Impact of Financial Literacy on Personal Investment Decisions: An Empirical Study of Individual Investors in Delhi
Keywords:
financial literacy, investment decisions, financial behaviour, risk tolerance, portfolio diversificationAbstract
In recent years financial literacy has been considered as a crucial element that affects the financial behavior and this is significant in a country like India where there is a rapid development of the economy and the households are supposed to manage their financial behavior, retirement and wealth creation and also have to look after their risk. The current study emphasizes on impact of financial literacy on personal investment decision of individual investors of Delhi, India. The study adopts a structured questionnaire which was answered by the sample of 300 respondents that were selected using the stratified random sampling technique and a financial literacy description of three core components namely financial knowledge, financial attitude and financial behaviour. Evaluation of decision-making in investments is determined by following aspects: diversification of investment portfolio, risk-taking, investment frequency, traditional investment instruments and market linked investment instruments. The data was analyzed by descriptive statistics, reliability analysis, correlation analysis, independent samples t-test, one-way ANOVA and multiple linear regression using the SPSS software. The results show that financial literacy is positively correlated with the quality of personal investment decision (r = 0.612, p< 0.01), which is statistically significant. According to the result of regression analysis, the three dimensions of financial literacy explain at least 47 per cent of the variance of the quality of investment decision, of which financial knowledge is the most important dimension. There are also significant factors of education, income and age. The study identifies a significant and statistically significant correlation between financial education and the investment experience of the domestic households and proposed measures for financial education suppliers, educators and financial institutions.
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