CHAPTER - II

REVIEW OF LITERATURE
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CHAPTER - II

REVIEW OF LITERATURE

2.1 Introduction

Expeditious growth of the global economy over the last decade has resulted
in vast expansion of financial markets. India being a rapid developing economy is
ever expanding its financial market horizon. This has resulted in abundance of
financial products and services due to which people are faced with the need to make
right financial choices to achieve financial stability. In this regard financial literacy
has emerged as the top priority for developing nations like India. This chapter aims
to provide a detailed review of literature relating to the three dimensions of financial
literacy; financial knowledge, financial attitude and financial behaviour. The impact
of financial literacy on financial well-being is also given special emphasis. A broad
review of literature on the effect of various socio demographic as well psychological
factors that influence financial literacy is also presented. Studies focusing on
retirement, debt management and portfolio management are discussed. The role of
over confidence in financial literacy is highlighted. The assessment of level of
financial literacy in countries around the world is compared to gain a global
perspective.

2.2 Financial Knowledge

Financial knowledge is considered as the first and the most important

dimension of financial literacy. Financial knowledge pertains to understanding of
various financial concepts and applying it in real life situations thereby making
informed financial choices. Financial knowledge relates to basic financial concepts
which a person would use in daily life like simple interest calculation, compounding
or inflation etc, and sophisticated financial concepts which though not commonly
used daily by all, is still a requisite such as diversification, socks, bonds, or mutual
funds etc., to enable good financial planning and decision making. This section
presents review of various studies on financial knowledge. It is to be noted that
many researchers who studied financial knowledge used the word ‘financial literacy’
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instead of ‘financial knowledge’. However though it may be confusing, the review

of literature in the present study uses only the actual words used by the researchers
in their respective studies. Huston and Potrich (2010), Vieira and Kirch (2014)
found that close to 47%, i.e., almost half of the studies on financial literacy used
‘financial knowledge’ and ‘financial literacy’ inter-changeably.

In a survey by Annamaria Lusardi and Olivia S Mitchell (2007) on

financial literacy, it was found that people in developed countries were uninformed
of financial products and functions. Women and people with low income and
education were especially financially illiterate and more prone to economic
hardships. This study also found that financial education went a long way in
planning for retirement savings. This study also emphasised that only a meagre
number of individuals attended seminars on retirement planning.

The study further concluded that although educational programmes and

initiatives were essential, it is not the only answer to solve the behavioural problems
of the consumers. Suggestions included additional assistance for old age and
guidance with emphasis on retirement planning and saving. They also felt that
insolvency will rise as old age dependency increases. Thus, in order to avoid this,
the research concluded that financial literacy tools are essential for people to plan
out and execute retirement saving.

Lewis Mandell and Linde Schmid Klein (2007) used data from the
National Jump Start survey of high school seniors. They examined that lack of
motivation to learn or develop financial skills was the prime reason for a low score
on financial literacy among young adults. After the students were given classes in
personal finance and money management, the findings revealed that questions
relating to motivation significantly added up to the financial literacy scores. This
finding was obtained based on analysing three questions designed to measure
motivation to be financially literate and its relation to financial literacy.

Annamaria Lusardi (2008) in his working paper opined, although many

people are not well equipped to make the appropriate decisions on savings, it true
that they are directly responsible for their financial security and constantly deal with
 20

intricate financial decisions. This paper studied widespread financial illiteracy

among the U.S. population, particularly among specific demographic groups. Low
financial literacy was especially seen among women, African – Americans, and
Hispanics. The study further concluded that lack of knowledge of basic financial
concepts led to lack of retirement planning, improper borrowing behaviour and no
involvement with the stock market.

A study by Maaten Van Rooij et. Al. (2008) used data from the annual
household Dutch survey (DHS). They assessed the relationship between wealth
holdings and two financial literacy indices (i.e.) basic literacy index and advanced
literacy index. The relationship between financial sophistication and wealth
accumulation was analyzed. It was found that proper retirement planning and
healthy participation in the stock market was common among financially literate
individuals. It was also concluded that higher levels of financial literacy led to
higher net worth levels. Those with better financial knowledge diversified their
investments thereby enjoying minimum risk and good equity premiums. The study
suggested that respondents who had confidence in their financial skills used
information on economics education to plan for their future. They also tend to
exhibit more savings plans and have a better self control.

The ‘Financial Literacy Foundation’ was established by The Australian

Government in 2005. However, from July 2008, the functions of the financial
literacy foundation were taken over by The Australian securities and Investments
commission (ASK). In 2008 the ASK performed a comprehensive study to evaluate
the levels of financial literacy in Australia. One of the prime objectives of this study
was to provide information to their government and help them in developing
strategies to improve the financial literacy in their country. The study encompassed
individuals from every state/region in Australia. Prominent findings indicated that
financial literacy has a strong association with demographic characteristics such as
age, education, cultural and linguistic diversity and geographical location. The study
also confirmed of low financial literacy scores among blue collar employees, those
who were primarily dependent on Government benefits for payments, those who are
 21

unemployed and those who did not have access to the internet. Individuals in the top
20% of financial literacy scores were found to have highly desirable financial
behaviour. The study also concluded that individuals with good and moderate
financial literacy scores also had a well diversified portfolio.

Annamaria Lusardi and Olivia S Mitchell (2009) used the data acquired
from American life Panel (ALP) to analyse self assessed and objective measures of
financial literacy of individuals. They linked these performance measures to efforts
consumers make to plan for their retirement. The study assessed that the more
financially literate individuals are, the more likely they are to plan for their
retirement. One of the key findings of the study was, respondents who had studied
economics or any other business studies during their formal education programmes
have higher financial literacy. Lack of knowledge regarding calculation of interest
rates was a prime reason for people to tend to borrow more and accumulate less
wealth.

Hooman Estelami (2009) conducted a study wherein he profiled five

decision making patterns that account for a range of sub-optimal financial decisions
by consumers. He went further and attempted to provide specific remedies on how
financial literacy programs may need to counter these patterns. The paper examined
how sub optimal decision-making styles exhibited by consumers often result from
basic limitations in cognitive ability and the human neurological system. The
research helped to provide a frame work for the future development of financial
literacy programs by highlighting the profound cognitive biases that exist in
consumer’s financial decisions. The study found that these cognitive biases tend to
present hurdles to financial literacy campaigns, as they affect the decision-making
process of both - the financially literate and the illiterate. This study emphasised the
need to modify human behaviours and re-programme instructive responses. Thus,
financial literacy programs need to also focus on the said criteria and not just
educate individuals about finance.
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Robert J. Willis (2009) found that among Americans there was a direct
relationship between their cognitive ability and financial knowledge. Americans
with higher cognitive abilities and higher levels of financial knowledge are wealthier
than those of the contrary. The study reviled that, a person’s financial knowledge is
a vital component of their human capital that enables them to gain higher returns on
their savings for a given level of risk. The study found that people with higher
income had a higher volume of savings and greater incentives to acquire financial
knowledge. The cost of acquiring knowledge tends to be lower for people with more
education and higher cognitive ability.

Sandra J.Huston (2009) provided an overview of measurement of financial

literacy after assessment and summarisation of various financial literacy measures
adopted in various researches. The Literature reviewed by the author presents four
distinct areas in analysing financial literacy (ie) Money basis which includes
concepts like time value of money and personal financial concepts, borrowings, and
investing and protecting resources through insurance or risk management
techniques. The author concludes that financial literacy results in more desirable
financial activities and increases utility from consumption. An individual with good
financial literacy must be able to exhibit positive financial behaviour and ultimately
achieve financial well-being.

Chiara Monticone (2010) in his thesis on financial literacy and financial

advice among Italian households indicated that lower levels of literacy reflected on
the level of their financial holdings. This finding falls in line with Lusardi and
Mitchell, (2007a) which found that a basic knowledge of financial principles has
proven to be fundamental for the accumulation of retirement savings. The role of
financial literacy and the demand for financial advice was also investigated in this
study. It was found that individuals with higher financial literacy are in the better
probability of consulting with a financial advisor as opposed to making investments
without consulting any professional. Thus, it was found that there was a positive
association between financial literacy and preference for financial advisors over
informal sources.
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Cynthia Harter and John F.R. Harter (2010) investigated the

effectiveness of the Stock Market Game (SMG) in improving student’s scores
covering basic financial concepts. Two groups of students were used in the study.
One group was administered the stock market game along with complementary
curriculum in class, while the other group did not have the SMG. The results showed
that playing SMG along with being taught the seven general lessons from the
‘learning from the market’ curriculum improved student’s performance on the
financial literacy assessment.

William G. Gale and Ruth Levine (2010) suggested new directions for the
promotion of financial literacy after studying the extent and effects of financial
illiteracy among American households. The study emphasised on the traditional
approaches to financial literacy such as employees based, school based, credit
counselling, or community based initiatives. The study concluded that there were no
strong connections to such traditional approaches on having positive impacts on
improving financial literacy. Savings behaviour was found to be influenced by
simplifying financial planning initiatives. The study also concluded that the private
sector plays a vital role in improving the financial literacy of people, however, the
researcher pointed out that it is the public sector that is to have an equally important
role in developing the financial literacy of people. Financial literacy should by the
prime concern for policy makers as this would lead to gain to the concerned
individual and family.

Annamaria Lusardi and Olivia S. Mitchell (2011) in a working paper

presented an overview of financial literacy around the world (2011). The authors in
collaboration with several other teams from a wide range of countries studied the
financial literacy of individuals and how they relate to retirement planning. The
study was carried on in Germany, Netherlands, Sweden, Japan, Italy, New Zeeland
and the United States. Findings of the research were that, the senior citizens of these
countries believed that they were well informed but in reality, contrary to their
thought they were less informed than the average individual from their country.
Other common patterns, such as, women being less financially literate than men was
also evident. Further findings showed that, better the education, better was the level
 24

of financial literacy. Those more financially knowledgeable were also those most
likely to plan for retirement.

Tullio Jappelli and Mario Padula (2013) imposed on the importance of a

need for mathematical ability in early life and considered financial literacy as a
particular form of human capital accumulation. The research evidenced that wealth
accumulation and portfolio diversification have a correlation with financial literacy.
The study proposed an inter temporal model to highlight the costs and benefits of
financial literacy investment. Data from survey of Health, Ageing, and Retirement
in Europe (SHARE) was used. It was found that financial skills were strongly
correlated with mathematical skills. The study compared international data and
suggested that financial market reforms associated with wider financial market could
lead to improvements in financial literacy and savings by providing incentives to
invest in financial literacy.

Annamaria Lusardi (2012) studied financial decision making in older

adults. The research showed that these older adults have low financial literacy levels
and thus immediate alteration of the level of financial literacy among these
individuals is of prime importance. Financial illiteracy was widespread particularly
among older women and men. Gender differences in financial literacy were found
even in older adults. Older females had lower financial literacy levels than older
males. Older adults need to ensure they have enough savings and wealth that would
last until the end of life as these individuals are faced with limited options to
accumulate wealth and they may not return to work. Risk through frauds and scams
and poor behaviour in asset and debt management was also an issue among older
individuals. Thus, these problems are needed to be addressed to ensure financial
security in later part of their life.

Mario Padula and Yuri Pettinicchi (2012) investigated the asset pricing
implications of letting individuals to decide how much financial literacy to acquire.
The study was done under the assumption that the cost to collect financial
information gets reduced with better financial education. The researchers argued that
individuals are born with the same amount of innate financial literacy, which can be
 25

improved by exposure to financial literacy programs. Thus, individuals who are

more financially literate can gauge market signals in the economy with more
accuracy at a relatively lesser costs. On the contrary, it is to be noted that the costs
involved in attending financial education programs varies depending on the level of
cognitive abilities. The results show that policies which increase the effectiveness of
financial education programs stimulated instability and inequality. It was also found
that, when productivity is too high, the illiterate agents do not acquire any private
information. The general equilibrium model enlightens non-monotone effects of the
productivity of financial education programs.

In a study by Sarthak Gaurav and Ashish Singh (2012), they examined the
financial literacy and cognitive ability of farmers in rural India. The authors
conducted a unique field experiment in the Indian state of Gujarat. On one hand, the
study assessed the cognitive ability of the respondent who were farmers based upon
their mathematical ability and probability ability and on the other hand. The
financial literacy of the respondent farmers was assessed based on their financial
aptitude and debt literacy. The study found that farmers have poor financial aptitude
and debt literacy, though mathematical and probability ability was slightly higher in
comparison. Education and financial experience had a positive impact on cognitive
ability. Higher financial aptitude was observed among farmers with large land
holdings. Cognitive ability was found to be the predictor of financial aptitude and
debt literacy, which are considered as components of financial literacy. The
researcher highlighted the need to focus on improving financial literacy of farmers is
a developing country. This could in a great way prevent farmers falling into debt
traps and financial distress which is a trigging factor for farmer suicides.

The United Nations Development Programme (2012) New Delhi,

complied a report based on the studies undertaken under financial Inclusion Project
of UNDP from the discussions on UNDP supported microfinance community of
practice, solution exchange. The study was done in seven Indian states. The purpose
of the study was to examine financial literacy as a tool for financial inclusion and
client protection. The study observed that from 2005 The Reserve Bank of India
considered financial inclusion as a policy priority. They were striving to create a
 26

more favourable environment by introducing no frill accounts, overdraft facility,

relaxed KYC norms, using intermediaries for business correspondence and business
facilitators. There was notable success in those efforts. Other measures such as
Kisaan Credit cards, liberal bank branch expansions, allowing Regional Rural Banks
and co-operative banks to sell Insurance and other financial products and use of
mobile banking were also introduced. Despite such positive measures, financial
literacy seemed to be a primary requirement to ensure better financial inclusion in
the country. Therefore the study focused on the efficacy of financial literacy as a
tool towards financial inclusion and thereby to improve the services of the
underprivileged and economically excluded needy and the poor.

Annamaria Lusardi and Olivia. S Mitchell (2013) highlighted the fact

that financial knowledge is to be considered as a form of investment in human
capital. The authors also stressed on the fact that in order to have a positive impact
on economic decision making in the United States and elsewhere, their financial
knowledge has to be enhanced. The research paper also throws light on the fact that
financial education must be a lifelong pursuit that enables consumers to adapt to
changes in their financial needs and circumstances. This would also enable them to
take advantage of products and services that are launched from time to time to best
meet their goals.

Deerajen Ramaswamy et al (2013) assessed the level of awareness of

financial literacy among management students at the University of Mauritius. The
study was performed using a survey method adopting a questionnaire. The study
also aimed to understand the relationship between demographic variables such as
age, gender and area of study (education) and financial literacy. The findings of the
study showed that, overall the management students of the University had a high
level of importance to financial literacy. Most of the students were found to have
medium level of financial knowledge and moderate skills in savings and borrowings.
Although there was no significant difference in financial literacy levels among men
and women students, there was a significant difference in the management skills
among male and females. It was found that, age, gender, language, race and income
levels did not have an impact on financial literacy.
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Markus Glaser &Tonsken Waltehr (2013) were prompted by empirical

findings on the need for financial awareness for investment purposes. Financial
literary is the driving force behind good financial behaviour which is reflected in the
literature review. There are however, some studies that also chronicle that financial
literacy doesn't necessarily prevent investors from making investment mistakes.
Thus, the author's take which is based on psychology, deem the possibility of
investment behaviour being dependent on two primary thinking styles, fostered
through the dual process of theory, intuition and cognition. Researchers also believe
that the presence of hunches could be the predominant factor that might supersede a
high level of financial literacy. This particular factor was tested during experimental
design and established this interaction effect. This conclusion was further validated
by two follow up experiments where it was proven that behaviour had a largely
negative impact on the risk adjusted performance. The other example, came in the
form of transaction records from a large European online broker that were
thoroughly analysed to again deduce that personal characteristics affect behaviour.

Sumit Kumar and Md.Anees (2013) reviewed the various aspects of

financial literacy and education in India. The determinants of financial literacy were
identified by the study and the role of regulatory authorities in the creation of
avenues to increase financial education in India was reviewed. The need for
education that has the capacity to enhance the financial literacy of individuals in
India was emphasised and it was concluded that sociological factors also played a
part in influencing the current levels of knowledge acquired. The authors
acknowledged that targeting young investors would be a useful strategy in
improving financial well-being overall.

COHEAO’s financial literacy task force Kris Alban et al. (2014) stressed
the need for financial literacy education on college campuses to foster the financial
stability of young adults. The research provided an in depth review at successful
financial literacy models utilized by colleges. The counselling that was given by a
peer financial counsellor in Kansas State University increased student’s financial
satisfaction and improved financial knowledge to a great extent. Financial stress
and satisfaction had significant implications on the financial behaviour of college
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students. A link between high credit card debt and suicide rates among college
students was discovered and it was suggested that, reaching out to students through
counselling could help manage this issue. Colleges were advised to incorporate
some best practices through focus groups and surveys to first assess the level of
financial knowledge. They could then proceed to develop a financial literacy task
force to conduct various competitions and contests thus creating awareness and
developing effective communication strategies.

There was a survey conducted by Guna Ciemleja et al (2014) on financial

literacy using 12 questions among the Latvian citizens. It was concluded that the
questions on spending, online banking services, loans, payments cards, deposits
were easiest to comprehend and essential concepts like inflation, employment,
purchasing power, stocks and bonds and diversification seemed more complicated.
The economists in the group had assessed themselves as being highly
knowledgeable while those with other educational backgrounds stated that they only
had moderate financial knowledge. Those in the eldest age group showed the most
superficial understanding of financial concepts.

Harris Poll (2014) conducted an online survey on financial literacy among

the U.S. Military. The results showed that most members of the U.S. Military
partook in the financial decision-making processes of their households. Service
members had assessed themselves high on personal financial literacy and were open
to advice and information. Elements of drafting a budget, spending and savings were
handled carefully by the service members as opposed to the national population. An
estimated 80% of them relied on credit cards and held three cards on average.
Opportunities for misuse and transferring credit card balances to other cards were
more prevalent issues for the service members than the civilian population. A
positive lending experience was encountered by most. It is notable however, that
service members expressed fears pertaining to finances and felt that they were not
completely prepared for future financial emergencies and unforeseen events.

Kevin M. Musundi (2014) assessed the financial literacy of the real estate
investors in Nairobi. The relationship between financial literacy and the influence of
 29

the factors that affect the investment decisions suggested that in general, real estate
investors need to be financially literate to make logical and wise decisions. This
study also created awareness that the financial literacy levels within the real estate
investors community was far below the required margin. It is advised that one has to
be equipped with sufficient financial literacy in order to attain optimal outcome in a
complex decision making environment. The study used ex-post-facto research
design, wherein the researcher had no control over the independent elements as the
effects of financial literacy on investment decisions had already manifested.

Samreen Lodhi (2014) analysed the significance of financial literacy,

accounting information, openness to experience and information asymmetry on an
individual investors’ decision making process through empirical research in Karachi
city, Pakistan. The research used five independent conditions; financial literacy,
high experience, accounting information, importance of scrutinizing financial
statements and age which may determine the investment decision of an individual.
The five dependent variables chosen in the questionnaire were, risk taking,
preference in shares, risk aversion, information asymmetry and shares investment. It
was concluded that, apart from the age factor undermining the desire for risky
investments, financial literacy and accounting information helped to lower
information asymmetry which resulted in investors venturing into risky instruments.

Stawomir Smyczek and Justyna Matysiewicz (2014) investigated the

characteristics and extent of financial literacy among consumers in European
countries. The factors determining the decisions of consumers on the financial
services market were thus identified. A survey was conducted using a structured
questionnaire in Germany, Poland, Romania, Spain and the United Kingdom and it
shed light on financial illiteracy in EU countries. Some of the conditions affected
were an individual's financial situation, education level, and workplace activity. A
significant difference in the level of financial literacy had also been noted with
regard to respondents' gender, education level and work activity. Financial literacy
had influenced the financial decisions of individual customers. The lowest levels of
financial literacy transpired in nations where financial crises had the strongest
influence on the economy.
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Carin Gustafsson and Lisa Omark (2015) investigated to find out if

financial literacy had an increasing or decreasing effect on financial risk tolerance.
The researcher sought evidence that confirms that having high levels of financial
literacy conveyed greater financial risk tolerance in an individual. The predictor of
financial literacy was also explored in this research. Individuals differed based on
financial literacy levels and exhibited varying levels of financial risk tolerance. An
increase of financial literacy levels resulted in an increase of financial risk tolerance.
Eventually, it was established that individuals who exhibited higher financial risk
tolerance were more likely to have gained financial literacy through stock market
experience, which in turn affected their financial risk tolerance, rather than financial
literacy which was obtained from formal education in economics and business.
Evidence was also presented in the study to highlight that individuals still relied
heavily on their intuition rather than financial knowledge when facing financial risks
thus displaying a higher financial risk tolerance.

According to research done by Stephen Agnew and Trudi Cameron

(2015), the predominant factor of influences at home, particularly financial
discussions in the home, had far reaching effects on the financial literacy levels of
children and young adults. A key finding was that on average, males had their first
financial discussion in the home at a younger age than females. For males, their first
financial discussion in the home as a child is a factor that primarily influences their
financial literacy levels even as they embark on their university years. This accounts
for other variables such as socioeconomic status as well. The findings of this article
propose that financial socialisation in the home may be subject to a gender bias,
which over time contributes to differential financial literacy knowledge levels
between the genders.

In a survey by Carsten Ernera, Michael GoeddeMenkeb, and Michael

Oberstec (2016) performed among German high school students, it was ascertained
that there was weak performances by the students on standard financial literacy
measures. Assessment was based upon their basic financial literacy and advanced
financial literacy where the former was studied after an assessment of the student’s
math skills and the latter was studied by assessing the general cognitive aptitude and
 31

foreign language skills of the students. The study also ascertained that female
students and students with a low level of integration showed notable lower financial
literacy. This was based upon their scores across the measures.

Margherita Fort, Francesco Manaresi and Serena Trucchi (2016)

investigated the effect of bank information policies in fostering growth of financial
knowledge. Exploiting the exogenous variability induced by the presence of a
consortium of banks in Italy (PattiChiari), it was fond that such policies were
effective only for a small subsample of the population and led only to about 10%
increase in financial literacy. The study threw light on the relation between financial
literacy on financial assets. It was ascertained that increased financial literacy led to
increase in household financial assets. However, the study revealed that the effects
of these policies were extremely diverse among the population. The study also
concluded that there was significant increase in financial knowledge due to the bank
information policies among elderly low-educated households.

Riitsalu, L. and Põder, K. (2016) aimed to analyse the factors behind the
differences in financial literacy when financial education was not provided. The
study also aimed to analyse how students in spite of being in similar education
systems get different financial scores because of different cultural and language
backgrounds. The results concluded that there are several dimensions involved in the
student’s family background that could impact on their financial literacy scores apart
from the usual parental education or occupation based socio‐economic indicators.
The study also revealed through multivariate regression models, that the level of
financial literacy in Estonia correlated with gender, language of the school, the
number of books at home, mathematics and reading scores.

Tarun Agarwal (2016) in his study attempted to correlate financial literacy

and financial inclusion. The study involved in ascertaining the importance of
financial literacy programmes and how they are crucial for achieving a greater
penetration of inclusive banking. The study which was conducted in India suggested
that financial literacy is extremely vital for achieving financial inclusion in India.
 32

Alberto Montagnoli et al. (2017) through a research with the data from the
British election study concluded that increased financial literacy will result in lower
demand for redistribution of wealth. They conducted this research by combining
financial literacy data with measures of attitudes of the people towards redistribution
of wealth from the British election study. The results reveal that higher financial
literacy had huge adverse effect on the attitude of the people on the matter of the
government having to intervene and make incomes equal or redistribute wealth from
the rich to the poor, to avoid the rich getter richer and the poor getting poorer. The
results showed that financial literacy remains unrelated to the general attitudes
against inequality with respect to gender, sexual orientation or ethnic group. The
research also concluded that financial literacy influences one’s take on ‘personal
capital’ which can have a significant effect on their attitudes towards income
redistribution and inequality.

Kutlu Ergin (2017) analysed the level of financial literacy among university
students in Estonia, Germany, Italy, Netherlands, Poland, Romania, Russian
Federation, and Turkey. The study had mainly two objectives – to assess the
relationship between financial knowledge and the demographic characteristics of the
students and to assess the general level of financial literacy among the students. An
online survey system was adopted to collect the data from the students. On
evaluation, the overall mean for correct answers was 7.2%. This concluded that
there was a medium level of financial literacy about personal finance among these
students. The study also revealed that men, Ph.D students, business major students,
those who seek financial advice, those whose parents had high income levels had
higher financial literacy. Further, students living in a rented houses and students
from Poland were also having higher levels of financial literacy.

Lawrence T Lam and Mary K Lam (2017) investigated if the issue of

problematic internet shopping among adults could be impacted through financial
literacy. The study was conducted based upon sample data from three continents of
Europe, North America and Asia. The study was confined to online participants
between the age group of 18 to 60.The extent of the participants problematic internet
 33

shopping (PIS) was assessed using the Bergen shopping Addition Scale (BSAS) and
their financial literacy was assessed using a financial wellbeing questionnaire. The
study resulted that financial literacy was having a significant impact in reducing
problematic internet shopping. Financial literacy was considered as a personal risk
factor of (PIS). The study concluded that through improvement of financial literacy
levels there will be a positive effect on the occurrence of PIS.

Minjung K, et. al. (2017) compared the financial literacy among of two
groups of Koreans living in South Korea. They studied the native-born South
Koreans on one hand and the native-born North Koreans who settled in South Korea
after initially coming into the country as refugees. Due to different political
scenarios, both these groups were born and raised in extremely contrasting economic
systems. On examining the level of financial literacy among North Korean refugees
it was found that they had very limited access to financial markets in their home
country. Due to this, they were significantly less financially literate than their native-
born South Korean neighbours. Although the level of financial literacy of these
refugees increased over time during their settlement in South Korea, the magnitude
of such improvement remains insubstantial. A significant finding through this study
was that – financial literacy which is developed at the early stages of life cannot be
easily modified at the later stages.

Desdemona C A (2018) identified the demographic characteristics which

can affect the level of financial literacy. The study was conducted among individuals
living in Puducherry, India. The study found that significantly lesser number of
respondents had a low level of financial literacy, whereas a majority of the
respondents had an average level of financial literacy. Based on regression analysis
it was concluded that married men living in a nuclear family who are either self
employed or salaried with a maximum of three financial dependents had high levels
of financial literacy. Factors such as gender, marital status, work status, level of
education had an impact on the level of financial literacy.
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2.3 Financial Knowledge & Financial Behaviour

Emine Ozmete opines financial behaviour “as any human behaviour that is
relevant to money management. Common financial behaviours include cash, credit,
and saving behaviour.” Financial behaviour is about actually executing various
financial decisions after acquiring the required financial knowledge. This section
presents a review of various studies on financial behaviour with respect to financial
literacy.

John Gathergood (2002) in his study examined the relationship between

self-control, financial literacy and over indebtedness on consumer credit debt among
UK consumers. This paper empirically examined how financial literacy and self
control are related with consumer indebtedness. It was revealed that there was a
direct relationship between over indebtedness and poor financial literacy & self-
control issues among the consumers. The study emphasized that although financial
literacy may be improved through effective financial education; there is no means of
educating the consumers on self-control. Thu consumers with self-control problems
have a greater risk of facing adverse events due to their impulsive behaviour.

Margaride Abreu and Victor Mendes (2005) researched on individual

investors by studying the data collected by the Portuguese Securities Commission
(CMVM) in a survey conducted by them focusing on individual investors. The study
primarily aimed at understanding the relationship between the level of financial
literacy of the investor and their portfolio diversification. The results indicated that,
there was in general a low level of information among individual Portuguese
investors and also extended to say that the portfolios of these Portuguese investors
were also generally under diversified. These portfolios had an average of only 2 to 6
assets and a huge number of these individual investors have only one security. The
results conclusively showed that, financial literacy is essential for the improvement
of diversification behaviour among investors. This finding is also consistent with the
findings of other studies for European countries (Eymenn and Borsch Supan, 2002).
The study stressed the importance of promoting and developing initiatives to
promote financial literacy among investors. The researchers mentioned about the
 35

initiative taken by The French AMF (The Authorite dis Marchie Financiers) which
is the supervisory and regulatory authority of the French Securities Market. The
French AMF created an institute for public financial literacy. Such initiatives are
essential and vital for improved financial literacy and diversification behaviour.

Maarten Van Rooji et al. (2007) in their paper aimed to show how people
with low financial literacy were less likely to amass wealth. The study showed how
a lack of understanding of economics and finance was a significant deterrent to
participation in the stock markets. By using different measures to gauge financial
knowledge, the paper elucidated how lack of financial literacy averts households
from participating in the stock market. It is also found that financial literacy had an
effect not only on asset portfolios of people but also on their savings behaviour.

Maarten Van Rooji, Clemens Kool and HenrietlePrast (2007) focussed

on the pension segment and the risk-return preference among people in the
Netherlands. In the Netherlands there mainly are two types of pension plans. One
which is a purely Defined Benefit plan (DB) and another whish is a plan based on
Defined Contribution (DC). The former is convenient for most individuals as there
is a scope to choose plans based on risk return considerations, whereas in the latter,
individuals have an advantage of having individually tailored pension plans. Based
on a representative sample of the thousand members of the Dutch population the
study concluded that risk aversion in pension plans was significantly high.

Most employees also assessed themselves to be having low levels of

financial literacy. It was also found that, lack of exposure to self made saving and
investment plans could be reasons for such an assessment. The study said that a
majority of Dutch employees were in favour of the DB pension system which is in
line with their assessment of having low financial literacy. Further, if the employees
were offered a plan with a combination of the DB/DC system, it was found that most
would choose a scheme which would offer them 70% of their net labour income. It
was also evident that majority of the respondents were reluctant to change from a
DB to a DC system. This further proved that they had high risk aversion and low
 36

self assessed financial experience. It was found that individuals lacked the skills to
have investor autonomy over investment for retirement.

Luigi Guigo and Tullio Jappelli (2008) examined the influence of financial
literacy on to portfolio diversification. The study was conducted based on the data
collected in Italy by the ‘Unicredit’ customer’s survey (2007), as this survey
contained information on individual’s portfolio choice, level of financial literacy and
various demographic characteristics of investors. The study found that there is a
strong correlation between financial literacy and the degree of portfolio
diversification. In addition a weak measure was found on comparing the evaluated
measure of financial literacy with investors self assessment of their financial
knowledge.

Maarten Van Rooij and Federica Teppa (2008) conducted an empirical

study by using the data from the Dutch DNB household survey and the US RAND
American life panel. The study aimed to analyse if financial literacy has a relation
retirement savings. It was found that overall procrastination and financial illiteracy
were important determinants of poor decision making. Default options required
financial skills therefore those with the lack of financial literacy did not take part in
active decision making process after considering various alternatives.

Annamaria Lusardi and Olivia S. Mitchell (2010) opined that, as the

economy gets more complex and financially integrated, individuals are put in a
situation to make highly sophisticated and often irreversible financial decisions.
Financial literacy becomes essential to make informed financial choices and to
minimize financial costs. The researcher suggested that, financial literacy leads to
improved financial decision making and proves to be very effective in retirement
planning and long terms planning.

Jamie Wagner (2011) suggested that financial risk aversion can affect how
the person behaved financially. Thus, the researcher linked a person’s financial risk
tolerance and financial literacy to financial behaviour. The research used the 2009
FINRA data set. The researcher looked into how risk, financial literacy and
 37

demographic characteristics impacted the probability of a person having a

contingency fund, owning a house, savings and a positive credit score. On
examining the results of the study it was concluded that financial literacy positively
impacts on the probability of the person owning a house and having a good financial
track record. Financial risk tolerance depends on the person’s willingness and ability
to take on the risk. Implication of this paper suggest that financial behaviour may be
driven more by a person’s ability to take on financial risk rather than their
willingness to take on the financial risk.

Sebastian Muller and Martin Weber (2010) analyzed the relationship

between financial literacy and mutual fund investment behaviour. The study used
data collected from an internet survey conducted in association with a large German
Newspaper. Data was collected from more than 3000 mutual fund investors. Their
level of financial literacy was evaluated. A significant positive relationship was
found between financial literacy and tendency to rely on passive funds. This brings
to light that low financial literacy leads to less actively managed funds. A positive
relation was found between over confident individuals and the likelihood of buying
on active fund. Overconfidence was also positively correlated with financial
expertise. Financial literacy had a positive influence on the likelihood of investing in
low cost funds alternatives. The study also found weak evidence of superior fund
selection abilities among financially more literate investors. However the lack of
financial literacy among most mutual fund customers and the past growth in actively
managed funds lacks complete explanation.

Fenella Carpenaet. et al. (2011) conducted a study on financial literacy in

Ahmadabad, State of Gujarat India. Data was collected from 1200 individuals. The
relationship between financial literary, financial participation and individual and
household characteristics was explored. Various methods to improve financial
literacy and affect financial behaviour such as video based financial literacy
education, financial counselling and financial goal setting were studied. The study
elucidated that respondents with higher mathematical ability were more likely to
 38

indulge in savings, diversified portfolios and comprehensive insurance covers.

Further, financial participation had a strong effect on the per capita household
income.

Through educational videos, discussion sessions and seminars, financial

training was given to the respondents. During the training the researcher faced
challenges of Cognitive biases, problem of self-control, procrastination and non-
response to general information among the participants. Post training evaluation
results showed that, although the training increased awareness among the
participants of the various financial products and services available, it did not help in
selecting the most appropriate savings product(s), or insurance options or to draft a
budget effectively. However financial literacy training increased an individual’s
awareness about the financial products and services available to them.

Natalie Gallery, Cameron Newton and Chrisann Palm (2011) examined

how managing retirement saving and investment can be affected through financial
literacy. The study observed that there was a pattern, where a majority of
superannuation fund members were directly responsible for either actively choosing
or dormantly accepting their funds default investment options. Based upon the study
the researchers proposed a frame work by which various demographic, social and
contextual factors influenced fund member’s financial literacy and explored its
association with investment choices. The model developed in this study can be used
as a basis for conducting surveys of superannuation fund members. Through such
studies researches could identify financially active and inactive segments of fund
members which would go a long way to help improve fund management by
addressing such specific needs among these varied groups.

Tabea Bucher-Koenan and Michael Ziegelmeyer (2011) analysed how the

financial crisis of 2007-2008 impacted the German household. The study aimed to
ascertain how this crisis influenced the financial decisions of the household. Light
was shed upon the fact that how the probability of stock market investments was low
among members with low levels of financial literacy and due to this, these members
were less likely to incur financial losses due to such investments. Further, it was
 39

found that members with low financial literacy are more likely to sell their assets
whose value was significantly reduced due to the crisis in order to realise their
losses. This study confirms the finding by Calvet et al. (2007) and Van Rooij et al.
(2007) that individuals with low levels of financial knowledge stay out of risky
assets.

Jason West (2012) on reviewing literature opined that there is very less
evidence to show a causal link between education, financial literacy and financial
behaviour. The study by the researcher revealed that although an individual may
have high levels of financial literacy, this might not always result in good financial
behaviour. The reason for this is the fact that individuals through life are exposed to
various psychological biases. The researcher also went on to propose that the
various financial products on offer to the consumers must be altered in order to
protect these consumers from the complexities that arise from these products which
can lead to be confusing and ambiguous.

Jodi C Letkiewicz (2012) used data from the National Longitudinal Survey
of Youth (NLSY) for their study. He researched on five independent variables
namely – net worth, illiquid assets, credit card debt and negative financial events.
The research was aimed to analyse if financial literacy can moderate the effects that
self control has over financial outcome. Apart from using multivariate linear and
logistic regressions the research also analysed financial literacy preciseness to test
for moderating effects. It was found that financial literacy is a significant
determining factor on the effect of conscientiousness on net worth and that this
conscientiousness was a significant predictor of net worth. Financial literacy was
found to have a magnifying effect on the relationship between illiquid assets and
conscientiousness. It was also found that financial literacy could not significantly
predict credit card debt or negative financial events. Overall finding suggested that
financial literacy and conscientiousness have a positive impact on consumer
finances.
 40

John Gathergood (2012) used the survey data of UK households to analyse

the relationship between self-control, financial literacy, over-indebtedness and
consumer credit debts. The study considered the individual time preference,
impulsiveness, knowledge of finance, financial literacy scores and examined how
these factors would influence on credit payments and self reported consumer credit
repayment problems. The findings shows that over indebtedness was directly related
to low financial literacy scores and issues with self-control. Consumers having
problems with their self-control were using high cost credit items like store cards
and payday loans. It was concluded that these individuals were likely to suffer
income shocks, credit withdrawals and unforeseen expenses on durables.

Roza Hazli Zakaria et. al. (2012) conducted a study by using data collected
through a survey among the urban households in The Klang Valley, Malaysia. The
study by using a structural equation model determined to analyse the household
financial position among respondents. Based upon review of literature, it was
understood that in Malaysia, particularly among the younger households there is an
increasing bankruptcy rate. This may be mainly due to two reasons – households
lacking a responsible financial behaviour and their inability to sustain in ever
increasing costs of living due to low or stagnant income. The results showed that
responsible financial behaviour was the most important factor responsible for having
a good financial position. It was also found that sound financial knowledge is a vital
predicament for responsible financial behaviour. Financial behaviour mediates the
role of income in explaining financial position. The researchers suggested the
bankruptcies in Malaysia could by reduced by introducing financial education to
households and encouraging good financial practices.

Scott. E. Kehiaian (2012) in his comprehensive research, studied factors

and behaviours that influence financial literacy in U.S. households. The researcher
administered a personal financial literacy quiz to a sample of debtors and non-
debtors in the middle district of North Carolina. An average score was then
ascertained which was used as the dependent variable for the study. A total of 149
independent variables were categorized into demographic factors, psychological
factors and financial behaviours. In order to determine the factors of financial
 41

literacy, factor analysis was used. Further, in order to ascertain which of the
independent variables were significantly related to financial literacy, regression
analysis was used. Based on the analysis the research found a total of 125 significant
factors of financial literacy which were then classified into 16 different categories
namely - demographic factors, psychological factors, financial actions, financial
attitudes, planning actions, mortgage decisions, budgeting habits, goal planning,
retirement planning, credit management, income planning, insurance planning,
mortgage debt ratios, savings planning, investment planning and financial self-
control. It was found that non debtors planned better thereby making efficient
mortgage decisions resulting in having lower debt. They also planned on their
spending and always considered affordability. They also set aside time for goal and
retirement planning. The research concluded that non debtors had statically higher
scores than debtors. With respect to demographic variables, in the case of debtors,
race, was found to be an important factor influencing their financial literacy but in
the case of non debtors it was their marital status.

Yuri Pettinicchi (2012) in his research investigated the relationship between

market volatility and financial literacy. The author concluded that within a general
equilibrium framework market volatility and the implications of policies aimed at
improving the financial abilities of the agents. The researcher believes that financial
literacy affects the cost of acquiring information asset pay off and showed that the
effect on market volatility depends on the uncertainty of fundamentals. The findings
of the study revealed that, the more financially literate individuals are, the more
information they acquire and the more information the market price reveals.

Brian.P. Kennedy (2013) considered Aizen’s (1991) theory of planned

behaviour as a base for his study and included the dimension of financial literacy.
His study aimed to predict credit card debt among college students. The study
measured attitudes towards credit cards, subjective norms, perceived behavioural
control and financial literacy. The results showed that credit card usage among these
students had a significant relationship to attitudes, subjective norms and perceived
behavioural control. Although, in this study it was found that financial literacy
positively correlated with behavioural intention, the addition of financial literacy to
 42

the model did not reflect in a permanent and significant change in the predicting
behavioural intention of the students.

Mohamed E. Ibrahim and Fatima R. Alqaydi (2013) investigated how

financial literacy influences the decision to carry a debt in a particular from. The
study was carried out using convenient sampling among employees residing in the
UAE. Questionnaire was distributed to the selected individuals. Forms of personal
debt, financial literacy, financial attitude, gender, age, nationality, education and
marital status were the independent variables considered. The results of the study
included that the financial literacy among the UAE population was lower than the
Global average and that there was no significant difference between male and
females respondents with respect to financial knowledge. The study also found no
significant relationship between financial literacy, as well as personal financial
attitude and the decision to carry debt from bank loans or borrowing from friends /
family. A strong negative relationship was found between financial attitude and
credit card borrowings.

Nurul Shahnaz Mahdzen and Seleh Tabiani (2013) examined the

influence of financial literacy on individual saving in Malaysia. A survey was
conducted among individuals in Klang valley. The study aimed to analyze the
saving regularity, risk taking behaviour and socio demographic characteristics. The
results showed that although individuals had a relatively high basic financial literacy
score, their advanced financial literacy score was mediocre. The results also showed
that an alarming 42% of the respondents rarely had the habit of saving money.
Through this study light was shed on the fact that by imparting effective financial
literacy improvement in individual saving is a direct outcome. Thus, promoting
financial literacy is of vital importance in this angle. Based on the analysis of the
demographic factors it was ascertained that senior citizens were more likely to have
positive saving habits.

Aussi Sayinzoga, Erwin H. Bulte and Robert Lensink (2014) organised a

field experiment among farmers with small lands holdings in Rwanda to measure
the influence of financial literacy training on financial knowledge and behaviour.
 43

After training there was a notable increase in their financial literacy. This changed
their savings and borrowing behaviour and had a positive effect on the business.
However, it failed to have a significant impact on income in the short term. Using a
two-stage regression framework, the researchers identified improved financial
literacy as one of the prime factors in explaining behavioural changes of these
farmers.

Luc Arrondela, Majdi Debbicha, and Frédérique Savignaca, (2015)

conducted a survey among the French household to study the links between
stockholding, financial literacy and acquisition of financial information. The study
concluded that basic financial literacy and financial information acquisition through
the press and other public sources along with the family financial situations during
childhood has a significant relationship to the stock market participation of the
households. It was also found that basic financial literacy was not correlated with the
share of stocks in financial assets conditionally on stockownership, while the
correlation with information acquisition was significant.

Conrad Murendo and Kingstone Mutsonziwa (2017) used survey data

from a sample of 4000 adult financial consumers in Zimbabwe to analyse the
determinants of financial literacy and its effect on individual's savings decisions.
Results showed that women have lower financial literacy than men. Individuals in
urban areas had higher levels of financial literacy than individuals residing in rural
areas. Econometric results showed that financial literacy positively influenced
savings behaviour for both rural and urban individuals.

Elezsebeth Nemeth and Boglarka Zsotes (2017) viewed that in the modern
economy in order to efficiently forecast financial and economic situations it is vital
to understand an individual’s attitudes towards finances and his/her behaviour. The
study aimed to compare the relevant parts of the time studies conducted in 2015
focusing on financial attitudes and behaviour. The results revealed a total of nine
financial personality profiles can be matched with three clusters identified in the
OECD study, namely, anxious unsatisfied, satisfied conscious and unconsidered.
The main finding of the study was that self-consciousness in finances is associated
 44

with an emphasis on order, planning and diligence. The study suggested that a
combination of these attitudes provide financial and mental stability.

Laura Nunez Letamendia and Ana Cristina Silva (2017) analysed the
conditions required to develop habits of saving and investments among Spanish
households. The studied the financial environment and researched the factors
influencing saving and investment. The main factors that influenced saving and
investment that was considered were basic financial literacy, knowledge and
understanding of available investment options, trust in financial institutions and
intermediaries and attitudes and perceptions regarding saving and investment. The
study concluded that financial scandals and corruption were the prime barriers to
savings. As a result, a third of the population had no trust in financial institutions.
However, trust was found to increase with improvement of financial literacy levels.
The prime reason for saving was only for the purpose of future retirement. The study
also concluded that the behavioural perception of the individuals for savings was
only moderate and they were not prepared to make an efficient decision regarding
savings and investment. Investors perception of financial products was poor and
investors perceive a notion, that they understand products in their own portfolio
better.

Nural Shahnaz Mahdzan et al (2017) focussed on retirement planning.

They studied how financial literacy, risk aversion and expectations on retirement
planning as variables would impact on retirement portfolio allocation. The study by
using a questionnaire collected data from 270 working individuals in Kuala Lumpur.
The study found that financial literacy impacts the retirement portfolio allocation
choice. While women were found to be more risk averse, men were more likely to
hold higher portions of risky assets in their portfolios. The least financially literate
and most risk averse demographically were the Malay and Muslim groups.

Paul Gerrans and Douglas A. Hershey (2017) explored the role of two
potential barriers to accessing financial advice. First, the role of a variety of
financial literacy measures to explain observed financial advice consultation was
explored. Second, a newly developed measure of financial adviser anxiety was
 45

introduced. The notion of adviser anxiety was inspired by evidence from medical
settings, which suggested that individuals may refrain from seeking advice when
objectively it is in their best interests to do so. This anxiety may be due to
embarrassment, worry, or other forms of apprehension associated with the
consultation process. A new scale was presented which has strong validity and a
demonstrated ability to explain reported future levels of professional advice seeking.
A negative relationship was found. Those classified as having a moderate or severe
level of financial adviser anxiety reported having a lower likelihood of consulting a
financial professional in the future.

Ramesh Prasad Chaulagain (2017) in his study considered that in the case
of small borrowers, their financial behaviour is greatly influenced by their financial
literacy. He thus established the relationship between each other. The author
compared the level of financial literacy of small borrowers with their financial
attitude and behaviour. After collecting data through a survey of small borrowers by
Nepal Rashtra Bank, the analysis involved a Chi-square test. The results showed that
there was a significant relationship between financial literacy of small borrowers
and their financial attitude and behaviour. Through these results it was concluded
that there is a urgent and vital need to develop the financial literacy of these small
borrowers as this would positively enhance their attitude and financial behaviour.

Zhong Chur et al (2017) examined on the potential if financial literacy on

household portfolio choice and investment return would be an apt indication of
financial wellbeing. By utilising the data from the 2014 Chinese survey of consumer
finance, the study catagorised financial literacy into two - basic and advanced
financial literacy. The study tested the hypothesis that, financial literacy affects
household choice between stocks and mutual funds. After analysis it was concluded
that when households have higher financial literacy and more specifically higher
levels of advanced financial literacy, they had invested only small portions of their
entire portfolio in mutual funds. They also sparingly used the information and
guidance of portfolio managers. The results revealed that over confident households
invested by themselves and were more likely to hold only stocks in their portfolio.
Overall the study found that households with higher financial literacy were most
 46

likely to receive higher returns on investment, suggesting that high levels of

financial literacy, results in better financial outcome.

Yoshihiko Kadoya et al. (2018) used data of preference parameter study

from the United States. Further, a multi stage sampling was used and the sample
consisted of 1427 respondents. The study examined if financial literacy can help to
reduce anxiety about life in old age. The responders hypothesize that financially
literate people are in a position to earn more and accumulate assets which would
reduce anxiety in old age. On the other hand financially illiterate people rely more
on social security to secure themselves in the old age as they do not have sufficient
asset backing. The probit regression model showed that, financial literacy was not
directly related to level of anxiety, controlling for other demographics. The results
included that asset holding, having a child and exercise reduced anxiety. People
expecting to receive more social benefits from the government were also less
anxious. However, people who crossed 40 years of age showed signs of increase in
anxiety. Ultimately the study leads to the conclusion that the more financially
literate individuals are the ones who amass more assets over time thus resulting in
reduced anxiety in their old age. Thus, the researcher suggested the concern for
financial stability in one’s old age can by curtailed by effective financial literacy.

2.4 Financial Knowledge, Financial Behaviour & Financial Attitude

It is essential to analyse the financial knowledge, financial attitude and

financial behaviour In order to have a complete understanding of financial literacy
of an individual. This section presents review of various studies which analysed
financial knowledge, financial attitude and financial behaviour of individuals.

Angela A. Hung, Andrew M Parker and Joanne Yoong (2009) were of

the view that existing economic conditions raised serious concerns about
American’s financial security. This is of greater concern especially if they do not
have the skills and resources to withstand market downswing. The researchers are in
the opinion that there are a lot of researchers across the world that greatly varies in
their systems to measure financial literacy. Further, all these different systems focus
 47

on a huge variety of financial literacy parameters and in turn ascertain varied

conclusions in analysing the impact of their measures on financial behaviour. The
study revealed that adverse issues relating to long term financial security was
common among individuals having poor saving and investment decisions. A low
level of financial literacy was found among a sizeable portion of the US population.
This affected their ability to engage in efficient and healthy financial practices.

Nannyanzi Sarah (2009) conducted a study at new vision printing and

publishing company located in Manapala district, Kampala. The researcher aimed to
study the inter-relationship between financial knowledge, locus of control, cultural
values and financial behaviour. A positive relationship was found between cultural
values and financial behaviour. The study also found a significant and positive
relationship between financial knowledge and financial behaviour. Based on a
correlation test it was also concluded that there is a positive relationship between
locus of control and financial behaviour. This shows that more a person is in control
of the financial circumstances in his/her life, the better he/she is in handling
financial matters.

In their research, Bryce L. Jorgensen and Jyothi Savla (2010) used the
college student financial literacy survey (CSFLS: Jorgensen 2007) instrument. By
using a structural equation model, they tested the student’s perception of parental
influence on the financial socialization of their children. The study aimed to check if
young adult’s financial knowledge, financial attitudes and financial behaviour were
perceived to be influenced by parents and to also analyze the degree to which young
adult’s financial attitudes mediated financial knowledge and the parental influence
on financial behaviour of the younger generation. The study found that the parents
explicit and implicit teaching greatly influenced the financial literacy of the children.
The study also concluded that young adults have inadequate financial knowledge,
attitudes and behaviours. It was suggested that, to combat this issue of low levels of
financial literacy among young adults, parents should be included in their financial
decision making.
 48

Adele Atkinson (2011) suggested in order to enable countries to develop

effective national policies and initiatives for financial literacy there must be in place
a robust measure of financial literacy. The OECD/INFE measures financial
behaviour, financial attitude and financial knowledge of individuals from various
socio demographic backgrounds. The studies drew samples from 13 countries spread
across four continents namely - Armenia, Albania, Czech Republic, Estonia,
Germany, Hungary, Ireland, Malaysia, Norway, Peru, Poland, United Kingdom and
South Africa.

The study churned out results that men had better knowledge than women in
all countries with the exception of Hungary. Further, the average financial literacy
score in all the countries studied, ranged from 12.4 to 15.0 (out of a total mark of 22)
showing relatively low level of financial literacy in every country.

A similar study on financial literacy conducted in Portugal concluded that

the a majority of the Portuguese were into the habit of budgeting and monitoring of
their financial affairs, however they were less likely to be saving. Similar to a huge
majority of other countries it was found that even in Portugal, men outranked
women in the level of financial knowledge.

Kasule Samuel (2011) examined consumer attitudes, financial literacy and

consumption of insurance. The study investigated how consumer attitudes and
financial literacy impacted the individual’s habit on insurance consumption. The
study was focussed in the country of Uganda. The findings revealed that consumer
attitudes and financial literacy were strong indicators of their insurance
consumption. The prime reason for consumers having an undesirable attitude to
insurance products was their lack of confidence and trust in the insurance firms.
Further, the general financial literacy levels among the consumers were also found
to be low.

Atkinson. A and F. Messy (2012) analyzed data collected through a survey

administered in 14 countries and reported on the financial literacy levels. The study
focused on measuring financial knowledge and understanding financial behaviours
 49

and financial attitudes. Further, based upon socio-demographic status the study
reported on the financial literacy levels. The results show that there is excellent
scope for improvement, as understanding simple financial concepts such as
compounding and diversification was itself lacking among sizeable portions of the
population in most countries. A common finding was that women were less
knowledgeable the men. It was also found that individuals with more knowledge
scores exhibited positive financial behaviour. In 8 countries, a larger number of
individuals achieved high knowledge scores than behaviour scores. Conversely in
Germany, Malaysia, Norway, Peru, South Africa and BVI, financial behaviour
scores were higher than knowledge scores, Germany and BVI had achieved high
scores in financial knowledge, behaviour and attitude. The average combined score
across all participating countries was 13.7 out of a maximum possible score of 22.
Countries like Czech Republic, Germany, Hungary, Ireland, Norway, Malaysia,
Peru, UK and BVI had scores above the Global average.

John .L. Murphy (2013) studied the relationship between psychological

factors such as religiosity, financial satisfaction, hopelessness, earnings and
demographic factors such as age, education, marital status, work status and financial
literacy. The study used data from the Health and Retirement Survey (HRS). By
using a linear regression analysis, the researcher explored the relationship between
various economic and psychological variables and financial literacy. The researcher
also used the Pearson’s correlation to study the relationship between variables. The
results showed that education had the highest correlation with financial literacy
followed by age, earnings, hopelessness, religiosity and financial satisfaction. The
regression results indicated that age, education, race and gender were significant
predictors of financial literacy. Financial satisfaction and religiosity were both
significant independent predictors of financial literacy.

Sobhesh Kumar Agarwalla et al. (2015) used a questionnaire to measure

the financial knowledge, financial behaviour and financial attitude of the working
young in India. The study analysed the influence of various socio demographic
factors on different dimensions of financial literacy. It was interesting to note that
although there were high levels of education among the respondents it did not result
 50

in adequate levels of financial literacy. This was mainly due to the fact that there is
absence of information relevant to financial literacy in the education process. In
spite of this the results revealed that, the level of financial literacy among the
working young in India is on par with the levels among comparable groups in other
countries. However, it is due to the special cases of prevalence of joint family
system and consultative financial decision-making process which is a prominent
aspect in India, financial well-being of youngsters in the country can be improved
only if there is focus beyond just the individual. In addition, on examining the inter
linkages between financial knowledge, behaviour and attitude, although, a positive
relation between knowledge and behaviour was found, a negative relationship
between financial attitude and financial behaviour was surprisingly found.

Dr.M.V.Subha and P.Shanmugha Priya (2014) studied the factors

determining financial literacy of households. The study revealed that financial
literacy is influenced by six factors - they are managing debt and credit, confidence
and attitude, skills, personality, knowledge and understanding and future financial
planning. The study also highlighted that financial literacy is a powerful indicator of
demand for financial consultancy services.

Gowri (2014) assessed the level of financial literacy among young

employees in Coimbatore city. The various determinants of an individual’s financial
literacy, the sources of financial matters, challenges individuals face, and attitude
and behaviour in obtaining financial goals were studied.

Jessie Sim (2014) studied the levels of financial knowledge and skills of
students in Oxfordshire and Greater London. However, the study was restricted to
fifteen-year olds. The relationship between financial knowledge, skills and the
student’s attitude on personal finance was studied. The key determinants of financial
knowledge were investigated.

Puneet Bhushan and YajuluMedury (2014) studied the inter relationship

between financial attitudes, financial knowledge and financial behaviour. They
aimed to improve the financial literacy levels of people by developing a
 51

comprehensive financial literacy model. On analyzing the correlation results, it was

found that there is a strong inter linkage between financial knowledge, financial
attitude and financial behaviour. The financial literacy of the individual was greatly
affected by their financial attitude and behaviour. Thus, in order to improve financial
literacy, it is vital to have an overall favourable financial behaviour. The author
suggested that focus must be on developing positive financial behaviour.

Nguyen Thi Ngoc Mien and Tran Phuong Thao (2015) investigated the
factors affecting personal financial management behaviour by examining the
relationships among financial attitude, financial knowledge, locus of control and
financial behaviour, among the youth in Vietnam. It was found that financial attitude
and financial knowledge have a significantly positive relationship with financial
behaviour. It is also found that, more external locus of control leads to worse
financial behaviour. A structural equation model was proposed in the research to test
the relationship between financial knowledge, financial attitude, external locus of
control and financial behaviour. The findings show that the model was a good fit.

Benjamin Roberts, JareStruwig and Steven Gordon (2016) prepared a

report on the financial literacy status in South Africa. The objective of the study was
to provide the financial services board with information about the financial
knowledge, attitudes, skills and behaviour of adult South Africans. The study
reported that rural individuals had lower financial literacy scores compared to those
in urban areas. Financial literacy scores also differed according to the number of
children and family type. The research did not find any association between gender
and financial literacy, however education was found to have a strong influence on
financial literacy. Age and labour market status also was a strong predictor of
financial literacy.

Gabriel Garber and Sergio Mikio Koyama (2016) used the data pertaining
to Brazil from the OECD/IFNE survey 2015. The research brought out a new
regression technique that could be used for two purposes. The first one aimed at
combining variables and to generate measures of financial knowledge and attitude.
These measures could then be used as good predictors of behaviour variables. The
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second purpose aimed at providing coefficients that may be used to compare

different policy instruments that influence different policy objectives. In order to
ascertain this, a system of equations was developed in which the dependent binary
variable was financial behaviour and explanatory variables were financial
knowledge and attitude and control variables.

Sheela Devi D.Sundaresan and Muhammad Sabbir Rahman (2017)

conducted their study via questionnaire from postgraduate students in Dhaka. The
study focussed on the aspect of an individual’s attitude towards Money and how this
attitude could by a mediator between perceived financial literacy and parental norms
on money management. Through the use of a Structural Equation model the
researchers were able to understand the causal relationship between the constructs
on the proposed model. The results indicated that perceived financial literacy,
parental norms and attitude towards money play a significant role in money
management. Attitude towards money was found to be a mediator between parental
norms and money management. However the reverse holds good for perceived
financial literacy and money management.

In a study by Yoshihiko Kadoya and MostafaSaidur Rahim Khan (2018),

they elucidated about the financial literacy in Japan by examining the demographic
and socio economic factors of the country. They classified financial literacy into
three, namely - financial knowledge, financial attitude and financial behaviour.
This was a relatively comprehensive study using data from a large scale
questionnaire. The total sample size of the survey was an impressive 16,000
individuals cut across a variety of demographic features along all major cities in
Japan. For this study, dependent variables included financial knowledge, attitude
and behaviour and demographic and socio-economic characteristics like gender, age,
education, employment status were the independent variables. In addition, the
respondents’ experience with financial issues and willingness to develop their
financial knowledge were taken as two additional independent variables. The results
showed on one hand gender, age, education, income, balance of financial assets and
use of financial information were positively related to financial literacy, and on the
other hand employment status and experience of handling financial issues were
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negatively related. There was no association was found between respondent’s

income and financial knowledge. An interesting finding was that in Japan, old age
did not cause a reduction in the level of financial literacy. Similar to several other
researches’ men performed better than women in the overall measure of financial
literacy, however women outperformed in areas of financial behaviour and financial
attitude.

2.5 Financial literacy & Over/under confidence

Financial Over confidence means the tendency to set narrow intervals in

making investment predictions in trading or business and exaggerations of one’s
financial knowledge in financial decision making. Financial under confidence would
mean being modest and under estimating ones financial knowledge and decision
making skill. Financial over confidence and under confidence affects financial
behaviour and financial well-being. This section presents review of various
researches on financial literacy over/under confidence.

Bruce A. Tannahill (2012), opined that, over a lifetime, an individual’s

financial literacy and decision-making abilities greatly vary. Based on this the
researcher suggested that financial professionals must be equipped with the
knowledge to be aware and understand these changes people encounter through their
lifetime. They have to adapt their working styles based on each individual and their
current financial literacy, decision-making, and confidence level.

Marc. M. Kramer (2014) analysed The Dutch DNB household survey

(DHS) and a random sample of retail investors form a large Dutch bank, he
ascertained if advice seeking behaviour was related to financial literacy and
overconfidence. A strong and significantly negative association between self
assessed financial literacy and the choice to seek advice was found. However no
such relationship was found for measured financial literacy.

It was propounded that the difference between actual and self assessed
financial knowledge implied level of overconfidence. Overconfidence was
prominent in males and not among females. Thereby the research concluded that
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overconfidence is a male trait. Individuals with higher levels of overconfidence

wanted more control and assumed less risk in self-directed investing, and they also
rated themselves to be having better investment skills, knowledge and information
compared to a financial expert. Overall these results confirmed that advice seeking
behaviour was lower among individuals with a higher degree of overconfidence.

Tian Xia, Zhengwei Wang and Kumpeng Li (2014) were of the opening
that stock market participation is considered as an indicator of consumer financial
well-being. In their study conducted in China, the inter relationship between
financial literacy, over confidence and stock market participation was researched. A
positive correlation was found between financial literacy overconfidence and stock
market participation, and a negative correlation was found between under-
confidence and stock market participation. It was found that being over confident
will increase the likely hood of stock market participation by around 20% and under
confidence will decrease the likely hood of stock market participation by around
10%. This study shows that not only do consumers need to have high financial
knowledge for stock market participation, but they also need to have confidence
about their level of knowledge.

Colleen Tokar Asaad (2015) explored how financial decisions are affected
by financial literacy comprising of - actual financial knowledge and perceived
financial confidence. A logistic regression analysis was performed by studying used
data from FINRA Survey in USA. The results showed that individuals with high
knowledge and confidence took good decisions when compared to individuals with
low knowledge and confidence levels. It was ascertained that self-perceived
knowledge was an important component of financial literacy. Over confident
individuals were found to engage themselves in more risky financial behaviours.
Based on these findings the researcher suggested that in order to improve financial
literacy, initiatives should focus not only on factual knowledge but also on
improving the self-confidence of the individual.

Bryan C. Mc Cannon et al. (2016) conducted experiments with

undergraduate students at a private university in New York. The students played the
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Trust Game created by Berg, Dickhaut and McCabe (1995). The researcher
conducted risk assessments after each round. A financial literacy quiz was then
administered to the respondents. In this quiz the respondents were also asked to
gauge their confidence of their response. This enabled the researchers to ascertain
the overconfidence levels of the respondents. The researcher through this study
aimed to address if there was correlation between investment behaviour and two
components of financial literacy, being - financial competence and overconfidence
in decision making. By taking trust as a dependent variable and over confidence and
competence as independent variables it was ascertained that over confidence was
having a positive effect on trusting investments.

Overall the results indicate that an important determinant of behaviour was

overconfidence. It was also found that overconfident students made larger
contributions in the investment game.

M.Gentileet. Al. (2016) used data from the Italian market to study the
relationship between the propensity to seek professional advice, financial knowledge
and overconfidence. The study also investigated the determinants of financial
knowledge and overconfidence. The demand for financial advice was found to be
positively related to financial knowledge and negatively related to overconfidence. It
was also found that behavioural traits such as self-confidence play a vital role in
financial choices and are related with the level of financial literacy. The study found
that for the Italian context, there was vast majority of individuals who exhibited both
a low degree of financial literacy and high propensity towards informal rather than
professional advice.

Ibrahim E. Karaaand Tayfun D. Kuğu (2018) by studied the financial

literacy of university students from Turkey. They determined the relationship
between basic and advanced financial literacy and aimed to present a positive
association between financial literacy and social media usage. The research also
assessed various demographic factors which would influence financial literacy along
with the students’ confidence level in their knowledge. The study found that
advanced literacy and basic literacy were significantly related and some of advanced
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literacy can be explained by basic literacy. Financial literacy was found to differ
based on age, class, and major areas of study. University students were found to be
overconfident in their ability to interpret financial and economic news and data.

2.6 Financial literacy & Financial Well-being

Every individual works to improve his financial life and ultimately aim to
achieve financial well-being. Financial well-being is a situation where a person
would have lesser financial concern and enjoy a state of financial bliss. This section
presents review on financial well-being.

Nancy M Porter and E.Thomas Garman (1993) conceptualized and tested

financial well-being as a function of Personal characteristics, objective attributes,
perceived attributed and evaluated attributes of the financial domain. The empirical
test model showed that all the four attributes were significant in contributing to
financial well-being. It was also concluded that subjective value related perceptions
of the financial situation provide insights into the variability of self reputed levels of
financial well-being. In addition, worrying about debts and being able to meet
financial emergencies contributed to the variance in financial well-being.

Robert B. Neilsen (2010) studied financial wellbeing for the first time using
the Personal Financial wellness scale using a random digital – dial computer assisted
telephone interview. A total of 515 married adults participated in this study. The
scale was also modified to suit the telephone interviews. Through confirmatory
factor models it was ensured that the scale was robust; as both a single and two
construct measure of subjective and objective financial wellness was used. As there
were two models used, under one model named subjective financial wellness -
components such as levels of financial stress, satisfaction with financial situation,
feeling about current financial situation and stress about finance in general were
studied and under the second model named objective financial wellness model -
components such as can’t afford to go out, living pay check to pay check, worry
about living expenses and confidence regarding financial emergency were studied.
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The modified scale produced low levels of missing data and exhibited excellent
internal reliability. Finally the researcher suggested the use of computer Assisted
Telephone Interviews in studying the personal financial wellness by adapting the
PFW scaleTM.

Marzieh Kalentarie et al (2013) evaluated the relationship between

financial literacy, financial well-being and financial concerns. Demographic
characteristics like age, gender, marital status, education level etc. were studied and
its role on how they would impact financial literacy, financial well-being and
financial concern was investigated. By using correlation, T test and regression; the
results revealed that there was a positive relationship between age and gender with
variables of financial wellbeing and financial literacy. Education was found to
positively impact financial well-being and financial literacy. It was also found that,
higher level of financial well-being was followed by good level financial literacy
and that, higher financial literacy led to less financial concerns.

R.Zaimah et al. (2013), undertook a survey among the public sector workers
in Malaysia who are married. The research examined the usefulness of two financial
ratio guidelines in assessing their financial wellbeing. The study used data collected
from a research gathering and collected samples from 415 married workers who
were dual earners in the family. Financial well-being was measured using saving
ratio and debt payment ratio. The respondents were categorized into A,B,C and D
based on the level of financial well-being. ‘A’ denoted best and ‘D’ the worst level
of financial well-being. The study revealed that the savings habit among the
respondents were below the satisfactory level. Further, it was found that the
employees were spending more than what they earned. It was thus suggested the
employers should take more initiatives to educate and assist their employees to have
better financial planning. This is a vital activity as the results showed that than 40%
of the employees belonged to category ‘D’.

In their research, VionaMuleka and James Giteri (2013) studied 84

employees of the Chuka University. The research aimed to bring out the fact that
that many employees lacked basic skills needed to make good financial decisions
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and that when they experience poor personal financial management, it affects their
work place too. Therefore the researchers attempted to evaluate employee’s
financial knowledge and their financial well-being. The study concluded that these
employees have been facing personal financial hurdles and needed financial
education to be elevated from these hurdles. The research also found that employees
with high levels of personal finance knowledge had better financial well-being. This
also resulted in improved employee productivity.

Mahmoud Moein Addin et al. (2013) analysed the relationship between

financial literacy, financial wellbeing and financial worry among professors of
Yazad Islamic Azad University. The adopted the simple random sampling method to
collect data. The study found that financial worry reduced with reducing expenses
and cost of living. This financial worry was found among University professors
could also lead to negative influences on their capabilities. Insurance products were
commonly used by those with higher levels of financial wellbeing and financial
literacy while others did not. Financial consulting service was not availed and
purchasing real estate was a common practice in Iran which in turn led to high
inflation.

Alfonso Arellana et al. (2014) used data from the Programme for
International Student-Assessment (PISA) Financial literacy (2012) report conducted
by OECD for their study. The study was focussed across young people in Spain.
They analysed if self-confidence affects financial abilities of these young people
through financial literacy. The study investigates the impact of non-cognitive factors
on financial literacy. The results indicated people having higher level of financial
literacy had higher levels of self-confidence. It was found personal attitudes also
influence financial behaviour patterns. Self-confidence was found to improve
financial well-being; however, it was found that, excessive confidence would lead to
a loss of wellbeing. Self- confidence was analysed in four dimensions - first the
student’s self confidence in their study environment, second self-confidence
referring to the utility found at school, third self confidence in relation to the results
from the financial literacy test and last self confidence in a broader sense. Ultimately
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it was concluded that factors such as maturity, gender, socio-economic

characteristics and the surroundings influence financial literacy beyond an
individual’s interest characteristics.

Brett Theodos et al (2014) used FINRA, Investor Education Foundations

2012 National Financial Capability Survey (NFCS) data to examine if men and
women differ significantly in financial knowledge, financial behaviour and financial
well-being. Overall the study found that women were less financially knowledgeable
than men. They were also found to differ modestly in their financial behaviour and
level of financial well-being. Men are considered more of risk takers than women.
With respect to payment of credit card bills not much of a difference was found
between men and women. No statistically significant gender difference was found
for use of financial services. Married women were found to behave differently than
single women when it comes to financial decision making. Difference in
performance of financial tasks was found, as men were more likely to pay taxes,
track investments and make long term spending or saving plans while women were
more likely to pay bills and make long term spending or saving plans. Financial
wellbeing was measured on five accounts such as; difficulty in paying bills,
emergency funds, having retirement savings, satisfaction with personal finances and
satisfaction with overall economic situation. Women and men differed only in two
of the above five measures. Significant differences was found between married
women and unmarried women. Overall findings suggested that, though financial
knowledge gap exists by gender, they do not account for gender differences in
financial behaviour and financial well-being.

Towers Watson partnered with Australian Unity in (2014) to review and

validate an innovative personal financial literacy measure. A questionnaire was
used to collect data and it covered concepts like money management, financial
planning, financial wellbeing, financial knowledge and financial products.
Attitudinal or subjective behavioural and objective measurement strategies were
adopted.
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Correlation and cronbach’s alpha test were used to measure the concept and
construct. Factor analysis was used to partition data into factors. The results showed
that there was an association between objective measure of financial literacy and
questions on financial behaviour. With respect to financial wellbeing those
exhibiting bad financial behaviour were less likely to score above average in overall
satisfaction of life. Overall the results indicated that financial wellbeing and
financial literacy are associated with broader measures of wellbeing, and that lower
levels of financial literacy could also be linked to lower sustainable engagement
levels at workplace.

Mohamed Fazhi Sabri and Nurul Farhana Zakaria (2015) conducted a

study on young Malaysian employees. They identified the levels of financial
literacy, financial strain, financial capability and financial well-being and the type of
money attitude of these young employees. The multi stage sampling technique was
used. The researchers collected a sample of more than 500 young employees
working in both the public and private sectors in central Malaysia below 40 year of
age. Questionnaires were used to collect data for the study. The study aimed to
analyze, based on demographic characteristics there are differences in financial
well-being and analyzed the relationship between financial well-being of young
employees and their financial literacy money attitude, financial strain and financial
capability. The study proposed to identify the various determinants of financial well-
being among young employees. The findings indicated that respondents who had
moderate levels of financial literacy, financial capability and financial wellbeing
scored high in retention money attitudes and had a low level of financial strain.
There was a significant difference with regard to financial wellbeing among
respondents who were married and single. Similarly, the financial well-being
differed significantly as per different income levels of the employees. A significant
relationship was found between financial well-being and financial literacy, type of
money attitude, financial strain, and financial capability. The research also
concluded that financial strain is as a major contributing factor to financial well-
being.
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Mohamed Fazil Sabri (2015) measured the levels of financial literacy,

financial management, savings motive and financial wellbeing of working women in
Malaysia. The study attempted to explore differences in financial wellbeing based
on demographic characteristics of working women and to identify determinants of
financial wellbeing. With a total sample size of 447 women selected through a multi
stage sampling technique, the data was collected through a questionnaire. The study
revealed that respondents with moderate levels of financial literacy and financial
wellbeing scored high on financial management. There was a huge degree of
variation in financial well-being between married and single women.

Significant relationship was found between financial literacy, financial

management, saving motives with financial wellbeing. Overall, a dominant predictor
of financial wellbeing among working women was their age. Savings motive was
also a major contributing factor to financial wellbeing.

Mehwish Zulfiqar and Muhammed Bilal (2016) highlighted the

importance of financial literacy and financial wellbeing for working women and
studied the impact of financial literacy and financial attitude on financial wellbeing.
The sample consisted of 300 women working in the non-financial sector in Pakistan.
The study found that more than 70% of the women answered questions on financial
literacy correctly implying that working women can understand and comprehend
financial concepts correctly. Financial literacy and financial attitude were found to
be positively and significantly associated with financial wellbeing of working
women. With respect to demographics, age was the most influencing factor followed
by their marital status with regards to financial wellbeing.

Roslyn Russell and Amalia Di lorio (2016) viewed financial well-being as

a function of structural, interpersonal and individual factors. They felt gender
experience is strongly embedded in these domains. They found that the societal
structure, family and interpersonal factors result in a complex set of conditions that
influence a woman’s individual financial decisions. Thus their research confirms
that gender must be considered more than a characteristic, rather as a variable that
would strongly shape financial decision making and well-being.
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Sing Chie Tie and Ismail Nizam (2016) identified the determinants that
influence the state of financial wellbeing of Gen-Y in Malaysia. A sample of 180
Gen-Y individuals was selected through a simple random sampling method. The
study was undertaken in response to a study by Asian Institute of Finance (2015)
which found that Gen-Y Malaysians had a moderate financial literacy score. For this
study, financial satisfaction was considered as the independent variable and the
dependent variables included financial planning, financial situation and financial
status. The study found that financial knowledge and financial planning were
determinants of financial literacy and this had a positive influence on financial
wellbeing of Gen-Y in Malaysia. The study also concluded that current financial
status of Gen-Y in Malaysia was not a determinant for financial satisfaction.
However, the study was not able to associate financial situation and financial status
as a determinant to financial wellbeing.

Elaine Kempson et al. (2017) presented a report based on the work done by
Personal Finance Research Centre (PRRC). An extensive review of the research
relating to financial literacy (knowledge and skills), financial capability (behaviours)
and financial wellbeing was undertaken. Based on the review a questionnaire was
developed and data was collected in Norway. The study measured financial
wellbeing with three sub-measures: meeting current financial commitments, feeling
comfortable financially and having financial resilience for future. Six underlying
behaviours, measure of knowledge, experience of financial matters, attitudes to
money matters and other psychological factors were used to test a prior conceptual
model of financial wellbeing in the study. Spending restraint, planning use of
income, informed product choice, active saving, not borrowing for daily expenses
and keeping track of money were the six behaviour indicators. It was found that
active spending was mainly driven by psychological factors, informed product
choice was mainly, driven by knowledge, while not borrowing for daily expenses
was mainly influenced by saving and spending attitude. On the whole the study
found financial behaviour along with social and economic factors are important
determinants of financial wellbeing. Knowledge and skills had a smaller effect on
behaviour and no direct effect on financial wellbeing. The researchers highlight that,
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the results are based on data collected from Norway, a country with high income and
equality in income hence the results would vary if the model was put on use in other
developed or developing countries.

Dina Bowman et al. (2017) developed a basis for a broader understanding

of the factors that shape financial wellbeing and equip individuals to experience
economic security. The focus is on financial inclusion, literacy and capability to
resilience and wellbeing in the new era. The researchers highlighted the fact that
financial wellbeing is the need of the day and is popular in the overlapping fields of
social policy, service delivery and personal financial products. As a component of
overall wellbeing, financial wellbeing can contribute to a fuller understanding of
economic security and social cohesion. The researchers opine that, currently
financial wellbeing faces difficult conceptual challenges; hence there is a need to
construct a frame work that would have concepts that centre on the social arena as
its primary unit of analysis. Ultimately they suggest that the relationships between
social and individual factors are required in financial wellbeing constructs.

Jasmine Adela Matang et al (2017) in a study, examined used data

collected from undergraduate students from public and private universities in
Malaysia. The study aimed to analyse the significant determinants of student’s
financial well-being. The study found that having positive attitude towards credit
card was negatively related to financial well-being. It was suggested that positive
attitudes towards credit cards would lead to a higher amount of debt compared to
those with negative attitudes. The results suggested that financial knowledge was a
significant factor in influencing the financial well-being of these undergraduate
students.

Margaret GatuiriKamakia et al (2017) voiced out that a big concern in

developed and developing countries today is financial illiteracy. The researcher
therefore critically reviewed literature to establish the documented relationship
between financial literacy and financial well-being and possible interviewing and
moderating variables. The results on reviewing literature indicated that, financial
literacy and financial well-being are defined and measured differently. A positive
 64

relationship is found between financial literary and financial well-being but is

interviewed and moderated by financial behaviour and demographic factors.

Stephen Prendergast and David Blackmore (2018) undertook a survey

among around 3500 Australian adults. By administering a questionnaire, a report
was prepared by the researchers after measuring the financial wellbeing of these
adults. After analysis the financial well-being of the individuals were categorised
into four, namely - financially distressed, financially unstable, financially exposed,
financially well. The questionnaire that was administered consisted of six sections;
screening demographics, product holdings, financial wellbeing, financial capability
and knowledge, attitudes and motivations, stress and money situation and profiling
demographics. The key findings of the study are that the average financial wellbeing
score for respondents was 59 out of 100. This indicated that Australians have a
reasonable level of financial wellbeing. While 24% of the respondents reported to
have no worries financially and 40% were doing okay, 23% were getting by and
only 13% of them were struggling with their financials. Financial behaviour was an
important indicator of financial wellbeing. The survey showed regardless of their
income levels many people were borrowing money for everyday expenses. This was
a critical indicator of wellbeing. Other factors such as home ownership, age and the
way parents teach their children about money when they are growing up influenced
financial well-being. Financial knowledge was found to have only a limited direct
influence on their financial wellbeing. Further, it was also determined that financial
behaviour, attitudes and social and economic circumstances were more important
direct influences.

2.7 Research gap

Several studies have been conducted on the subject of financial literacy but
not many have considered impact of all three important dimensions of financial
literacy i.e financial knowledge, financial attitude and financial behaviour to assess
the financial literacy of an individual as a whole. In most of the previous research
studies only financial knowledge is analysed and its impact on various demographic
characteristics is studied. Similarly the impact of financial literacy on the overall
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financial wellbeing of an individual is not considered in many other studies . This

research helps to fill this gap. The objective of this research is to attempt to
understand the level of financial literacy of individuals by considering all three
important dimensions of financial literacy i.e Knowledge , behaviour and attitude.
The research also reports on self-assessed and objective measures of financial
literacy and tries to evaluate the financial knowledge confidence level of the
respondents. The relationship between financial literacy and financial wellbeing is
also studied in detail. The present study also attempts to investigate the impact of
various socio demographic characteristics on the three dimensions of financial
literacy (i.e) financial knowledge, financial behaviour and financial attitude which
has not been much explored in earlier studies.

2.8 Chapter summary

The review of literature highlighted the different dimensions of financial

literacy; financial knowledge, financial attitude and financial behaviour. From the
review it is evident that various demographic and socio economic variables
influence financial literacy. Various studies also brought to light that financial
literacy is a major contributing factor for financial well-being. The concept of over
confidence/under confidence and how it impacts financial attitude and behaviour is
also reviewed. A global perspective on the various levels of financial literacy across
countries was brought to light. It can be said that the literature on financial literacy
is in its developing phase and not yet reached maturity. The review also brings to
understanding that after the dawn of the new millennium and expansion of world
markets due to globalisation the concept of financial literacy has gained importance
and momentum. This chapter provided a review of research on financial literacy
which would help identify gaps in literature.

The subsequent chapter highlights the conceptual details relating to financial

knowledge, financial attitude, financial behaviour and financial well-being. A
model is proposed to depict the impact of financial literacy on financial well-being.