Is There a Relationship between Financial literacy and Investment Decisions in the Kingdom of Bahrain?
DOI:
https://doi.org/10.24200/jmas.vol4iss02pp68-78Abstract
Financial literacy has ever increasing importance in our day. Whether people are financially knowledgeable, helps greatly in making rational investment decisions. Numerous studies have been undertaken to explore, investigate and measure financial literacy in several developed countries. However, very few of them have been conducted in the Arab World and Gulf Countries. Therefore, the purpose of this study is to measure the level of financial literacy of the Bahraini individual investors. In addition to, examine the relationship between financial literacy and investment decisions in the Kingdom of Bahrain. Methodology: The study draws on 228 questionnaire surveys of investors in Bahrain. In order to measure the level of financial literacy of the Bahraini investors, the approach of Lusardi and Mitchell (2006) was utilized in this research effort. The data were analyzed using Pearson Correlation, t-teat and Chi-square test. Results: The results reveal that the financial literacy level of the Bahraini investors is found to be low (38.6%) and far from the needed level. When we analyzed the level of financial literacy based on the demographic variables, we found that women are generally less financially literate than are men; respondents of age 41-50 are more knowledgeable than all other age groups, and financial literacy is highly correlated with education. Moreover, participants in high financial literacy group (HFLG) have higher awareness level for all financial products except for certificate of deposit and post office savings. Conclusion: Further, participants in low financial literacy group (LFLG) mainly prefer to invest in traditional and safe financial products and do not invest much in complex financial products which are comparatively riskier and can give higher return.References
Abdeldayem Marwan M. 2015 a, “The Impact of Investors’ Perception of Risk on Portfolio Management: Evidence from the Kingdom of Bahrain”. Research Journal of Finance and Accounting, (6), No. (12), 61-79
Abdeldayem Marwan M. 2015 b, “Examining the Relationship between Agency Costs and Stock Mispricing: Evidence from the Bahrain Stock Exchange”. International Journal of Economics, Commerce and Management, (3), Issue (4), April, 1-35
Abdeldayem Marwan M. 2015 c, “An Empirical Analysis of the Relationship between New Investors and Telecommunications Stocks’ Bubble Post the Egyptian Revolution”. Research Journal of Finance and Accounting, (6), No. (2), 178-195
Abdeldayem, M. M., & Assran, M. S. 2013. Testing the Market Timing Theory of Capital Structure: The Case of Egypt. International Research Journal of Finance and Economics, (1).
Abdeldayem, M. M., & Mahmoud, M. R. 2013. An Examination into the impact of Trading Motives on the Dynamic relationship between Stock Returns and Trading volume: Evidence from Egypt. Global Advanced Research Journal of Management and Business Studies (GARJMBS) ISSN, 2315-5086.
Aren, S., & DİNÇ AYDEMİR, S. 2014. A literature review on financial literacy.
Bendig, M., Giesbert, L. and Steiner, S. 2009, "Savings, Credit and Insurance: Household Demand for Formal Financial Services in Rural Ghana", Working Paper 94, German Institute of Global and Area Studies.
Bernheim, B. D., & Garrett, D. M. 2003. The effects of financial education in the workplace: Evidence from a survey of households. Journal of public Economics, 87(7-8), 1487-1519.
Bernheim, D. 1995. Do households appreciate their financial vulnerabilities? An analysis of actions, perceptions, and public policy. Tax policy and economic growth, 3, 11-13.
Bhushan, P. 2014. Relationship between financial literacy and investment behavior of salaried individuals. Journal of Business Management & Social Sciences Research. ISSN, (2319-5614).
Boakye, C. and Amankwah, N. O. A. 2012. ”Determinants of the demand for financial Products in Ghana”, Ghana Institute of Management and Public Administration
Calvet, L. E., Campbell, J. Y., & Sodini, P. 2007. Down or out: Assessing the welfare costs of household investment mistakes. Journal of Political Economy, 115(5), 707-747.
Cavezzali, E., Gardenal, G. & Rigoni, U. 2012. “Risk taking, diversification behavior and financial literacy of individual investors”, Working Paper no. 17/2012, UniversitàCa’ Foscari Venezia.
Chen, H., & Volpe, R. P. 1998. An analysis of personal financial literacy among college students. Financial services review, 7(2), 107-128.
Cole, S., Sampson, T., & Zia, B. 2011. Prices or knowledge? What drives demand for financial services in emerging markets?. The journal of finance, 66(6), 1933-1967.
Debbich, M. 2015. “Why Financial Advice Cannot Substitute for Financial Literacy?” Working Paper No. 534, Banque de France.
Guiso, L., & Jappelli, T. 2008. Financial Literacy and Portfolio Diversification, European University Institute. Economics Working Papers.
Hassan Al-Tamimi, H. A., & Anood Bin Kalli, A. 2009. Financial literacy and investment decisions of UAE investors. The Journal of Risk Finance, 10(5), 500-516.
Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. 2003. Household financial management: The connection between knowledge and behavior. Fed. Res. Bull., 89, 309.
Hogarth, J. M., & Hilgert, M. A. 2002. Financial knowledge, experience and learning preferences: Preliminary results from a new survey on financial literacy. Consumer Interest Annual, 48(1), 1-7.
INFE, O. 2011. Measuring financial literacy: Core questionnaire in measuring financial literacy: Questionnaire and guidance notes for conducting an internationally comparable survey of financial literacy. Pariz: OECD.
Jagongo, A., Mutswenje, V. S. 2014. “A Survey of the Factors Influencing Investment Decisions: The Case of Individual Investors at the NSE”, International Journal of Humanities and Social Science 4(4).
Jahanzeb, A., & Muneer, S. 2012. Implication of behavioral finance in investment decision-making process. Information management and business review, 4(10), 532.
Liu, C. T., & Guo, Y. M. 2008. Validating the end-user computing satisfaction instrument for online shopping systems. Journal of Organizational and End User Computing (JOEUC), 20(4), 74-96.
Lusardi, A. 2008. Financial literacy: an essential tool for informed consumer choice? (No. w14084). National Bureau of Economic Research.
Lusardi, A., & Mitchell, O. S. 2006. Financial literacy and planning: implications for retirement wellbeing", Pension Research Council Working Paper no. 1. Philadelphia, PA: The Wharton School, University of Pennsylvania.
Lusardi, A., & Mitchell, O. S. 2007. Financial literacy and retirement preparedness: Evidence and implications for financial education. Business economics, 42(1), 35-44.
Moore, D. L. 2003. Survey of financial literacy in Washington State: Knowledge, behavior, attitudes, and experiences. Washington State Department of Financial Institutions.
Musundi, K. 2014. “The Effects OF Financial LiteracyonPersonal Investment Decisions in Real Estate in Nairobi Country”, Master Thesis, University of Nairobi.
Nunnally, J.C. & Bernstein, I.H. 1994. “Psychometric Theory”, McGraw-Hill, New York.
OECD. Publishing. 2005. Improving financial literacy: Analysis of issues and policies. Organisation for Economic Co-operation and Development.
Perry, V. G. and Morries, M. D. 2005. “Who is in Control? The role of self-perception knowledge and income in explaining consumer financial behavior”, Journal of Consumer Affairs, 3(2), 299-313.
Robb, Cliff A., Woodyard Ann S. 2011. “Financial knowledge and best practice behavior, Journal of Financial Counseling and Planning”, 22(1), 60-70.
Sachse, K., Jungermann, H. and Belting, J. M. 2012. “Investment Risk-The Perspective of Individual Investors”, Journal of Economic Psychology, Vol. (33), pp. 437-447.
Shahrabani, S. 2012. The effect of financial literacy and emotions on intent to control personal budget: A study among Israeli college students. International Journal of Economics and Finance, 4(9), 156-163.
The President Advisory Council of Financial Literacy. 2008. Annual Report to the President, USA
Van Rooij, M. C., Kool, C. J., & Prast, H. M. 2007. Risk-return preferences in the pension domain: are people able to choose?. Journal of public economics, 91(3-4), 701-722.
Van Rooij, M. C., Lusardi, A., & Alessie, R. J. 2012. Financial literacy, retirement planning and household wealth. The Economic Journal, 122(560), 449-478.
Van Rooij, M., Lusardi, A., & Alessie, R. 2011. Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449-472.
Yoong, F. J., See, B. L., & Baronovich, D. L. 2012. Financial literacy key to retirement planning in Malaysia. J. Mgmt. & Sustainability, 2, 75.
Yoong, J. 2010, “Financial Illiteracy and Stock Market Participation: Evidence from the RAND American Life Panel”, Pension Research Council Working Paper, Pension Research Council, The Wharton School, University of Pennsylvania.
