Original Research Article

Examining the Level of Financial Literacy among Individual Investors and its Impact on Financial Decisions

Muhammad Rizwan*, Mula Nazar Khan, Zain-Ul-Aabdeen and Amin Shahzad

Hailey College of Commerce, University of the Punjab Lahore, Pakistan

*Corresponding Author’s E-mail: Mrizwanhcc@gmail.com

Accepted May 15, 2016

Abstract

Financial literacy is the knowhow and understanding of the individuals regarding basic functions of money and markets. Financial literacy is very important nowadays for each individual to take basic financial decisions regarding investment portfolio. The main objective of this study is to assess the impact of socio-economic factors on financial literacy among Pakistani investors. In addition, the impact of financial literacy on financial decision making has also been examined. The outcomes of the study reveal significant impact of age and gender on financial literacy. Aged investors are more financially literate than younger investor and males are more literate than females. Education level and working status of the investors do not affect financial literacy significantly. When financial literacy was regressed on financial decisions, it was found that more financially literate individuals participate in retirement plans and stock markets actively. It was also found that individuals with higher financial literacy do not need financial advice from the brokers. The study can act as guideline for the investors and policy makers for understanding the role of financial literacy in financial markets.

Key Words: Financial advice, Financial literacy, Investment portfolio, Retirement plan, Socio-economic