Financial Literacy:Conceptual Framework and Scale Development

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.