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THE RELATIONSHIP BETWEEN FINANCIAL LITERACY AND INDIVIDUAL FINANCIAL DECISIONS: AN EXPLORATORY STUDY

Year 2020, Volume: 29 Issue: 4, 243 - 258, 30.12.2020

Abstract

The aim of this study is to find out how literate individuals are about financial concepts, whether or not they can manage their funds in a rational way, and to find out whether they are familiar with the services and instruments offered by the banks and other financial institutions from which they can benefit. Also, this study aims to determine the relationship between financial literacy and individual financial decisions. Data of this study were collected in two steps: firstly by using an on-line questionnaire through random sampling method, and secondly through face-to-face interviews. The sample size in this study is 433 participants from Adana city. Chi-square tests were applied to verify the relevance of the relationship between financial literacy and the variables previously identified in the literature. The study results showed that the major factors that have a relationship with financial literacy in Adana are age, gender, income, and individual financial decision about pension. There is no significant relationship between financial literacy and consumer credit or insurance policy. Saving behavior has not been found significant in explaining financial literacy.

References

  • Ahmed, N., Ahmad, Z., & Khan, S. K.(2011, February). Behavioural finance: shaping the decisions of small investors of Lahore stock exchange. Interdisciplinary Journal Research of Research in Business, 1(2), pp. 38-43.
  • Ateş, S., Coşkun, A.,Şahin, M. A., & Demircan, M. L. (2016). Impact of financial literacy on the behavioural biases of individual stock investors: Evidence from Borsa Istanbul. Business and Economics Research Journal, 7(3), pp. 1-19.
  • Barber, B. M., & Odean, T. (2008). All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors. The Review of Financial Studies,21(2), pp.785-818.
  • Beckmann, D., & Menkhoff, L.(2008). Will women be women?Analyzing the gender difference among financial experts. KYKLOS, 61(3), pp. 364-384.
  • Brahmana, R. K., Hooy, C. W., & Ahmad, Z. (2012). Psychological factors on irrational financial decision making: Case of day-of-the week anomaly. Humanomics, 28(4), pp.236-257.
  • Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk-taking. Journal of Economic Behavior & Organization, 83, pp. 50-58.
  • Chavali, K., & Mohanraj, M. P. (2016). Impact of demographic variables and risk tolerance on investment decisions: An empirical analysis. International Journal of Economics and Financial Issues, 6(1), pp. 169-175.
  • Deaves, Lüders, and Lue (2009). An experimental Test of the impact of overcondidence and gender on trading activity. Review of Finance, 13, pp. 555-575
  • De Bondt, W. F. M., & Thaler, R. H. ( 1995). Financial decision-making in markets and firms: A bevavioral perspective. Ch. 13. In R. Jarrow et al, Eds., Handbooks in Operational Research and Management Science, (9), pp. 385-410.
  • De Bondt, W. F. M. (1998). Behavioural economics: A portrait of the individual investor. European economic review, 42, pp. 831-844.
  • Dittrich, A.V., Güth, W., & Maciejovsky, B. (2005, December). Overconfidence in investment decisions: An experimental approach. The European Journal of Finance, 11(6), pp. 471-491.
  • Fisher, P. J. (2010). Gender differences in personal saving behaviors. Journal of Financial Counseling and Planning, 21, pp. 14-24.
  • Ford, M. W., & Kent, D. W. (2009). Gender differences in student financial market attitudes and awareness: An exploratory study. Journal of Education for Business, 85 (1), pp. 7-12.
  • Francis, B., Hasan, I., Park, J. C., & Wu, Q. (2015, Fall). Gender differences in financial reporting decision making: evidence from accounting conservatism. Contemporary Accounting Research, 32(3), pp. 1285-1318.
  • Gerrans, P., Faff, R., & Hartnett, N. (2015). Individual financial risk tolerance and the global financial crisis. Accounting and Finance, 55, pp. 165-185.
  • Graham, J. F., Stendardi, E. J., Myers, J. K., & Graham, M. J. (2002). Gender difference in investment strategies: an information processing perspective. International Journal of Bank Marketing 20 (1), pp. 17-26.
  • Hirshleifer, D. (2008). Psychological bias as a driver of financial regulation. European Financial Management, 14 (5), pp. 856-874.
  • Huang, J., & Kisgen D. J. (2013). Gender and corporate finance: Are male executives overconfidence relative to female executives? Journal of Finance Economics, 108, pp. 822-839.
  • Jagongo, A., & Mutswenje, V. S. (2014, February). A survey of the factors influencing investment decisions: The case of individual investors at the NSE. International Journal of Humanities and Social Science, 4 (4), pp. 92-102.
  • Jain, D., & Mandot, N. (2012, April). Impact of demographic factors on investment decisions of investors in Rajasthan. Journal of Art, Science & Commerce, 3 (2), pp. 81-92.
  • Jinnah, M. A. (2015, December). Impact of availability bias and loss aversion bias on investment decision making, moderating role of risk perception. Journal of Research in Business Management, 1(2), pp. 1-12.
  • Kyla, S., Yang, O., & Xiong, W. (2006). Prospect theory and liquidation decisions. Journal of Economic Theory, 129, pp. 273-288. Lipe, M. G. (1998). Individual investments’ risk judgment and investment decisions: The impact of accounting and market data. Accounting, Organizations and Society, 23(7), pp. 625-640.
  • Montford, W., & Goldsmith, R. E. (2016). How gender and financial self-efficacy influence investment risk-taking. International Journal of Consumer Studies, 40, pp. 101-106.
  • Moueed, A., Hunjra, A. I., Asghar, M. U., & Raza, B. (2015). Role of psychological and social factors on investment decision of individual investors in Islamabad stock market. Sci. Int.(Lahore), 27(5), pp. 4697-4706.
  • Muhammad, N. M. N. (2009, June). Behavioural finance vs traditional finance. Advanced Management Journal, 2(6), pp. 1-9.
  • Muradoglu, G., & Harvey, N. (2012). Behavioural finance: the role of psychological factors in financial decisions. Review of Behavioural Finance, 4(2), pp.68-80.
  • Nawrocki, D., & Viole, F. (2014). Behavioural finance in financial market theory, utility theory, portfolio theory and the necessary statistics: a review. Journal of Behavioral and Experimental Finance, 2, pp. 10-17.
  • Pompian M.M, Longo J.M.(2004). Creating Investment Programs Based on Personality Type and Gender to Produce Better Investment Outcomes,The Journal of Wealth Management Fall 7(2). pp. 9-15
  • Onyekachi, O., Marshal, I., & Solomon, I. D. (2016, February). Finance applications of game theory and behavioural finance: A review and synthesis. Journal for Studies in Management and Planning, 2(2), pp. 50-65.
  • Raines, J. P., & Leathers, C. G. (2011). Behavioural finance and post-Keynesian-institutionalist theories markets. Journal of Post Keynesian Economics, 33(4), pp. 539-554.
  • Ramiah, V., Xu, X., & Moosa, I. A. (2015). Neoclassical finance, behavioural finance and noise traders: A review and assessment of the literature. International Review of Financial Analysis, 41, pp. 89-100.
  • Ricciardi, V., & Simon, H. (2000, September). What is behavioural finance?Business, Education and Technology Journal, pp. 1-9.
  • Ritter, J. R. (2003). Behavioural finance. Pacific-Basin Finance Journal, 11, pp. 429-437.
  • Sahi, S. K. (2012). Neurofinance and investment behaviour. Studies in Economics and Finance, 29(4), pp. 246-267.
  • Seasholes, M. S., & Zhu, N. (2010, October). Individual investors and local bias. The Journal of Finance, LXV (5), pp. 1987-2010.
  • Sewell, M. (2007, May). Behavioural finance, Department of Computer Science, University College London.
  • Shiv, B., Loewenstein, G., Bechara, A., Damasio, H., & Damasion, R. (2005). Investment behavior and the negative side of emotion. Psychology Science, 16(6), pp. 435-439.
  • Shukla, A. (2016, January). A study on the association of gender of investors and herd behaviour of investors. Global Journal for Research Analysis, 5(1), pp. 152-153.
  • Spindler, G. (2011). Behavioural finance and investor protection regulations. J Consum Policy, 34, pp. 315-336.
  • Subrahmanyam, A. (2007). Behavioural finance: A review and synthesis. European Financial Management, 14, pp. 12-29.
  • Suryawanshi, P. B., & Jumle, A. G. (2016, May-June). Comparison of behavioural finance and traditional finance: for investment decisions. International Journal of Commerce, Business and Management, 5(3), pp.81-85
  • Wang, B. F. M.(2009). Attitudes and behaviour in everyday finance: evidence from Switzerland. International Journal of Bank Marketing, 27(2), pp. 108-128.
Year 2020, Volume: 29 Issue: 4, 243 - 258, 30.12.2020

Abstract

References

  • Ahmed, N., Ahmad, Z., & Khan, S. K.(2011, February). Behavioural finance: shaping the decisions of small investors of Lahore stock exchange. Interdisciplinary Journal Research of Research in Business, 1(2), pp. 38-43.
  • Ateş, S., Coşkun, A.,Şahin, M. A., & Demircan, M. L. (2016). Impact of financial literacy on the behavioural biases of individual stock investors: Evidence from Borsa Istanbul. Business and Economics Research Journal, 7(3), pp. 1-19.
  • Barber, B. M., & Odean, T. (2008). All that glitters: the effect of attention and news on the buying behavior of individual and institutional investors. The Review of Financial Studies,21(2), pp.785-818.
  • Beckmann, D., & Menkhoff, L.(2008). Will women be women?Analyzing the gender difference among financial experts. KYKLOS, 61(3), pp. 364-384.
  • Brahmana, R. K., Hooy, C. W., & Ahmad, Z. (2012). Psychological factors on irrational financial decision making: Case of day-of-the week anomaly. Humanomics, 28(4), pp.236-257.
  • Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk-taking. Journal of Economic Behavior & Organization, 83, pp. 50-58.
  • Chavali, K., & Mohanraj, M. P. (2016). Impact of demographic variables and risk tolerance on investment decisions: An empirical analysis. International Journal of Economics and Financial Issues, 6(1), pp. 169-175.
  • Deaves, Lüders, and Lue (2009). An experimental Test of the impact of overcondidence and gender on trading activity. Review of Finance, 13, pp. 555-575
  • De Bondt, W. F. M., & Thaler, R. H. ( 1995). Financial decision-making in markets and firms: A bevavioral perspective. Ch. 13. In R. Jarrow et al, Eds., Handbooks in Operational Research and Management Science, (9), pp. 385-410.
  • De Bondt, W. F. M. (1998). Behavioural economics: A portrait of the individual investor. European economic review, 42, pp. 831-844.
  • Dittrich, A.V., Güth, W., & Maciejovsky, B. (2005, December). Overconfidence in investment decisions: An experimental approach. The European Journal of Finance, 11(6), pp. 471-491.
  • Fisher, P. J. (2010). Gender differences in personal saving behaviors. Journal of Financial Counseling and Planning, 21, pp. 14-24.
  • Ford, M. W., & Kent, D. W. (2009). Gender differences in student financial market attitudes and awareness: An exploratory study. Journal of Education for Business, 85 (1), pp. 7-12.
  • Francis, B., Hasan, I., Park, J. C., & Wu, Q. (2015, Fall). Gender differences in financial reporting decision making: evidence from accounting conservatism. Contemporary Accounting Research, 32(3), pp. 1285-1318.
  • Gerrans, P., Faff, R., & Hartnett, N. (2015). Individual financial risk tolerance and the global financial crisis. Accounting and Finance, 55, pp. 165-185.
  • Graham, J. F., Stendardi, E. J., Myers, J. K., & Graham, M. J. (2002). Gender difference in investment strategies: an information processing perspective. International Journal of Bank Marketing 20 (1), pp. 17-26.
  • Hirshleifer, D. (2008). Psychological bias as a driver of financial regulation. European Financial Management, 14 (5), pp. 856-874.
  • Huang, J., & Kisgen D. J. (2013). Gender and corporate finance: Are male executives overconfidence relative to female executives? Journal of Finance Economics, 108, pp. 822-839.
  • Jagongo, A., & Mutswenje, V. S. (2014, February). A survey of the factors influencing investment decisions: The case of individual investors at the NSE. International Journal of Humanities and Social Science, 4 (4), pp. 92-102.
  • Jain, D., & Mandot, N. (2012, April). Impact of demographic factors on investment decisions of investors in Rajasthan. Journal of Art, Science & Commerce, 3 (2), pp. 81-92.
  • Jinnah, M. A. (2015, December). Impact of availability bias and loss aversion bias on investment decision making, moderating role of risk perception. Journal of Research in Business Management, 1(2), pp. 1-12.
  • Kyla, S., Yang, O., & Xiong, W. (2006). Prospect theory and liquidation decisions. Journal of Economic Theory, 129, pp. 273-288. Lipe, M. G. (1998). Individual investments’ risk judgment and investment decisions: The impact of accounting and market data. Accounting, Organizations and Society, 23(7), pp. 625-640.
  • Montford, W., & Goldsmith, R. E. (2016). How gender and financial self-efficacy influence investment risk-taking. International Journal of Consumer Studies, 40, pp. 101-106.
  • Moueed, A., Hunjra, A. I., Asghar, M. U., & Raza, B. (2015). Role of psychological and social factors on investment decision of individual investors in Islamabad stock market. Sci. Int.(Lahore), 27(5), pp. 4697-4706.
  • Muhammad, N. M. N. (2009, June). Behavioural finance vs traditional finance. Advanced Management Journal, 2(6), pp. 1-9.
  • Muradoglu, G., & Harvey, N. (2012). Behavioural finance: the role of psychological factors in financial decisions. Review of Behavioural Finance, 4(2), pp.68-80.
  • Nawrocki, D., & Viole, F. (2014). Behavioural finance in financial market theory, utility theory, portfolio theory and the necessary statistics: a review. Journal of Behavioral and Experimental Finance, 2, pp. 10-17.
  • Pompian M.M, Longo J.M.(2004). Creating Investment Programs Based on Personality Type and Gender to Produce Better Investment Outcomes,The Journal of Wealth Management Fall 7(2). pp. 9-15
  • Onyekachi, O., Marshal, I., & Solomon, I. D. (2016, February). Finance applications of game theory and behavioural finance: A review and synthesis. Journal for Studies in Management and Planning, 2(2), pp. 50-65.
  • Raines, J. P., & Leathers, C. G. (2011). Behavioural finance and post-Keynesian-institutionalist theories markets. Journal of Post Keynesian Economics, 33(4), pp. 539-554.
  • Ramiah, V., Xu, X., & Moosa, I. A. (2015). Neoclassical finance, behavioural finance and noise traders: A review and assessment of the literature. International Review of Financial Analysis, 41, pp. 89-100.
  • Ricciardi, V., & Simon, H. (2000, September). What is behavioural finance?Business, Education and Technology Journal, pp. 1-9.
  • Ritter, J. R. (2003). Behavioural finance. Pacific-Basin Finance Journal, 11, pp. 429-437.
  • Sahi, S. K. (2012). Neurofinance and investment behaviour. Studies in Economics and Finance, 29(4), pp. 246-267.
  • Seasholes, M. S., & Zhu, N. (2010, October). Individual investors and local bias. The Journal of Finance, LXV (5), pp. 1987-2010.
  • Sewell, M. (2007, May). Behavioural finance, Department of Computer Science, University College London.
  • Shiv, B., Loewenstein, G., Bechara, A., Damasio, H., & Damasion, R. (2005). Investment behavior and the negative side of emotion. Psychology Science, 16(6), pp. 435-439.
  • Shukla, A. (2016, January). A study on the association of gender of investors and herd behaviour of investors. Global Journal for Research Analysis, 5(1), pp. 152-153.
  • Spindler, G. (2011). Behavioural finance and investor protection regulations. J Consum Policy, 34, pp. 315-336.
  • Subrahmanyam, A. (2007). Behavioural finance: A review and synthesis. European Financial Management, 14, pp. 12-29.
  • Suryawanshi, P. B., & Jumle, A. G. (2016, May-June). Comparison of behavioural finance and traditional finance: for investment decisions. International Journal of Commerce, Business and Management, 5(3), pp.81-85
  • Wang, B. F. M.(2009). Attitudes and behaviour in everyday finance: evidence from Switzerland. International Journal of Bank Marketing, 27(2), pp. 108-128.
There are 42 citations in total.

Details

Primary Language English
Journal Section Makaleler
Authors

Gamze Vural 0000-0002-1385-7551

Aichetou Beichar 0000-0001-5879-2731

Publication Date December 30, 2020
Submission Date June 2, 2020
Published in Issue Year 2020 Volume: 29 Issue: 4

Cite

APA Vural, G., & Beichar, A. (2020). THE RELATIONSHIP BETWEEN FINANCIAL LITERACY AND INDIVIDUAL FINANCIAL DECISIONS: AN EXPLORATORY STUDY. Çukurova Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 29(4), 243-258.