The perception-reality gap in financial literacy: Evidence from the most literate state in India

Abstract

This study measures the level of financial literacy and evaluates the impact of demographic and socio-economic attributes on financial literacy among the educated young adults in Kerala, the most literate state in India, during the year 2015. The study also analyses the perception‐reality gap in financial literacy and the attitude of young adults towards financial education. Primary data collected using a structured questionnaire from 736 young adults is used in this study. Statistical techniques such as analysis of variance and chi-square test are employed to analyse the data. The findings reveal that the financial literacy in Kerala is low, with an average young adult answering only 44% of the questions correctly. The study finds that gender, marital status, age, religion, education, the discipline of study, occupation, work experience, income, and parents’ education and their occupation influence financial literacy. It is also observed that respondents tend to overrate their financial literacy by around 50%, indicating their over-confidence in the knowledge of matters related to personal finance. However, a majority of the respondents (89%) expressed the need for financial education for young adults. This study, hence calls for initiatives to improve financial literacy among young adults in Kerala and for further research in this direction.