Socio-Demographics, Risk Propensity, and Investment Diversity Moderating Role of Financial Literacy

Qaiser Ali Malik; Muhammad Khurram Shehzad Niazi

Abstract:

Human behaviour is a complex phenomenon that combines psychological traits with decision-making. Therefore, it is an intricate relationship between traditional finance and cognitive behaviour. Financial policymaking and investments are practical manifestations of asset allocation decisions taken under the influence of human personality biases dominating mind of decision-maker through analyzing empirical data. This paper is a shift from professional investors; rather it attempts to explore the behaviour of non-professional i.e. common people to find out the relationship between risk behavior and effects of socio-demographics on personal asset allocation decisions by common citizens not having much awareness of financial instruments with an aim to find out moderating effects of financial literacy. This descriptive study has been carried out on a survey questionnaire containing 70 items on 775 respondents from Pakistan, Canada, Tunisia, Romania, Jordan, Moldova and UK including 85 military personnel and personal interviews of 18 respondents. The outcome of research indicates that in decision making domain financial literacy has been found to significantly moderate relationship between socio-demographics, risk propensity and investment decision-making. It concludes that with increase in age and marital status the investment diversity improves, moreover married/widowed women are more risk-averse than males. However, married people as a whole tend to diversify their investments; however, financial literacy and education contribute towards investment diversity and reduce the risk-taking ability. Hence, this survey can be used as an effective tool for designing financial instruments for general community.

research from:

• Foundation University - Faculty of Management Sciences

Year:

2019

Type of Publication:

Article

Journal:

International Transaction Journal of Engineering, Management, & Applied Sciences & Technologies

Volume:

11

Number:

1

Pages:

1-15

Month:

11

DOI:

DOI: 10.14456/ITJEMAST.2020.9