirous to
take risk and want to be on the safe side so far as investments are concerned
comparative to the respondents falling in other two categories of financial literacy.
The respondents who are high financially literate are supposed to enter in such
transactions being in a capacity to understand the risk return relationship. Thus, the
results indicate that their attitude towards financial matters is not supporting their
financial literacy level. Almost the same proportion of respondents is ready to take
risk. Further majority of the people i.e. 66 per cent with low level of financial literacy
seem to be desirous to take risk which may lead them to a very problematic situation
as they belong to that category of financial literacy where people are lagging on
financial matters. The same situation appears for those who are moderately financially
literate.

The findings indicate that there is need to make these people financially literate so
that such type of decisions may not leave adverse impact on their financial position in
future.

Table 5.2: Respondents Desire to take Risk

Respondents Respondents Respondents
possessing High possessing Low possessing
Responses Grand Total
Financial Financial Moderate
Literacy Literacy Financial Literacy
Agree/Completely
81 45% 59 66% 126 61% 266 56%
agree
Disagree/Complet
78 43% 22 25% 64 31% 164 34%
ely disagree
Neutral 20 11% 9 10% 18 9% 47 10%
Grand Total 179 100% 90 100% 208 100% 477 100%
Source: Survey

Table 5.3 exhibits the risk preference of respondents while making investment
decisions. The findings reveal that maximum number of respondents preferred the
third option which is totally safe investment. This shows that people behave ironically
as the overall result exhibit that 56 per cent of the respondents expressed their
agreement towards taking risk as shown in Table 5.2, but only 22 per cent are
interested to invest in risky venture.
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Categorical bifurcation of respondents on the basis of level of financial literacy
reveals that majority of respondents like to invest in the safest option where there is
no chance of losing money. Thus, empirical findings of the survey support the notion
that Indians are risk averters. This is true even for the respondents who possess high
level of financial literacy as 49 per cent among those prefer investment where there is
guaranteed return and only 20 per cent are interested in high returns from low
investments.

The results also show that nearly one fourth of the respondents from low and
moderate financial literacy class are keen to invest in the most risky option. Various
studies on financial literacy highlight the tremendous effects of poor investment
decisions of households on the society as well as on the economy. Therefore, there is
need to equip these people with financial skills and knowledge.

This shows that though financial literacy is not motivating people to invest in risky
assets, it may work on the other side. It may assist the people who fall under the
category of low or moderate financial literacy level by improving their financial skills
and understanding in such a way that the impact of wrong decision may be reduced.

Table 5.3: Respondents Preference for Investment Decisions with Different Risk
Level
Respondents Respondents Respondents
possessing High possessing Low possessing
Responses Grand Total
Financial Financial Moderate
Literacy Literacy Financial Literacy
"A five year
investment with
an expected return 36 20% 21 23% 48 23% 105 22%
in the range 0 to
Rs.100000
"A five year
investment with
an expected return 56 31% 18 20% 44 21% 118 25%
in the range Rs.
8000 to Rs. 14000
A guaranteed
return of Rs.
87 49% 51 57% 116 56% 254 53%
10000 (capital
plus interest)
Grand Total 179 100% 90 100% 208 100% 477 100%
Source: Survey

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 Table 5.4: Awareness about Return on Investments
Respondents Respondents Respondents
Responses possessing High possessing Low possessing Moderate Grand Total
Financial Literacy Financial Literacy Financial Literacy

N.A 26 15% 17 19% 17 8% 60 13%

No 29 16% 14 16% 34 16% 77 16%

Yes 124 69% 59 66% 157 75% 340 71%

Grand Total 179 100% 90 100% 208 100% 477 100%

Source: Survey

Respondents’ awareness about the returns yielded by their investments is displayed in

Table 5.4. The results show that majority of respondents from all the categories of
financial literacy are aware about the fact that returns are associated with investments.
This could be due to the greater use of modern technology such as smart phones,
mobile banking that leads to improvement in the access to such type of information.
Therefore, the impact of financial literacy on this aspect is not significant. However,
16 per cent respondents from all the classes revealed ignorance about the returns
associated with their investments. Empirical findings also reveal that 13 per cent of
the respondents do not think that they possess any investment instrument.

Table 5.5: Regretted Financial Decision

Respondents
Respondents Respondents
possessing
Responses possessing High possessing Low Grand Total
Moderate
Financial Literacy Financial Literacy
Financial Literacy

No 135 75% 70 78% 155 75% 360 76%

Yes 44 25% 20 22% 53 25% 117 25%

Grand Total 179 100% 90 100% 208 100% 477 100%

Source: Survey

Table 5.5 exhibits information about the proportion of respondents who have regretted
on any of their financial decision. The results depict that 25 per cent of the
respondents regretted on their financial decision. However, considering the level of
financial literacy, the results exhibit that 25 per cent of respondents belonging to the
category of high and moderate level of financial literacy regretted on their financial
decision whereas, the proportion is 22 per cent for the respondents having low level of
financial literacy.

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While entering into financial decisions, a lot of hidden information is there. Many
times, the person is just a signatory signing on one page and the other and enters into
a contract without knowing its real content and the consequences. Along with
financial literacy, there is need of financial advisors and counselors who make the
people aware of the contents of the contract in simple language and assist them in
avoiding over indebtedness.

Table 5.6: Action Taken on Regretted Financial Decision

Respondents
Respondents Respondents
possessing
possessing High possessing Low
Responses Moderate Grand Total
Financial Financial
Financial
Literacy Literacy
Literacy
Submitted a claim to the
appropriate government 11 11% 4 7% 14 12% 29 10%
authority
Any other measure 7 7% 4 7% 12 10% 23 8%
Nothing 37 37% 17 29% 31 26% 85 31%
Stopped using the
service/Withdrawn the 32 32% 26 45% 53 44% 111 40%
amount
Submitted a grievance to
12 12% 7 12% 10 8% 29 10%
the company
Grand Total 99 100% 58 100% 120 100% 277 100%
Source: Survey

Table 5.6 displays the action taken by respondents of the whole sample on their
regretted decision. Lack of awareness of consumer protection machinery is also
revealed among those respondents who do not take any action even after the regretted
decision. Moreover, the proportion is highest among the highly financial respondents
(i.e. 37 per cent). The reason may be the lack of courage or lack of financial resources
required for suing the giant companies. The findings of the survey indicate that
financial literacy seems to be insignificant in making the people aware of their
financial rights.

Figure 5.11 shows that there are very few people who have undergone a financial
literacy programme though they lack the perfect knowledge regarding financial
matters. Those who have completed these courses might be under a compulsion

135
because of their business or profession, as majority among those are bank officials or
deal in finance.

Perhaps, it may be due to the fact that these initiatives are in their nascent stage or
lack of awareness about these programmes may be the reason. In order to generate a
financially literate population, efforts are required for commencing such programmes
and to use mass campaigns via social media to make the people aware of the need and
importance of such programmes for their financial security and of their family in
future.

4%

No
Yes

96%

Figure 5.11: Completion of Financial Literacy Course

Source: Survey

Table 5.7: Respondents Interested in Completing a Financial Literacy

Programme
Respondents Respondents Respondents possessing
Responses possessing High possessing Low Moderate financial Grand Total
financial literacy Financial literacy literacy
No 52 29% 37 41% 77 37% 166 35%
Yes 127 71% 53 59% 131 63% 311 65%
Grand
179 100% 90 100% 208 100% 477 100%
Total
Source: Survey

Table 5.7 depicts that majority of people feel the need of some financial literacy
programmes irrespective of their level of financial literacy level. Sixty five per cent of
the respondents of the whole sample show their interest in financial literacy
programmes. The reasons may be because of their worst past experiences as is shown
in Table 5.5 that 25 per cent of respondents regretted on their financial decisions. In

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addition, Figure 5.11 shows that people are not taking the benefits of existing
programmes, again recommending that some gaps are lying there in the conduct of
these programmes and their advertisement for providing intimation to the common
people about these courses.

The above results are also in favour of the severe need of such programmes
specifically targeted to various sub groups of population. The matter of concern is that
41 per cent of the respondents from low financial literacy category and 37 per cent
from moderate financial literacy category do not feel the need of any financial literacy
programme.

5.3 Dummy Variable Regression Analysis

While conducting the multivariate analysis, respondents are bifurcated into graduation
and above and below graduation categories on the basis of education; while on the
basis of age, they are categorized into two classes: respondents aging more than 40
years and respondents aged 40 years and below. Similarly, two categories regarding
Income level of respondents are formed: respondents having income less than or equal
to `20000 p.m. and those who have a monthly income of more than `20000 p.m.
Further, respondents are segregated into respondents in paid employment and others
on the basis of their occupation.

5.3.1 Investment Behaviour and Socio Demographic Factors

Table 5.8 shows regression results of factors influencing respondent’s investment

behaviour. The findings demonstrate that men score significantly higher than women
on investment behaviour scale. The results coincide with the research by Volpe et al.
(2002)19 where female participants score lower on investment behaviour aspect in
comparison to male participants. The greater involvement of men in households
financial and investment decision making in the male dominated societies of Haryana
and the greater role of women in fulfilling household responsibilities and caring of
parents may be the contributing factors explaining the better investment behaviour of
men than women. The average investment behaviour scores of a rural respondent is
lower by about 0.462 as compared to average investment behaviour scores of an urban
respondent which is a reference category here, holding all other variables constant.
This could be due to the greater exposure of urban people to financial market.
Moreover, Haryana is an agrarian state and generally rural people prefer investment in

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land on priority basis than other financial instruments. The less dealing of rural people
in these instruments might also be the reason of their low score than the urban people.
The results also show that the respondents possessing higher educational degree
behave positively while taking investment decisions than the respondents who are less
educated, ceteris paribus which indicate that education has a positive effect on the
investment behaviour of the respondents. Furthermore, work situation seems to be a
significant determinant of investment behaviour as the scores of the respondents who
are in paid employment are 0.804 higher than other respondents. Probably, the higher
scores may be due to healthy discussions regarding financial investment matters
among the colleagues and planning regarding savings and investments for minimising
tax liabilities.

Overall, the results exhibits that gender, area, work situation, education and income
affect the investment behaviour significantly. However, age and marital status seem to
be insignificant with regard to investment behaviour of the respondents.

Table 5.8: Factors Influencing Respondents’ Investment Behaviour

Coefficients Standard Error t Stat P-value

Intercept 4.705*** 0.147 31.872 0.000

GENDER -0.587*** 0.126 -4.650 0.000

AREA -0.462*** 0.138 -3.349 0.000

MARITAL STATUS -0.076 0.158 -0.480 0.630

AGE 0.111 0.145 0.770 0.441

EDUCATION -0.359** 0.176 -2.037 0.0421

WORK SITUATION -0.804*** 0.137 -5.829 0.000

INCOME -0.276* 0.147 -1.875 0.0614

STABILITY -0.252 0.164 -1.529 0.126

***significant at 1 % level of significance, **significant at 5 % level of significance, *significant at
10% level of significance
Source: Survey
5.3.2 Inter-Relationship between Financial Literacy and Respondents’
Investment Behaviour

While running the regression analysis, respondents are classified into two categories
for all the independent factors. For the financial knowledge and financial literacy the
categories are: respondents possessing high level of financial knowledge or financial

138
literacy and otherwise. For financial behaviour and financial attitude, respondents are
classified as people with positive attitude and depicting positive behaviour and
otherwise.

Table 5.9: Inter-Relationship between Financial Literacy and Investment

Behaviour
Coefficients Standard Error t Stat P-value
Intercept 3.869*** 0.121 31.962 0.000
FK Level 0.490*** 0.175 2.801 0.005
FB level -0.550*** 0.150 -3.668 0.000
FA Level 0.478*** 0.150 3.171 0.001
FL Level -0.625*** 0.206 -3.024 0.002

***significant at 1 % level of significance, **significant at 5 % level of significance,

*significant at 10% level of significance
Source: Survey

Table 5.9 shows the regression results of the linkage between financial literacy, its
dimensions and investment behaviour of the respondents. The findings reveal that the
financial behaviour and financial literacy are the significant determinants of
investment behaviour of the respondents. Low financial literate respondents exhibit
low financial behaviour scores (p value = 0.0053) as compared to respondents in high
financial literacy category. High level of financial literacy is an indicator that the
people have the knowledge and understanding of financial concepts necessary to
make informed financial decisions. This might be the reason of the association
between financial literacy and investment behaviour. Moreover, financial behaviour,
one of the important dimensions of financial literacy emerges as a significant
determinant of the investment behaviour. The findings reveal that the respondents
who have positive financial behaviour seem to have positive investment behaviour.
This could be due to the wise financial practices such as budgeting, savings, planning
for the long term, monitoring financial affairs which they follow in their daily life.
The implementation of these practices for future financial well-being is reflected in
the investment behaviour of the respondents. It is curious to note that low financial
knowledgeable people depict better investment behaviour than the people possessing
high financial knowledge. Similar results found for the relationship between financial
attitude and investment behaviour.

139
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