Abstract
Purpose: The purpose of this study is to investigate the level of financial literacy among Sri Lankan investors and its impact on investment choices. Design/methodology/approach: The population of this study consisted of the individual investors of Sri Lanka. Accordingly, a sample of 352 responses were obtained through a survey which was conducted using structured self-administered questionnaire. The independent variable of the research is financial literacy with the dependent variable being the investment choice. Multinomial logistic regression was used to test the hypothesis. Findings: The results of the study revealed that the majority of investors in Sri Lanka are having low objective and subjective financial literacy. Further, the results revealed that financial literacy has a statistically significant impact on the current and future choice of different investment products as the main source of investment. Originality: Financial literacy level of individual investors was assessed by using the mean value of the financial literacy score, which has not been commonly used in the Sri Lankan context. This study further contributed to the local body of literature by analyzing the investors’ current main and secondary holdings of seven different investment products and their future investment preference towards these products.
Highlights
The financial and capital markets of a country play a significant role in promoting economic growth
The results of the study revealed that the majority of investors in Sri Lanka are having low objective and subjective financial literacy
Financial literacy level of individual investors was assessed by using the mean value of the financial literacy score, which has not been commonly used in the Sri Lankan context
Summary
The financial and capital markets of a country play a significant role in promoting economic growth. Due to the high complexity, low transparency of products and lagging investor sophistication, only a few investors can understand how they function. According to Lusardi and Mitchell (2013), complex financial products are becoming highly prevalent in financial markets, investors depict the absence of the necessary know-how to invest in such products. This scenario provides evidence for the requirement of adequate financial literacy to arrive at accurate financial decisions; attracting the attention of many researchers towards financial literacy.
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