What drives investment decisions of households? Evidence from Suriname

Abstract

Households face constraints in the financial decision-making process. Literature puts forward many factors and constraints that impact on the decision-making process of households. These constraints range from a lack of financial education to a lack of financial means. Consequently, this study examines which factors affect households' investment decisions in Suriname. The study follows a research design consisting of sampling, instrument development process, and a data collection process. The population under consideration consists of 140,367 heads of households, based on the Census Statistics of 2012. Heads of the household are surveyed as they are considered the ones representing a family. The sample consists of 127 households in Suriname, consistent with a margin of error of around 8.7%. We analyze the survey responses deploying descriptive statistics, correlations, and Chi-square tests. The study includes the variables age, gender, household size, financial literacy, risk perception, income level, and education level as possible indicators related to households' decisions on investing in financial products. The survey data showed that around three-quarters of surveyed households have outstanding investments. The majority of the households that have invested have done so in term deposits at banks, followed by savings insurance accounts. More than half of surveyed households have invested in foreign currency. Even though women were predominantly the heads of the household in our sample, they invested less frequently than men. The Chi-square test results point to a statistically significant relationship between financial literacy and investing. The second and obvious statistically significant relationship is found between the income level and investing. The education level does not hold a statistically significant relationship with investing. Nevertheless, the findings of the empirical analysis are similar to other studies. As the income level is a crucial determinant of investing, the study confirms the importance of a healthy macroeconomic climate. Furthermore, based on the findings of this research, the main policy implication can be centered on the importance of financial literacy. In this regard, we recommend formulating and implementing a national financial inclusion strategy.