Role of financial literacy in investment choices of financial consumers: an insight from India

Abstract

PurposeThe study aims to address two objectives. First, to examine the socioeconomic and demographic factors contributing to financial literacy and second, to analyze if financial literacy affects investment choices.Design/methodology/approachThe study uses financial inclusion insights (FII) survey data conducted by Intermedia, comprising 47,132 individuals in India. Further, instrument variable estimation has been used to analyze the relationship between financial literacy and individuals' investment choices.FindingsThe study finds that differences in financial literacy level can be attributed to various socioeconomic/demographic factors like age, gender, education levels, income, location of residence, sources of information, etc. Econometric analyses indicate that financial literacy influences investment decisions, mainly in businesses and traditional assets such as gold, property, etc.Originality/valueThe study contributes to the growing literature on financial literacy in the context of developing countries like India and highlights the role of financial literacy in how individuals make investment choices. Using a novel instrument, i.e. participation in the stock market by family or peers for advanced financial literacy, the results provide evidence that advanced financial literacy among individuals increases the probability of their stock market participation.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2021-0764.