An Empirical Study on the Impact of Financial Knowledge on Household Portfolio

Abstract

Indian government has introduced defined contribution pension plans to the newly recruited employees from January 2004. 7 State governments have introduced the scheme to their employees and others have shown interest. The new system calls for the participant to manage their contribution by placing the responsibilities in deciding where their contribution should be invested and who should manage their contribution etc. However the author feels that the work force is not ready to take such decision. Thus the study aimed at looking in to this aspect by analyzing the relationship between the financial knowledge and the investment of households in risky assets. The study found the existence of a significant and positive relationship between the financial knowledge and ownership of risky assets, which calls the attention of the policy makers while proceeding further in implementing the defined contribution pension plan.