Dynamics of Objective and Subjective Financial Knowledge on Financial Behaviour

Abstract

The purpose of this paper is to study the relation between objective financial knowledge, subjective financial knowledge and the financial behaviour. A sample of 269 individuals was taken to do this study. The sampling was done using snowball and judgemental sampling techniques. The objective financial knowledge was measured using three questions related with compounding, inflation and diversification. The subjective financial knowledge was measured using only one statement. The results of the research shows that although very few percentage of respondents have answered the questions correctly related with objective financial knowledge, they have rated themselves quite high on the self-assessed subjective financial knowledge. Further, no correlation could be established between objective and subjective financial knowledge. The study shows that the decisions towards financial investments are governed more by the self-assessed financial knowledge of an individual rather than the actual financial knowledge which he has. This may lead an individual to take the financial decisions which may not benefit him in the long term.