3. 2024 - The Effect of Financial Literacy on Investment Decision With Financial.

International Journal of
Economics Development Research, Volume 5(4), 2024

pp. 3332-3356
The Effect of Financial Literacy, Income, Risk Tolerance on

Investment Decisions with Investment Interest as a
Mediating Variable
Made Ayu Siwi Paramitha1, Anak Agung Ngurah Oka Suryadinatha Gorda2
Abstract:
This study aims to identify the effect of financial literacy, income, risk tolerance,
investment interest with investment decisions. In addition, the study also identifies
investment interest as a mediating variable on financial literacy, income, and risk
tolerance. The population in this study were investors located in Denpasar City. The
sample was selected by purposive sampling method. Data was collected using a
questionnaire. Model testing is done with inferential statistical analysis techniques
and hypothesis testing is done with the t-statistic test. The results of testing the direct
effect between variables obtained a positive and significant value with p <0.05. The
results also obtained the effect of financial literacy, income, and risk tolerance on
investment decisions providing an R-square value of 0.778, while the effect of
financial literacy, income, risk tolerance and investment interest on investment
decisions provided an R-square value of 0.747. The study found that the better
financial literacy, income, risk tolerance, and investment interest will increase the
investment decisions of investors. The government is expected to provide space for
people to learn about investment so as to increase potential and quality investors in
Indonesia.
Keywords: Financial Literacy, Investment Interest, and Investment Decision
Sumbitted: 4 September 2024, Accepted: 26 September 2024, Published: 5 October 2024
1. Introduction
Indonesia as a developing country faces obstacles in terms of understanding

investment decision making, especially among the general public. This causes a big
challenge in the field of investment, including cryptocurrencies which provide great
financial potential but also high risk. Many Indonesians are interested in investing,
given the availability of many investment vehicles for potential investors. However,
the high risk in the world of investment, especially cryptocurrency, makes financial
literacy, especially regarding investment, an important aspect. Knowing about
1
Master of Management Program, Universitas Pendidikan Nasional, Denpasar, Indonesia.
[email protected]
2
Master of Management Program, Universitas Pendidikan Nasional, Denpasar, Indonesia.
Made Ayu Siwi Paramitha, Anak Agung Ngurah Oka Suryadinatha Gorda
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financial literacy allows investors to make the right financial decisions, especially in
terms of investment.
An investor is a group or a person who invests capital to gain profit in a certain period.
According to OJK, the total number of investors in Bali is 243,350 Based on the
demographic aspect, the most investors in Bali are in Denpasar with a total of 83,479
investors followed by Badung 46,719 investors and Buleleng 27,940 investors. The
rapid development of communication and economic technology provides many
conveniences for investors in conducting transactions. This can be seen in companies
that are established and developed using technical infrastructure. Along with these
advancements, the types of assets available to investors have become more varied,
with one of the most popular options being cryptocurrencies.
Cryptocurrency is a combination of two words namely “cryptography” which means

secret and “currency” means currency. Cryptocurrency is a currency that is used in
transactions free of service fees because it is a virtual medium of exchange. The use
of cryptocurrencies, particularly Bitcoin, was first documented in 2009. This can be
observed through the establishment and growth of companies that utilize
technological resources. The increase in the type of currency is also accompanied by
an increase in the Market Capitalization of all Cryptocurrencies which can be a quick
and easy way to find out the value of a company.
According to data from the Commodity Futures Trading Supervisory Agency

(Bappebti), the number of cryptocurrency investors in Indonesia reached 17.91
million individuals in September 2023. The number increased by 12,000 people,
representing a month-to-month (mtm) period. The growth rate was 0.67% compared
to August 2023 which amounted to 17.79 million. Annually, the number of
cryptocurrency investors has grown by approximately 1.64 million individuals,
representing a year-on-year (yoy) growth rate of 10.1%. As of September 2022, the
total number of cryptocurrency investors amounted to 16.27 million individuals. The
large number of investors does not necessarily reflect a good understanding of the
world of investment, especially cryptocurrency. Therefore, it is important to have
good financial literacy in order to get optimal results in investing.
Financial literacy is a necessary skill for individuals to avoid financial difficulties, as

individuals often face situational choices where they must prioritize their own needs.
Investment decision-making refers to the act of reaching a conclusion or making a
choice regarding various difficulties or challenges. Before making an investment, it is
very important to have a strong understanding of financial literacy (Candra &
Abdullah, 2023). According to research Hesti et al., (2020) found that financial
literacy has an impact on investment decisions supported by research (Upadana &
Herawati, 2020). Meanwhile, according to research Yundari and Artati, (2021), the
results of financial literacy research have no effect on investment decision making
supported by research Maharani et al., (2022) which states that financial literacy has
no significant effect on Financial Behavior with a positive relationship direction.
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Financial literacy is increasingly recognized as a crucial skill that influences

individual financial decision-making and broader economic stability. As societies
evolve and financial products become more complex, the need for financial literacy
grows, impacting various aspects of life and contributing to overall economic health.
Financial literacy have an impact on financial decisions-making in some part, such as
empowerment and independence, financial management, long-term planning
including retirement savings and invesment strategies, debt management, economic
stability, and foster inclusive growth (Andrews, 2024). The global importance of
financial literacy is the foundational for making informed decisions that affect
personal well-being and economic stability. By investing in financial education
initiatives, societies can empower individuals, promote economic growth, and foster
a more equitable environment where everyone has the opportunity to thrive
financially.
Several data sources reflect gaps in financial literacy and investment behavior globally
and regionally. First, S&P Global FinLit Survey in 2014. This survey found that only
33% of adults worldwide were financially literate, highlighting a significant global
gap in financial literacy. Second, P-Fin Index in 2024). The TIAA Institute-GFLEC
Personal Finance Index reported that Americans generally perform poorly on
understanding key financial concepts, with around 50% of adults being financially
literate. This deficiency extends globally, affecting economic and personal outcomes.
Third, Eurobarometer Survey in 2023 (Andrews, 2024). In the European Union, a
quarter of respondents scored low for knowledge in the 2023 Eurobarometer survey
on financial literacy, with 18% at a low level of financial literacy. Fourth, OECD PISA
2022 Volume IV Financial Literacy Assessment. It found that nearly one out of five
students on average did not achieve baseline proficiency levels in financial literacy.
The top performers, about 11% of OECD students, were capable of solving non-
routine financial problems and understanding the wider financial landscape. Fifth,
Indonesian Financial Literacy Index. In Indonesia, the financial literacy index has
shown an increase over the years, but still, there are significant gaps. The index was
21.84% in 2013, 29.7% in 2016, 38.03% in 2019, and 49.68% in 2022. The index
indicates that out of 100 people, around 50 are well literate, but there are still
imbalances in financial literacy due to differences in educational access and regional
disparitie s(Aflatoun, 2024). Last, World Economic Forum’s Financial Literacy
Initiative. This initiative aims to increasSe access to financial education and investing
practices, highlighting the need to address global financial literacy gaps, particularly
in low-income and developing countries. These data sources collectively illustrate the
widespread nature of financial literacy gaps globally and regionally, emphasizing the
need for comprehensive financial education initiatives to address these issues (OECD,
2024).
Apart from financial literacy, investment decisions are also influenced by income and
expertise in investing. Income is used as a benchmark to determine financial health,
high income is reflected in good financial health. According to research by Lindanaty
and Angelina (2021) states that income has no significant effect on individual
investment decisions, besides that it is supported by research Sari (2017) which states
that income has no significant effect on investment decisions. Meanwhile, in research
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Prashanti and Astawa (2022) states that income has a significant effect on investment
decisions. In addition, research Lazuardi et al (2020) found that income has a positive
effect on investment decisions.
Investors naturally anticipate large returns or profits from their investments. However,
it is important to know that investments do not always generate profits; they can even
experience losses if investors make the wrong investment choices. Risk tolerance
refers to an investor's willingness to accept and bear risk when making investment
decisions. Investors who have risk tolerance are able to recognize and understand the
risks associated with the investments they choose, thus allowing them to obtain
significant profit potential according to their willingness to tolerate risk (Perayunda
& Mahyuni, 2022). According to research Jusuf et al., (2023) shows that risk tolerance
has no influence on investment decision making while research Perayunda and
Mahyuni (2022) states that risk tolerance has a positive influence on cryptocurrency
investment decisions.
Investment interest has the meaning of sacrificing current assets in order to achieve
large capital to achieve the goals to be achieved. Interest is not inherent but acquired
later through educational experiences. The sensation of interest is influenced by
various aspects, including the existence of something that attracts attention to an
object or desire, as well as internal or external reinforcement. According to research
Hasanudin et al., (2021) found that investment interest has a positive effect on
Financial literacy, income, and understanding of investment risk are important

elements in determining a person's decision to invest. A common occurrence in
society involves fraudulent activities disguised as fake investments. These scenarios
usually impact different walks of life, encompassing wealthy and educated individuals
as well as those from lower socioeconomic classes who lack financial resources and
formal education. With adequate understanding of financial concepts, effective
financial management can be established. Investment decision-making is influenced
by crucial components that affect one's financial capability and well-being. Therefore,
identifying factors associated with significant investment decisions is crucial for
society and national development. In addition to knowing how to manage finances,
individuals need to know how to maintain financial quality so that the goal of making
a profit will be achieved. This can be anticipated by thinking about the risks that will
occur if investing in an instrument. Previous study not have sufficiently explored the
mediating role of investment interest between financial literacy, income, and risk
tolerance. This research will explore more about the mediating variabel invesment
interest on financial literacy, income, risk tolerance on investment decisions. By
knowing the tolerance of investment risk, individuals will think better before
investing. Based on the above background, the authors are interested in examining
how financial literacy, income, risk tolerance affect investment decisions with
investment interest as a mediating variable.
2. Theoretical Background
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Financial Literacy
Financial Literacy is an expertise in applying knowledge and skills in managing
finances effectively. The increasing growth of investors needs to be balanced with
good financial literacy so that they know the potential and risks when investing. So
with the understanding of investors in managing and processing finances will guide
investors in investing properly. Financial knowledge significantly impacts financial
decisions, influencing how individuals manage their finances, make investments, and
plan for the future. Research by Lusardi and Mitchell highlights the critical role of
financial literacy in effective decision-making. Financial knowledge encompasses the
understanding of essential financial concepts such as interest rates, inflation, and risk
diversification Lusardi and Mitchel (2011) emphasize that a lack of familiarity with
these concepts can lead to poor financial decisions, as many individuals struggle to
navigate complex financial products and services (Abdi et al., 2023). According to
research Yundari and Artati (2021), the results of financial literacy research have no
effect on investment decision making. Meanwhile, several other studies have found
that financial literacy has a positive and significant effect on investment decisions
(Putri, 2021); (Fridana & Asandimitra, 2020); (Upadana & Herawati, 2020).
Income
Someone who will invest certainly considers the amount of income earned and the
percentage of income that will be distributed in choosing an investment instrument.
Investment behavior is significantly influenced by varying income levels, which
affects not only the types of investments individuals are willing to make but also their
overall financial strategies and biases. This relationship can be explored through
several dimensions, including behavioral biases, financial literacy, and investment
preferences. In behavioral biases, higher-income individuals tend to exhibit fewer
biases except for overconfidence. In invesment strategies, wealthier investors often
adopt more aggressive and diversified strategies. In financial literacy, an increased on
income correlates with enhanced financial literacy, leading to better-informed
investment decisions (Albart, 2024). According to research Sari, (2021) states that
income has no significant effect on investment decisions while according to research
(Syah & Barsah, 2022); (Lazuardi et al., 2020) found that income has a positive and
significant effect on investment decisions. Thus, the hypothesis prepared is:
Risk tolerance
Investors have different tolerance for risk. Research on investor behavior and risk
appetite has evolved significantly since the foundational work of Grable and Lytton
(1999), who developed a widely used financial risk tolerance scale. This scale has
influenced numerous studies examining how various factors affect investment
decisions and risk-taking behaviors among individuals. Grable and Lytton's (1999)
scale consists of 13 items designed to measure an individual's risk tolerance. The
responses to these items help categorize investors as having low or high risk aversion,
with higher scores indicating lower risk aversion. Their research emphasizes the
importance of understanding individual differences in risk tolerance as it relates to
investment choices (Grable et al., 2022). According to research Jusuf et al., (2023)
shows that risk tolerance has no influence on investment decision making, while other
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studies find that risk tolerance has a positive and significant effect on investment
decisions. (Hikmah et al., 2020); (Dewi & Krisnawati, 2020); (Nurdinda et al., 2022).
Investment Interest
In the context of investment decisions refers to the process where a variable (in this
case, investment interest) intervenes between the independent variable (e.g., financial
literacy, investment knowledge, returns) and the dependent variable (investment
decisions). The mediator variable helps to explain how the independent variable
affects the dependent variable. According to Shevany et al., (2022) found that
investment interest is more primarily shaped by financial literacy than financial
attitude to improve investment decisions. This suggests that higher financial literacy
leads to greater investment interest, which in turn influences investment decisions
positively. Putra et al., (2024) found that investment knowledge influences investment
decisions through investment interest. However, the study also noted that returns do
not significantly influence investment decisions through investment interest. This
indicates that while investment knowledge can boost investment interest, which then
affects investment decisions, returns do not have a direct mediating effect on
investment interest. Investment interest serves as a critical mediator in the complex
process of influencing investment decisions. It is shaped by various factors such as
financial literacy, investment knowledge, and individual values. While some studies
suggest that returns do not significantly influence investment decisions through
investment interest, others highlight the positive impact of financial literacy and
capital market training on investment interest, which in turn affects investment
decisions. Understanding the role of investment interest as a mediator can provide
insights into how to enhance investment decisions by targeting these intervening
variables.
Conceptual Framework
Based on the theoretical review and the results of previous research, the research
model can be described as follows:
Financial
literacy
Income
Investment Investment
interest decision
Risk
Tolerance
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Figure 1. Conceptual Framework of Financial Literacy, Income, Risk tolerance

to Investment Decisions with Investment Interest as a Mediating Variable
3. Methodology
Population and Research Sample

The population in this study were investors located in Denpasar City with the total
150 population. The sampling method in this study is purposive sampling method by
taking samples tailored to certain considerations, which is investor located in
Denpasar with no experience in crypto investment, with the total 130 samples.
Data Type and Source

The type of data used in this research is quantitative data, in the form of primary data
and secondary data. Primary data used in this study is data obtained from the results
of questionnaires distributed to predetermined respondents. Secondary data used in
this study are company records, leading journals and internet sites that provide
information in accordance with the research problem. This study uses a questionnaire
in data collection. The questionnaire contains statements identified with the factors of
this test, specifically the factors of financial literacy, income, risk tolerance on
investment decisions with investment interest as a mediating variable.
Data Analysis Method

Descriptive Method
Statistics are used to describe data empirically with descriptive statistics (Sugiyono,
2022). This study uses a questionnaire instrument containing questions that are
considered the most appropriate to describe data characteristics such as minimum,
maximum, average and standard deviation. This analysis is used to provide an
overview of each variable.
Inferential Statistic Test

Inferential analysis techniques are used to test the empirical model and hypotheses
proposed in this study. The analytical technique used is a variance-based structural
equation modeling (SEM) or Component based SEM, called Partial Least Square
(PLS), PLS is a powerful analysis method. SEM- PLS analysis technique with the
help of the Smart PLS software application program. PLS-SEM can handle complex
models, including reflective and formative measurement models, mediation and
moderation effects, higher-order constructs, and nonlinear relationships. This
capability makes it particularly useful for modeling intricate relationships (Hair et al.,
2021).
Evaluation of Goodness of Fit Criteria

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1) Evaluation of the reflection measurement model (Outer Model) which has the
aim of measuring the score based on the correlation calculated by:
a. Convergent validity measures the magnitude of the correlation between
constructs and latent variables. The correlation can be said to be valid if it has a
value> 0.7
b. Discriminant Validity compares the value of discriminant validity and
squarefoot of average variance extracted (AVE). The AVE value is greater than
0.5, so it is stated that there is no validity problem.
c. Composite Reliability to test the constancy of a variable if the composite
reliability value is above 0.70 (in exploratory research, 0.60- 0.70 is still
acceptable). The reliability test using Cronbach's alpha provides a lower value,
so it is recommended to use composite reliability.
2) Evaluation of the structural measurement model (Inner Model) is determined
by the R-square value which serves to improve efficiency and productivity. This
structural model aims to predict the relationship between variables as seen from
the R-square value for each dependent as the predictive power of the structural
model. The R-Square value is 0.75 (strong model), 0.50 (moderate), and 0.25
(weak).(Ummat Anindita,. 2022).
3) Hypothesis testing using the t-stastic test (t-test) with a significance of 0.05. If
the test results are greater than or equal to the t-table , namely (<1.65) and the
p-value is smaller or equal to the t-value , hypothesis testing is acceptable and
significant. If the results of hypothesis testing on the oter model are significant,
this indicates that the indicator can be used as a measuring instrument for latent
variables, while if the test results on the inner model are significant, it means
that there is a meaningful influence on latent variables on one another. (Ummat
Anindita,. 2022).
4. Empirical Findings/Result
Respondent Characteristics
Tabel 1. Respondent Characteristics
Characteristics Number (n) Percentage (%)
Age
20-25 years old 66 50,6
26-30 years old 28 21,4
31-35 years old 10 7,5
36-40 years old 11 8,3
>40 years old 16 12,2
Gender
Man 66 50,8
Woman 64 49,2
Income
<Rp. 3.000.000,00 25 19,2
≥Rp 3.000.000,00-Rp 54 41,5
5.000.000,00
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>Rp 5.000.000,00-Rp 24 18,5

7.000.000,00
>Rp 7.000.000,00-Rp 17 13,1
9.000.000,00
≥Rp 9.000.000,00 10 7,7
Domicile
Denpasar Utara 31 23,8
Denpasar Timur 33 25,4
Denpasar Selatan 32 24,6
Denpasar Barat 34 26,2
Total 130 100
Table 1 shows that of the total 130 respondents who participated, the most respondents
were more than 23 years old as many as 28 people (21.5%). According to gender, 66
respondents (50.8%) were male and 64 respondents (49.2%) were female. According
to income, the most respondents had an income ≥Rp 3,000,000.00-Rp 5,000,000.00.
According to domicile, the most respondents live in West Denpasar as many as 34
people (26.2%).
Analysis Result
Model Testing
a. Descriptive Statistical Analysis
Statistical data that can be used to explain or describe empirically is called descriptive
statistics (Sugiyono, 2019: 72). Descriptive statistics in this study are as follows:
Tabel 2. Descriptive Statistical Analysis
N Minimum Maximum Mean Std. Deviation
LK 130 5.00 50.00 37.7923 6.79683
P 130 5.00 50.00 38.5154 7.16065
RT 130 5.00 50.00 35.1769 7.99657
KB 130 5.00 50.00 35.1000 8.35441
MI 130 5.00 50.00 34.7538 8.34346
Valid N 130
(listwise)
Table 2 above, it shows that the minimum, maximum, mean and standard deviation
values of each variable. The minimum and maximum value of each variables is the
same. For the mean, financial literacy value is 37,7923; income value is 38.5154; risk
tolerance value is 35.1769; Investment decision value is 35.1000; and Investment
interest value is 34.7538.
b. Inferential Statistical Analysis

The Smart PLS application is used to analyze data using the Partial Least Squares
(PLS) technique. This method was chosen because SEM-PLS model estimates usually
show a higher level of statistical power, as well as comparable path coefficient
estimates and statistical significance (Filho et al.. 2020).
This study uses 3 (three) variables, namely endogenous variables, exogenous variables
and mediating variables. The exogenous variables in this study are financial literacy
(LK), income (P) and risk tolerance (RT). The endogenous variable in this study is the
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decision to invest (KB) and the mediating variable in this study is investment interest
(MI). The complete model steps are carried out as follows:
a) Measurement Evaluation (Outer Model)

Test convergent validity, discriminant validity and composite reliability to measure
the outer model which can be presented in Figure 4.2 as follows:
Figure 2. PLS Alogarithm Testing Results
1) Convergent Validity
The Average Variance Extracted (AVE) value is used to determine convergent
validity. The AVE value is above the threshold of 0.5. the outer load value is more
than 0.7. and the outer load value of more than 0.5 is still acceptable (Adelekan et al.,
2018; Jena, 2020). The Average Variance Extraxted (AVE) value is presented in Table
3 as follows:
Table 3. Average Variance Extraxted (AVE)
Average variance extracted
(AVE)
Financial literacy 0,794
Income 0,713
Risk tolerance 0,745
Investment interest 0,725
Investment decision 0,756
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Based on Table 3, it shows that the Average Variance Extraxted (AVE) value of each
research variable is more than 0.7, which means that the research variables have met
the criteria for convergent validity.
2) Discriminant Validity
In discriminant validity analysis. the outer load value must be greater than the cross
load value and the AVE root which is greater than the correlation between variables
(Jena. 2020). Discriminant validity is seen based on the correlation value of cross
loading with exogenous variables greater than the correlation with other exogenous
variables. The test results with discriminat validity (cross loading) can be presented
in Table 4 as follows:
Table 4. Discriminant Validity (Cross Loading)
Risk
Financial Investmen Investment
Income Toleranc
literacy t interest decision
e
Financial
0,833 0,807
literacy
Income 0,796 0796 0,783 0,826
Risk
0,846 0,807 0,900 0,738 0,847
Tolerance
Investment
0,836 0,791 0,823
interest
Investment
0,810
decision
Based on Table 4, it shows that the cross-loading value with exogenous variables is
greater than the correlation with variables. This means that the variables used in the
study have met the criteria.
3) Reliability
Reliability test is used to measure how the constancy of a variable or internally
consistent. This reliability test is divided into three parts, namely Dillon-Goldenstein
rho (composite reliability) must have a value> 0.7. Furthermore, Dijkstra and Henseler
rho-A must also have a value> 0.7 and Cronbach's Alpha value and must also be more
than 0.7. Composite reliability. All composite reliability coefficients must have results
greater than the specified level of 0.6, meaning that all measures in this study are
reliable (Adelekan et al.. 2018; Jena. 2020). The reliability test results are presented
in Table 5 as follows:
Table 5. Reliability Test Results
Reliability (Rho_A)
Financial literacy 0,919
Income 0,888
Risk tolerance 0,857
Investment interest 0,893
Investment decision 0,905
Based on 5, it shows that the Reliability value of each variable is greater than 0.70,
meaning that the variables used in this study have met the criteria.
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b. Structural Model Evaluation (Inner Model)

In the measurement of the inner model. carried out to test thedirect effect and test the
indirect effect and test the magnitude of the effect by analyzing the coefficient of
determination (R-Square). analyzing F-Square and Q-square (Sarwono, 2018: 237).
The structural model or inner model is evaluated by looking at the percentage of
variance explained, namely by looking atR2 (R-Square of exogenous variables) for
the dependent latent construct using the Stone-Geisser Q Square test measure and can
see the magnitude of the structural path coefficient. Potential mediation will be
confirmed after further mediation analysis using the bootstrapping method. The
relationship of each variable is depicted in the following model:
Figure 3. Structural Bootstraping Model

Based on the structural model in Figure 1 and Figure 2 above, it shows the relationship
between variables with R-square, path coefficient and t statistical test. The description
of the structural model above shows the direct effect of exogenous variables on
endogenous variables and the direct effect of endogenous variables on mediating
variables which can be described in Table 6 as follows:
Tabel 6. Direct Effect test Result
No Variable Path T P-Values Description

coefficient statisti
cal test
1. Financial literacy (LK) 0,503 2,088 0,017 Positive and
à Investment decision significant
(KB)
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2. Income (P) à 0,270 2,287 0,023 Positive and

Investment decision significant
(KB)
3. Risk tolerance (RT) à 0,458 5,061 0,000 Positive and
Investment decision significant
(KB)
4. Financial literacy (LK) 0,136 5,806 0,000 Positive and
à Investment interest significant
(MI)
5. Income(P) à 0,270 2,287 0,023 Positive and
Investment interest (MI) significant
Minat investasi (MI) significant
7. Investment interest (MI) 0,340 3,574 0,000 Positive and
à Investment decision significant
(KB)
R-square Investment 0,747
interest (MI)
R-square Investment 0,778
decisions (KB)
t-tabel 1,650
1) R-square
Table 7. R-Square Value
R Square Adjusted R Square
Investment interest
0,747 0,741
(MI)
Investment decision
0,778 0,772
(KB)
Based on Table 7, the model of the effect of financial literacy, income and risk
tolerance on investment decisions provides an R-square value of 0.778 which can be
interpreted that the investment decision variable can be explained by the variability of
financial literacy, income and risk tolerance by 77.80 percent, while the remaining
22.20 percent is explained by other variables outside the study.
Furthermore, the model of the effect of financial literacy, income, risk tolerance and
investment interest on investment decisions provides an R-square value of 0.747
which can be interpreted that the variability of the investment decision variable can
be explained by the variability of the financial literacy, income, risk tolerance and
investment interest variables by 74.70 percent, while the remaining 25.30 percent is
explained by other variables outside the study.
2) F-Square
To determine the strength of weakness (effect size) on the effect of latent variable X
on latent variable Y and mediating variables on latent variable Y with a range of
criteria > 0.35 declared strong, 0.35 s.d > 0.15 declared moderate and 0.15 s.d > 0.02
declared weak must go through F-square analysis. The results of the analysis with F
Square can be presented in Table 8 as follows:
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Table 8. F-Square Testing

Investment interest (MI) Investment decision (KB)
Financial literacy (LK) 0,279 0,018
Income (P) 0,053 0,053
Risk tolerance (RT) 0,011 0,237
Investment interest
0,138
(MI)
Based on table 8, it can be concluded that the results of testing the effects between
research variables are as follows:
a. The financial literacy variable (LK) has an F-Square value of 0.018 which is in
the F-Square criteria between 0.15 to > 0.02, which means that financial literacy
(LK) has a weak effect or impact on investment interest.
b. The financial literacy variable (LK) has an F-Square value of 0.279 which is on
the F-Square criteria between 0.35 to > 0.15 which means that financial literacy
(LK) has a moderate effect or impact on investment interest.
c. The income variable (P) has an F-Square value of 0.053 which is in the F-Square
criteria between 0.35 to > 0.15, which means that income (P) has a moderate
effect or impact on investment decisions.
d. The income variable (P) has an F-Square value of 0.053 which is in the F-Square
criteria between 0.35 to > 0.15, which means that income (P) has a moderate
effect or impact on investment interest.
e. The risk tolerance variable (RT) has an F-Square value of 0.011 which is in the
F-Square criteria between 0.35 to > 0.15, which means that risk tolerance (RT)
has a moderate effect or impact on investment interest.
f. The risk tolerance variable (RT) has an F-Square value of 0.011 which is in the
F-Square criteria between 0.15 to > 0.02, which means that risk tolerance (RT)
has a weak effect or impact on investment interest.
g. The investment interest variable (MI) has an F-Square value of 0.138 which is in
the F-Square criteria between 0.35 to > 0.15, which means that investment
interest (MI) has a moderate effect or impact on investment decisions.
Hypothesis Testing
The relationship between variables with the parameter coefficient is using the path
coefficient and the t statistical test. The t statistical test is used to determine the effect
of the independent variable (exogenous / independent) on the dependent variable
(endogenous / dependent) and the effect of the mediating variable indirectly on the
independent variable which can be seen from the comparison of the t-statistic results
with the t-table. The t-table value in this study was obtained from the t distribution
table with a sample n value of 130 so that the t-table value was 1.650. The relationship
between these variables is described in the structural model in Figure 1 and Figure 2
as follows:
3347
Table 9. Direct Effect Test Results

No Variable Path t statistical P-Values Description
Coeficien test
t
1. Financial literacy (LK) à 0,503 2,088 0,017 Positive and
Investment decisions (KB) significant
2. Income (P) à Investment 0,270 2,287 0,023 Positive and
decisions (KB) significant
Investment decisions (KB) significant
4. Financial literacy (LK) à 0,136 5,806 0,000 Positive and
5. Income (P) à Investment 0,270 2,287 0,023 Positive and
interest (MI) significant
7. Investment interest (MI) à 0,340 3,574 0,000 Positive and
Investment decision (KB) significant
t-tabel 1,650
The test results in Table 9 above show the direct effect of the research variables which
can be explained as follows:
a. The effect of financial literacy (LK) on investment decisions (KB) is positive
with a path coefficient value of 0.503, which means that increasing financial
literacy will increase investment decisions with a t-test significance value,
namely the t-statistic of 2.088 is greater than the t-table of 1.650 and has a p-
value of 0.017 <0.050, which means that financial literacy has a positive and
significant effect on investment decisions so that the first hypothesis (H1) is
accepted.
b. The effect of income (P) on investment decisions (KB) is positive with a path
coefficient value of 0.270, which means that an increase in income will increase
investment decisions with a t-test significance value, namely the t-statistic of
2.287 is greater than the t-table of 1.650 and has a p-value of 0.023 <0.050, which
means that income has a positive and significant effect on investment decisions
so that the second hypothesis (H2) is accepted.
c. The effect of risk tolerance (RT) on investment decisions (KB) is positive with
a path coefficient value of 0.458 with a t-test significance value, namely the t-
statistic of 5.061 is greater than the t-table of 1.650 and has a p-value of 0.0oo
<0.050, which means that risk tolerance has a positive and significant effect on
investment decisions so that the third hypothesis (H3) is accepted.
d. The effect of financial literacy (LK) on investment interest (MI) is positive with
a path coefficient value of 0.136, which means that an increase in financial
literacy will increase investment interest with a t-test significance value, namely
a t-statistic of 5.806 greater than the t-table of 1.650 and has a p-value of 0.000
<0.050, which means that financial literacy has a positive and significant effect
on investment interest so that the fourth hypothesis (H4) is accepted.
3348
e. The effect of income (P) on investment interest (MI) is positive with a path
coefficient value of 0.270, which means that an increase in income will increase
investment interest with a t-test significance value, namely a t-statistic of 2.287
greater than the t-table of 1.650 and has a p-value of 0.023 <0.050, which means
that income has a positive and significant effect on investment interest so that
the fifth hypothesis (H5) is accepted.
f. The effect of risk tolerance (RT) on investment interest (MI) is positive with a
path coefficient value of 0.139 with a t-test significance value, namely the t-
statistic of 2.164 is smaller than the t-table of 1.650 and has a p-value of 0.045
<0.050, which means that risk tolerance has a positive and significant effect on
investment interest so that the sixth hypothesis (H6) is accepted.
g. The effect of investment interest (MI) on investment decisions (KB) is positive
with a path coefficient value of 0.340 with a t-test significance value, namely the
t-statistic of 3.574 is smaller than the t-table of 1.650 and has a p-value of 0.000
<0.050, which means that investment interest has a positive and significant effect
on investment interest so that the seventh hypothesis (H7) is accepted.
5. Discussion
The Effect of Financial Literacy on Investment Decisions

Based on the test results, the path coefficient value is 0.503 with a t-statistic value of
2.088 greater than the t-table of 1.650 and has a p-value of 0.017 <0.050, which means
that financial literacy has a positive and significant effect on investment decisions.
This indicates that the increase in financial literacy will increase investment decisions.
Financial literacy is an expertise in applying knowledge and skills in managing

finances effectively. The increasing growth of investors needs to be balanced with
good financial literacy so that the potential and risks of investing are known. It helps
investors with the understanding of investors in managing and processing finances
will guide investors in investing properly. The reason why financial literacy can
increase invesment decision can be seen in some aspect, such as knowledge and
comprehension, improved decision-masing, increased confidence, risk management,
positive attitude towards investing, social influences and support systems.
In knowlegde and comprehension aspect, financial literacy encompasses the

knowledge of financial concepts and the ability to apply this knowledge effectively.
Individuals with higher financial literacy are better equipped to understand various
financial instruments, including their associated risks and returns. This understanding
enables them to evaluate investment opportunities more critically and make informed
decisions that align with their financial goals (Kurniawan Yusup & Gunawan, 2024).
Research indicates that individuals with strong financial literacy are more likely to
engage in rational decision-making processes. They can analyze information
regarding potential investments, which leads to better outcomes. For instance, studies
have shown that financial literacy significantly influences investment choices,
suggesting that as financial literacy increases, so does the likelihood of making sound
investment decisions (Saputra et al., 2023). Financial literacy fosters confidence
3349
among investors, particularly in navigating complex financial markets. When

individuals possess a solid understanding of financial principles, they tend to feel
more secure in their investment choices, including those involving higher-risk assets.
This confidence is crucial for engaging with volatile markets where informed
decision-making can lead to substantial returns (Baihaqqy et al., 2020). A well-
developed sense of financial literacy helps individuals assess their risk tolerance
accurately. Those who understand the implications of risk are more likely to invest in
high-risk assets when they perceive potential rewards outweighing the risks. This
ability to balance risk and reward is essential for optimizing investment portfolios
Saputra et al., 2023; Baihaqqy et al., 2020). Financial literacy contributes to a positive
attitude towards investing. Individuals who are knowledgeable about finance tend to
view investing as a viable means of wealth accumulation rather than a gamble. This
mindset encourages proactive engagement in investment activities, leading to better
long-term financial outcomes (Kurniawan Yusup & Gunawan, 2024). The presence
of supportive social networks and digital platforms enhances the benefits of financial
literacy by providing additional resources for learning and sharing experiences.
Young investors, particularly Generation Z, leverage these tools to gain insights into
investment strategies, further reinforcing their confidence and decision-making
capabilities (Kurniawan Yusup & Gunawan, 2024; Saputra et al., 2023).
The results of this study are in line with research by (Putri, 2021); (Fridana &
Asandimitra, 2020); (Upadana & Herawati, 2020) which found that financial literacy
has a positive and significant effect on investment decisions. The better the financial
literacy of investors, the more it will trigger the decision to invest from investors.
However, the results of this study are not in line with research (Yundari & Artati,
2021) which states that the results of financial literacy research have no effect on
investment decision making.
The Effect of Income on Investment Decisions

2.287 greater than the t-table of 1.650 and a p-value of 0.023 <0.050, which means
that income has a positive and significant effect on investment decisions. This
indicates that increasing income will increase investment decisions.
Income influences a person to determine investment instruments that have both low
and high risks with profits that are in accordance with these risks (Haikal et al., 2022).
Individuals with higher incomes have more financial resources available for
investment. This increased financial capacity allows them to take on more significant
investment risks and explore a broader range of investment opportunities, such as
stocks, real estate, or mutual funds. Higher income levels are often associated with
better financial behavior (Yulianto, 2023). Individuals with more income tend to
manage their finances more responsibly, which includes setting aside funds for
savings and investments. This responsible financial behavior can lead to more
informed and effective investment decisions. People with higher incomes may feel
more confident in taking investment risks. This confidence can stem from the belief
that they have sufficient resources to absorb potential losses, allowing them to invest
in riskier assets that could potentially yield higher returns (Naibaho et al., 2024).
3350
Higher income levels provide individuals with the ability to select from a wider range
of investment options. They can afford to conduct thorough research and analysis,
which is crucial for making informed investment decisions. This selective approach
to investing can lead to better investment outcomes. income positively impacts
investment decisions by providing the necessary financial resources, fostering
responsible financial behavior, increasing risk tolerance, offering a wider range of
investment opportunities, and enabling the acquisition of financial knowledge
(Kurniawati et al., 2022).
The results of this study are in line with research conducted by (Syah & Barsah, 2022);
(Lazuardi et al., 2020) found that income has a positive and significant effect on
investment decisions. However, the results of this study are not in line with research
conducted by (Sari, 2017) which states that income has no significant effect on
The Effect of Risk Tolerance on Investment Decisions

Based on the test results, the path coefficient value is -0.458 with a t-statistic value of
that risk tolerance has a positive and significant effect on investment decisions. This
indicates that the more risk tolerance increases, the more investment decisions will be
made.
Investors have different tolerance for risk. According to (Dewi & Krisnawati, 2020)
there are three types of investors, namely investors who like risk, investors who are
neutral to risk and investors who avoid risk. The difference between the tolerance of
investors is caused by, among others, age, status, career so that risk tolerance is said
to have an influence on investment decisions. If investors have a high tolerance for
investing, investors need to understand what will happen after taking the risk whether
to keep investing in the instrument or not.
Individuals with high-risk tolerance tend to make bolder investment choices, opting
for assets that offer higher potential returns despite increased risk. This behavior is
supported by research indicating that those with greater risk tolerance are more
inclined to invest in high-risk portfolios, which can lead to significant financial gains
over time (Ferli et al., 2022). High-risk tolerance often correlates with increased
confidence in navigating market fluctuations. Investors who are comfortable with risk
are less likely to panic during market downturns and more likely to hold onto their
investments or even buy more at lower prices, capitalizing on market recovery
(Kurniawan Yusup & Gunawan, 2024; May Risqina et al., 2023)
The results of this study are in line with research conducted by (Hikmah et al., 2020);
(Dewi & Krisnawati, 2020); (Nurdinda et al., 2022) found that risk tolerance has a
positive and significant effect on investment decisions. However, the results of this
study are not in line with research from (Jusuf et al., 2023) showing that risk tolerance
has no influence on investment decision making.
The Effect of Financial Literacy on Investment Interest

3351
that financial literacy has a positive and significant effect on investment decisions.
This indicates that the more financial literacy increases, the more investment decisions
will be made.
The level of financial literacy in individuals and families has an impact on having
long-term savings. This process regulates how well to manage finances, understand
financial concepts and apply finances properly so that they can invest. Financial
literacy significantly influences investment interest by equipping individuals with the
knowledge and skills necessary to make informed financial decision (M. H. Hidayat
& Selviyanti, 2023). Financially literate individuals tend to make more informed
investment choices. They are aware of the risks and benefits associated with different
investment types, which leads to greater confidence in their decisions. A strong
understanding of financial principles can motivate individuals to invest (Murhadi et
al., 2023). Studies show that those with better financial literacy demonstrate higher
motivation levels for investing, as they recognize the long-term benefits of building
wealth through investments. Financial literacy helps individuals understand their risk
tolerance and manage it effectively. This understanding allows them to engage in
higher-risk investments with a clearer perspective on potential outcomes, thereby
increasing their overall investment interest (Shintawati & Budidarma, 2023).
The results of this study are in line with research conducted by (Darmawan et al.,
2020); (Faidah, 2020) which found that financial literacy has a positive and significant
effect on investment interest. But it is not in line with research (Maharani et al., 2022)
which states that financial literacy has no significant effect on financial behavior with
a positive relationship direction.
Effect of Income on Investment Interest

that income has a positive and significant effect on investment interest. This indicates
that the more income increases, the more investment interest will increase.
Income is an important factor in investing because it is a benchmark in one's welfare.

Steps in investing certainly need to look at the amount of funds owned. If someone
has a good income, it can be determined which instrument to invest in (Prashanti &
Astawa, 2022).
Higher disposable income allows individuals to allocate more resources toward

investments. When people earn more, they often have excess funds after meeting their
basic needs, which can be directed towards various investment opportunities.
Research indicates that individuals with higher incomes are more likely to engage in
investment activities because they possess the financial means to do so. This trend is
supported by studies showing that increased income correlates with improved
investment behavior and decision-making capabilities (Kurniawati et al., 2022;
Shintawati & Budidarma, 2023).
3352
The results of this study are in line with research conducted by (Wibowo, 2020); (F.
Hidayat & Kayati, 2020); (Haikal et al., 2022); (Zahro & Hapsari, 2023) which found
that income has a positive and significant effect on investment interest. However, the
results of this study are not in line with research (Lindananty & Angelina, 2021) which
found that income has no significant effect on individual investment decisions.
The Effect of Risk Tolerance on Investment Interest

that risk tolerance has a positive and significant effect on investment interest. This
indicates that an increase in risk tolerance will increase investment interest.
Risk tolerance is defined as the amount of uncertainty that a person tolerates when
making financial decisions. By accepting all risks in investing is the level of investors
who consciously through the thinking process are still willing to accept the risks that
may arise in investment instruments. Investors with a higher risk tolerance are more
likely to take on investments that have a higher potential for returns, such as stocks or
equity funds. This is because they are willing to endure the volatility and potential
losses associated with these investments, which can lead to greater returns over the
long term (Ferli et al., 2022).
The results of this study are in line with research (Solekhan & Setyorini, 2020); (Frans
& Handoyo, 2020) found that risk tolerance has a positive and significant effect on
investment interest. However, the results of this study are not in line with research
(Apniangingsih, 2023) which states that risk tolerance has no effect on investment
interest.
The Effect of Investment Interest on Investment Decisions

Based on the test results, the path coefficient value is -0.340 with a t-statistic value of
3.574 greater than the t-table of 1.650 and a p-value of 0.000> 0.050, which means
that investment interest has a positive and significant effect on investment decisions.
This indicates that the higher the investment interest will increase the investment
decision.
Based on these results, it is because some investors consider the importance of

investment interest such as instilling confidence in managing finances, having good
self-development in managing finances and lack of security in managing finances. So
that some investors have an investment interest in making investment decisions.
Investment is a commitment in allocating funds to an instrument in the hope of getting
benefits in the future.
Financial literacy plays a crucial role in shaping investment interest. Individuals with
higher financial literacy possess a better understanding of various financial
instruments, including their risks and potential returns. This knowledge not only
enhances their confidence in making informed investment decisions but also
3353
encourages them to explore higher-risk investments that promise greater returns (Ferli
et al., 2022).
Studies indicate that as financial literacy improves, individuals are more likely
to engage in investing, particularly in high-risk assets, due to their enhanced
ability to evaluate investment options effectively
The results of this study are in line with research (Himmah et al., 2020); (Hasanudin
et al., 2021) which shows that investment interest has a positive and significant effect
on investment decisions. However, the results of this study are not in line with
research from which found that investment interest has no effect on investment
decisions, the higher the investment interest owned, it will not have a significant effect
on investment decisions.
6. Conclusions
This study find a positif and significant effect in financial literacy, income, risk
tolerance with investment decisions. Positive and significant effect also happen
between financial literacy and risk tolerance with investment interest. Investment
interest has a positive and significant effect on investment decision. Future research
is expected to use various variables beyond those used in this study to compare
investors' investment decisions. In addition, it is expected to be able to increase the
range of research, namely distributing questionnaires and obtaining respondents from
all districts or the province of Bali.
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International Journal of

Economics Development Research, Volume 5(4), 2024

The Effect of Financial Literacy, Income, Risk Tolerance on

Sumbitted: 4 September 2024, Accepted: 26 September 2024, Published: 5 October 2024

Indonesia as a developing country faces obstacles in terms of understanding

Cryptocurrency is a combination of two words namely “cryptography” which means

According to data from the Commodity Futures Trading Supervisory Agency

Financial literacy is a necessary skill for individuals to avoid financial difficulties, as

Financial literacy is increasingly recognized as a crucial skill that influences

Financial literacy, income, and understanding of investment risk are important

Figure 1. Conceptual Framework of Financial Literacy, Income, Risk tolerance

Population and Research Sample

Data Type and Source

Data Analysis Method

Inferential Statistic Test

Evaluation of Goodness of Fit Criteria

>Rp 5.000.000,00-Rp 24 18,5

b. Inferential Statistical Analysis

a) Measurement Evaluation (Outer Model)

Figure 2. PLS Alogarithm Testing Results

b. Structural Model Evaluation (Inner Model)

Figure 3. Structural Bootstraping Model

No Variable Path T P-Values Description

2. Income (P) à 0,270 2,287 0,023 Positive and

Table 8. F-Square Testing

Table 9. Direct Effect Test Results

The Effect of Financial Literacy on Investment Decisions

Financial literacy is an expertise in applying knowledge and skills in managing

In knowlegde and comprehension aspect, financial literacy encompasses the

among investors, particularly in navigating complex financial markets. When

The Effect of Income on Investment Decisions

The Effect of Risk Tolerance on Investment Decisions

The Effect of Financial Literacy on Investment Interest

Effect of Income on Investment Interest

Income is an important factor in investing because it is a benchmark in one's welfare.

Higher disposable income allows individuals to allocate more resources toward

The Effect of Risk Tolerance on Investment Interest

The Effect of Investment Interest on Investment Decisions

Based on these results, it is because some investors consider the importance of

Literasi Keuangan Syariah Terhadap Minat Investasi Dengan Cryptocurrency.

market. Economics and Business International Conference Proceeding, 1(2),

Scientific Journal Of Reflection : Economic, Accounting, Management And

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