Understanding Financial Literacy, Financial Resilience and Investment Decisions: A Case of Two Cities from India

Abstract

The present study assessed the status of the financial literacy (FL) levels and examined its impact on the investment decisions of the investors from the cities of Ahmedabad and Vadodara in Gujarat state. We measured FL using a multi-dimensional construct of financial behaviour, attitude and knowledge. Investment decisions were analysed taking the six proxies – neutral information, personal financial need, macroeconomic indicators, accounting information, advocate information and firm image. The study revealed a high level of FL among the respondents with 62.50% of the respondents being highly financially literate and the remaining having a comparatively lower degree of FL. Though, respondents exhibited a higher level of financial literacy, they still lacked required degree of understanding of advanced financial and investment topics. Using simple linear regression, we found that investors’ investment decisions were significantly positively impacted by their levels of FL. This study has implications for employers, policymakers, regulatory authorities and financial education providers to achieve financial inclusion and well-being goals by devising appropriate strategies and interventions for individuals with varying level of FL.