SAMVAD: International Journal of Management

Open Access Open Access  Restricted Access Subscription Access

Financial Literacy:Conceptual Framework and Scale Development


Affiliations
1 Global Business School and Research Centre, Dr. D. Y. Patil Vidyapeeth, Pune–411 033, Maharashtra, India
 

Financial literacy is an ability to read numbers and understand financial statement which allows individual to identity the strength and weakness of investment. It is majorly used in connection with personal finance matters and often entails the knowledge of accurate decisions pertaining to matters related to personal finance. After extensive literature review it was found that there exists a need for developing a scale on financial literacy including various dimensions of financial planning, financial products, awareness and internalising the need for financial planning. The objective aim of this paper is to conceptualize, purify, refine and develop the multi-item scale of Financial Literacy. The study attempts to develop a scale by following a four-stage approach: defining the construct, item generation and refining, data collection and purification through exploratory factor analysis. The scale was tested and found to be highly reliable with five factors of financial literacy, viz. investment planning, financial planning, retirement planning, mutual funds and risk and return with 25 variables in total.

Keywords

Diversification, Financial Knowledge, Financial Literacy, Individual Investor, Scale Development.
User
Notifications
Font Size

  • Bharat, S. T. & Surendra, R. N. (2015). “Financial Literacy in Nepal: A Survey Analysis from College Students”. Nepal Rastra Bank Economic Review.

  • Campbell, J. Y. (2006). Household finance. J. Financ. 61(4), 1553–1604.

  • Colleen, T. A. (2015). “Financial literacy and financial behavior: Assessing knowledge and confidence.” Financial Services Review, 24, 101–117.

  • Daniel, F., John, G. L. Jr. & Richard, G. N. (2014). “Financial Literacy, Financial Education and Downstream Financial Behaviors”. Rotterdam School of Management, Erasmus University, The Netherlands.

  • Hussein, A. H. A. & Al Anood, B. K. (2009). “Financial literacy and investment decisions of UAE investors”. The Journal of Risk Finance, 10(5), 500–516.

  • Collins, J. M. (2012). “Financial advice – A substitute to financial literacy?” Financial Services Review; Winter. 21(4).

  • John, L. M. (2013). “Psychosocial Factors and Financial Literacy.” Social Security Bulletin, 73(1).

  • Kimberly, A. B. (2009). “Examining the Influence of Financial Literacy Education on Financial Decision-Making among Graduate Level Health Professions Students”. Dissertation and theses from Capella University.

  • Leena, B. D. & Malti, H. (2017). “The Relationship between Age and Income with Financial Planning Events”. Pratibimba, The Journal of IMIS, Bhubaneshwar, 7–16.

  • Monica, P. (2016). “Financial literacy and subjective expectations questions: A validation exercise”. Research in Economics, 2016, 70(2), 360-374.

  • Lisa, X. & Bilal, Z. (2012). “Financial Literacy around the World.” Policy Research Paper 6107. The World Bank, Retrieved from http://econ.worldbank.org

  • Lusardi, A. & Mitchell, O. S. (2007). Financial Literacy and Retirement Planning: New Evidence from Rand American Life Panel. Mimeo, Darthmouth College.

  • Lusardi, A. & Mitchell, O. S. (2011). “Financial Literacy around the world”. NBER Working Paper No. 17107 June 2011 JEL No. D14, D91, Retrieved from http://www.nber.org/papers/w17107.pdf

  • Malaysia Financial Planning Council, MFPC (2004) RFP Module 1 - Fundamentals of Financial Planning, 3rd ed., MFPC, Kuala Lumpur. Int. Journal of Economics and Management, 5(1): 149–168.

  • Malti, H. & Leena, B. D. (2017). “Association between Financial Planning and Professional Advice – Do they co-exist?” International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 4(2), 118–124.

  • Maria, P. C. (2010). “Learning Financial Literacy in the Family”. Discretion and theses from San Jose State University.

  • Ramasawmy, D., Thapermall, S., Dowlut, S. A. & Ramen, M. (2008). “Financial literacy and portfolio diversification”. EUI working paper ECO 2008/31.

  • Ramasawmy, D., Thapermall, S., Dowlut, S. A. & Ramen, M. (2013). “A Study of the Level of Awareness of Financial Literacy among Management Undergraduates”. Proceedings of 3rd Asia-Pacific Business Research Conference 25-26 February 2013, Kuala Lumpur, Malaysia.

  • Sumit, A., Gene, A., Itzhak, B. D., Souphala, C. & Douglas, D. E. (2015). “Financial Literacy and Financial Planning: Evidence from India”. Journal of Housing Economics, 27, 4–21. Retrieved from http://isiarticles.com/bundles/Article/pre/pdf/50653.pdf

  • Suzanne, P. W. & Sharon, T. (2009). “When it comes to Financial Literacy, Is Gender Really an Issue?” 3(1), 13.

  • Tan, H. B., Hoe, S. Y. & Hung, W. T. (2011). “Financial Literacy and Personal Financial Planning in Klang Valley, Malaysia”. Int. Journal of Economics and Management, 5(1), 149–168.

  • Yasser, A. & Khaled, E. (2014). “Financial Literacy of U. S. households: Knowledge vs. Long Term financial planning”. Financial Services Review, 22(3), 211–244.

  • Wagner, J. F. (May 2015). An Analysis of the Effects of Financial Education on Financial Literacy and Financial Behaviors” Discretion and theses from University of Nebraska-Lincoln.

  • Anagol, S., Cole, S. & Sarkar, S. 2012. “Understanding the incentives of commissions motivated agents: theory and evidence from the Indian life insurance market". Harvard Bus. School, Work. Pap. 12-55.


Abstract Views: 299

PDF Views: 109




  • Financial Literacy:Conceptual Framework and Scale Development

Abstract Views: 299  |  PDF Views: 109

Authors

Leena B. Dam
Global Business School and Research Centre, Dr. D. Y. Patil Vidyapeeth, Pune–411 033, Maharashtra, India
Malti Hotwani
Global Business School and Research Centre, Dr. D. Y. Patil Vidyapeeth, Pune–411 033, Maharashtra, India

Abstract


Financial literacy is an ability to read numbers and understand financial statement which allows individual to identity the strength and weakness of investment. It is majorly used in connection with personal finance matters and often entails the knowledge of accurate decisions pertaining to matters related to personal finance. After extensive literature review it was found that there exists a need for developing a scale on financial literacy including various dimensions of financial planning, financial products, awareness and internalising the need for financial planning. The objective aim of this paper is to conceptualize, purify, refine and develop the multi-item scale of Financial Literacy. The study attempts to develop a scale by following a four-stage approach: defining the construct, item generation and refining, data collection and purification through exploratory factor analysis. The scale was tested and found to be highly reliable with five factors of financial literacy, viz. investment planning, financial planning, retirement planning, mutual funds and risk and return with 25 variables in total.

Keywords


Diversification, Financial Knowledge, Financial Literacy, Individual Investor, Scale Development.

References