CHAPTER-3

RESEARCH METHODOLOGY

3.1 Introduction

Financial literacy has the potential to create a positive wave in the financial
system. It enables individuals in improving their credit management, wealth
accumulation, developing the sensible habit of saving, planning their long term
needs, saving for retirement, managing finances during all the life stages and cope
up in this dynamic financial environment. Demystifying financial concepts is
required for improving the level of financial literacy among the citizens. A
plethora of policies and programmes around the world have been initiated for
getting the desired objective of financial literate people. Keeping in mind the
above rationale, the present study examined this phenomenon in Haryana. The
detailed methodological framework has been discussed in this chapter.

3.2 Objectives of the Study

The present study is intended to examine the level of financial literacy and investment
behaviour of respondents in Haryana state keeping in mind the following objectives:

 To measure the level of financial literacy of the respondents.

 To measure the magnitude of various demographic factors on the financial literacy

of the respondents.

 To measure the impact of financial literacy on investment behaviour.

3.2.1 Hypotheses

In order to achieve the above goals, the following hypotheses have been tested:

 Financial Literacy and Socio Demographic Factors

H01: There is no significant relationship between age and financial literacy.

H02: There is no significant relationship between education and financial literacy.

H03: There is no significant relationship between income and financial literacy.

H04: There is no significant relationship between gender and financial literacy.

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H05: There is no significant relationship between marital status and financial literacy.

H06: There is no significant relationship between occupation and financial literacy.

H07: There is no significant relationship between residential status and financial

literacy.

 Financial literacy and Investment Behaviour

H08: There is no significant association between financial literacy and investment

behaviour.

 Investment Behaviour and Socio Demographic Factors

In order to study the impact of socio demographic factors on investment behaviour,

the following hypotheses have been formulated:

H09: There is no significant relationship between age and investment behaviour.

H10: There is no significant relationship between education and investment behaviour.

H11: There is no significant relationship between income and investment behaviour.

H12: There is no significant relationship between gender and investment behaviour.

H13: There is no significant relationship between marital status and investment

behaviour.

H14: There is no significant relationship between occupation and investment

behaviour.

H15: There is no significant relationship between residential status and investment

behaviour.

3.3 Questionnaire Design

The structured questionnaire developed by OECD International Network on Financial

Education (INFE) has been used to capture the financial literacy and investment
behaviour of the people. The formal approval has been taken from the OECD for the
use of the questionnaire. However, modifications have been made in the
questionnaire, which were considered necessary according to the culture, currency,
financial instruments and purpose of the study. The survey instrument is based on the
following definition:

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“Financial literacy is a combination of awareness, knowledge, skill, attitude and
behaviour necessary to make sound financial decisions and ultimately achieve
individual financial wellbeing.” (Atkinson and Messy, 2012)1

Resultantly, the dimensions of financial literacy covered in the questionnaire include

financial knowledge, financial attitude and financial behaviour. The study attempts to
analyse the financial literacy and investment behaviour of the respondents on the basis
of socio demographic variables.

3.3.1 Financial Knowledge

A financially literate person is supposed to possess some fundamental knowledge of

key financial concepts. The financial knowledge of the respondents is measured on
the basis of 11 questions (brief information is provided in Figure 3.1). The questions
that have been included cover a range of basic financial issues and require simple
calculations. No expert knowledge is required for these computations.

Numeracy
Skills
requiring
Simple
Calculations
Time-Value
of Money Diversification

Financial
Knowledge Inflation and
Calculation of its
Interest plus Relationship
Principal with Price and
Returns

Compound
Interest Risk and
(Savings and Return
Debt)

Figure: 3.1: Components of Financial Knowledge

The financial knowledge scoring followed the recommended approach of OECD

(Atkinson and Messy, 20121; Agarwalla et al., 20122). A score of one is given to the
correct answer of each question. The financial knowledge score is created by counting
the number of correct responses given by each respondent. The respondents are
grouped into three categories according to their total financial knowledge score. The

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first category includes score of 9 and above (high level of financial knowledge); the
second category covers the range of 7-8 (moderate level of financial knowledge) and
the third category includes score of 6 and below (low level of financial knowledge).
Thus, the proportion of the sample in each of the category is calculated.

3.3.2 Financial Attitude

Financial attitude is a key element of financial literacy. It is the force that directs the
behaviour of the people towards finance. Therefore, financial attitude of the
individuals should be supportive to their financial well-being. For example, a negative
attitude towards savings will prevent the people from entering into saving behaviour.
Furthermore, if they prioritise short term wants over and above future financial needs,
they will be unable to meet future unexpected emergencies. This attitude towards
finance will not provide financial security to the individuals and their families.

The survey instrument include a total of three scaled financial attitude questions (brief
information is provided in Figure 3.2) to know the attitude of respondents towards
short term financial satisfaction or long term financial security. The judgment is made
about the financial attitude of the respondents on the basis of their preference for
saving and spending, financial planning about the future and a trade-off between
today and tomorrow financial needs.

Extent of
Belief in
Planning

Financial
Attitude

Propensity
Propensity
to
to Save
Consume

Figure: 3.2: Components of Financial Attitude

The financial attitude scoring followed the recommended approach of OECD

(Atkinson and Messy, 20121; Agarwalla et al., 20122). The attitudinal statements
sought response in terms of degree of agreement or disagreement on a 5-point scale.

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The maximum score for each item is 5 and the average score of the respondents to the
three attitudinal items provide his overall financial attitude score. A score of 4 and
above signifies positive financial attitude of the respondents while neutral financial
attitude is represented by score 3. The score of 2 and less indicates negative financial
attitude of the respondents.

3.3.3 Financial Behaviour

Financial well-being of individuals depends upon the financial decisions they make in
their daily life. Knowledge illuminates the minds, attitude guides in decision making
but financial prosperity is ensured by the manner in which a person behaves.
Therefore, financial behaviour is incorporated as a component of financial literacy
measure.

The survey instrument covers six items to capture information about the respondents
dealing with financial matters (brief information is provided in Figure 3.3), out of
which 2 uses a qualitative scale and 4 questions uses 5-point scale of agreement. The
various aspects considered in the study for determining the financial behaviour of the
respondents include preparation of household budget, considering affordability before
making any purchase, payment of bills on time, watching over the financial affairs
and planning long term goals. Considering the importance of savings, the survey also
focuses on the savings behaviour of the respondents.

Budgeting

Payment
Affordability
of Bills

Financial
Behaviour

Monitoring
Active
Personal
Savings
Finance
Long
term
Financial
Planning

Figure 3.3: Components of Financial Behaviour

The financial behaviour scoring followed the recommended approach of OECD

(Atkinson and Messy, 20121; Agarwalla et al., 20122). The financial behaviour score

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of the respondents is computed by considering the positive behaviour depicted by
them. It takes a maximum score of 6, with a score of 5-6 signifies positive financial
behaviour and a score of 3 and below reflects negative financial behaviour of the
respondent. The respondent with score 4 is considered as having neutral financial
behaviour.

3.3.4 Financial Literacy

Financial literacy is the combination of financial knowledge, financial behaviour and

financial attitude. The scores of all the three components have been summed up to
know the overall level of financial literacy of the respondents.

Financial Financial Financial

Behaviour Knowledge Attitude

Financial
Literacy

Figure: 3.4: Components of Financial Literacy

The maximum possible financial literacy score is 22 (11 for financial knowledge, 6
for financial behaviour and 5 for financial attitude). A score of 18 and above is an
indicator of high financial literacy of the respondent, a score ranges in 14-17 indicates
moderate financial literacy and score of 13 and below reflects low financial literacy of
the respondent.

3.3.5 Investment Behaviour

Investment behaviour of the individuals is a key element for their long term financial
prosperity. In the study, the investment behaviour of the respondents is judged on the
basis of six questions (brief information is provided in Figure 3.5) incorporated in the
survey instrument. The information about investment behaviour is captured
considering the financial instruments possessed by the respondents, sources of making
investment decisions, personal reasons for making investments, knowledge regarding
return on investments and periodic checking of financial instruments. All questions

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carry equal weight in determining the investment behaviour. The correct answer for
each question carry one score.

The investment behaviour score of the respondents is computed by considering the

positive behaviour depicted by them. The maximum score that a respondent can
achieve on this aspect is 6, with a score of 5-6 signifies positive behaviour. A score
of 4 is an indicator of neutral investment behaviour and a score of 3 and below
reflects negative behaviour of the respondent.

Financial
Instruments

Considerations
Source of
while Making
Information
Investments

Investment
Behaviour

Reasons for Monitoring

Making Investment
Investments Products

Knowledge
of Return on
Investments

Figure: 3.5: Components of Investment Behaviour

The study attempts to measure the impact of financial literacy on investment

behaviour of the respondents on the basis of their respective scores on financial
literacy and investment behaviour. Additionally, six questions have been asked from
the respondents to examine the investment behaviour of the respondents on the basis
of their financial literacy level. The aspects covered are: respondents’ desire of taking
risk, the resultant behaviour and awareness about return on investments. Information
regarding any regretted financial decision along with the course of action opted by the
respondents and the need of financial literacy programmes is also captured.
3.4 Sampling and Data Collection

3.4.1 Sample Characteristics for Financial Literacy

The research is conducted to assess the financial literacy level of the people of
Haryana. The study uses a sample of 500 respondents of age 20 years and above.

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Region and Sample Break-up (%) Gender and Sample Break-up (%)

Bhiwani
20% 20%
Fatehabad
41% Female
Hisar
20% 20% 59% Male
Rohtak
20% Sirsa

Marital Status and Sample Break- Residence and Sample Break-up

up (%) (%)

26% 34%
Married Rural
Single 66% Urban
74%

Age group and Sample Break-up Income and Sample Break-up (%)
(%)
<=Rs.10000
30-39 14% 19%
More than
35% 30% 40-49 Rs.30000
17%
50-59 Rs.10000-
Above 60 20000
18% 50%
Below 30 Rs.20000-
7% 30000
10%

Education and Sample Break-up Occupation and Sample Break-up

(%) (%)
Graduation

Inpaid
26% 23% Post Graduation 21% employment
Not working
25% 54%
51% Senior Secondary Self Employed
or below Senior
Secondary

Figure: 3.6: Sample Profile for Financial Literacy.

Source: Survey

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The data have been collected from five districts of Haryana, viz. Sirsa, Fatehabad,
Hisar, Bhiwani and Rohtak which represent the geographical, cultural as well as socio
demographic aspects of the population of Haryana. All the respondents have been
personally contacted by the researcher by visiting to the field. Out of the total sample
of 500 respondents, 20 per cent have been randomly selected from each of the
selected five districts. The attributes on the basis of which data is collected are gender,
domicile, marital status, work situation, age group, educational level and household
income.

The demographic characteristics of the surveyed sample are:

The data have been collected from the people of rural as well as urban Haryana.
Majority of the respondents belong to urban areas. About three fifth of the data
comprises of male respondents. So far as Educational qualifications of the sample is
concerned, a sizeable proportion of sample represents respondents who are graduates
and above. Twenty six per cent respondents possess a lower educational qualification.

Regarding Marital status, most of the respondents are married. More than half of the
respondents in the sample are in paid employment while one fourth respondents are
not working. Thirty five per cent of the respondents are under 30 years of age whereas
30 per cent belongs to the age group of 30-39 years, 18 per cent fall in the age
category of 40-49 years, 10 per cent respondents lie between 50-59 years and 7 per
cent are above 60 years of age. With regard to the financial status of the respondents,
one half of the respondents reported their monthly income more than `30000 while
19 per cent have monthly income less than `10000. The monthly income of 17 per
cent of the respondents is between `10000 to `20000 and 14 per cent respondents
belongs to the income group of `20000 to `30000.

3.4.2 Sample Characteristics for Investment Behaviour

The population from which sample was selected consists of the investors from the
state of Haryana. Out of the total sample of 500 respondents, 477 questionnaires were
considered for analysis and 23 questionnaires were excluded because these
respondents have not made any investment. On the basis of gender attribute, the data
comprises of 59 per cent male and 41 per cent female respondents. Therefore, male
respondents outnumbered female respondents.

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Region and Sample break-up (%) Gender and Sample break-up (%)

Bhiwani
20% 21% Fatehabad
41% Female
Hisar
19% 19% 59% Male
Rohtak
21%
Sirsa

Domicile and Sample break-up (%) Marital Status and Sample break-
up (%)

32% 25%
Rural
Married
Urban
68% Single
75%

Education and Sample break-up Age and Sample break-up (%)

(%)

Graduation
30-39

34% 30% 40-49

23% 24%
Post Graduation 50-59
7% Above 60
53% 10% 19%
Senior Secondary Below 30
or below Senior
Secondary

Work Situation and Sample break- Income Level and Sample break-up
up (%) (%)
<=Rs.10000
Inpaid
21% employment 14% 17% More than
Not working 16% Rs.30000
55%
24% Rs.10000-
Self Employed 52% 20000
Rs.20000-
30000

Figure: 3.7: Sample Profile for Investment Behaviour.

Source: Survey

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A sizeable proportion of sample (53 per cent) represents respondents who are
postgraduates, 24 per cent are graduates and 23 per cent either have a senior
secondary or have lower education. Out of the total respondents, 68 per cent belongs
to urban areas and 32 per cent are from rural areas. With respect to marital status,
most of the respondents are married as the data consists of 75 per cent married and 25
per cent single respondents. More than half of the respondents (55 per cent) in the
sample are in paid employment, 21 per cent are self employed and 24 per cent are not
working at all. Thirty four per cent of the respondents are under 30 years of age
whereas 30 per cent belongs to the age group 30-39 years, 19 per cent fall in the age
category of 40-49 years, 10 per cent lie between 50-59 years and 7 per cent are above
60 years of age. With regard to the financial status of the respondents, 52 per cent of
the respondents reported their monthly income of more than `30000 while 17 per cent
have monthly income of less than `10000. The monthly income of 16 per cent of the
respondents is between `10000 to `20000 and 14 per cent belong to the income group
of `20000 to `30000.

3.5 Analytical Tools

Indeed, the present study is descriptive in nature which aims to describe the level of
financial literacy and investment behaviour of the respondents. In the study, the
following statistical tools have been employed:

3.5.1 Bar Diagrams

These are used to display the levels of financial literacy and investment behaviour
possessed by the respondents. Stacked bar charts are used to display information
about different categories of financial literacy, financial knowledge, financial attitude,
financial behaviour and investment behaviour in a single bar.

3.5.2 Summary Statistics

Summary statistics summarizes the data and communicate useful information about it.
The average of the scores of respondents on the aspects of financial literacy, financial
knowledge, financial attitude, financial behaviour and investment behaviour has been
reported for the purpose of the analysis.

3.5.3 Dummy Variable Regression Analysis

Existing literature on financial literacy documents various determinants of financial

literacy and investment behaviour. It is useful to undertake dummy variable

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regression analysis to get some deeper insights of the association between financial
literacy, investment behaviour and various demographic factors. We have therefore
run a dummy variable regression analysis by taking scores of financial literacy and
each dimension of financial literacy, i.e. knowledge, attitude and behaviour and
investment behaviour as the dependent variable. In this dummy variable model, the
independent variables are gender, domicile, marital status, work situation, age,
education, income and income stability of the respondent.

Where:

FL= Financial literacy score of respondent

FK= Financial knowledge score of respondent

FA= Financial attitude score of respondent

FB= Financial behaviour score of respondent

IB= Investment behaviour score of the respondent

G= Gender of respondent/0 if participant is a male, 1 otherwise

D=Domicile of respondent/ 0 if participant is residing in an urban area, 1 otherwise

MS=Marital status of respondent/ 0 if participant is married, 1 otherwise

WS= Work situation of respondent/ 0 if participant is in paid employment, 1otherwise

A= Age of respondent/0 if participant is in the age group of above 40 years, 1

otherwise

ED= Education of respondent/0 if participant possess a degree of graduation and

above, 1otherwise

INC= Income of respondent/0 if participant’s household earning is more than `20000

p.m., 1otherwise

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INCS=Income stability of respondent/0 if participant’s income is stable, 1 otherwise

While conducting the dummy variable regression analysis, respondents are bifurcated
into graduation and above and below graduation categories on the basis of education;
while on the basis of age, they are categorized into two classes: respondents aging
more than 40 years and respondents aged 40 years & below. Similarly, two categories
regarding Income level of respondents are formed: respondents having income less
than or equal to `20000 p.m. and those who have a monthly income more than
`20000 p.m. Further, respondents are segregated into respondents who are in paid
employment and others on the basis of their occupation.

Moreover, we have run a dummy variable regression analysis to analyse the impact of
financial literacy on investment behaviour. For this purpose, the score of investment
behaviour is taken as dependent variable and the scores of financial literacy and its
dimensions viz. financial knowledge, financial attitude and financial behaviour as
independent variable.

Where

IB= Investment behaviour score of the respondent

FL= Financial literacy score of respondent/0 if participant has high level of financial
literacy, 1 otherwise

FK= Financial knowledge score of respondent/0 if participant has high level of

financial knowledge, 1 otherwise

FA= Financial attitude score of respondent/0 if participant has positive financial

attitude, 1 otherwise

FB= Financial behaviour score of respondent/0 if participant has positive financial

behaviour, 1 otherwise

3.6 Chapterisation Scheme

3.6.1 Chapter 1-Financial Literacy: Conceptual Framework

This chapter covers the discussion on the importance of financial literacy in the
modern world, current scenario of financial literacy around the world and in India,
need in India and initiatives taken at international level & in India.

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3.6.2 Chapter 2-Review of Literature

In this chapter, the review of existing literature on financial literacy is segregated into
following parts:

 Financial Literacy: International Perspective

 Financial Literacy: Indian Perspective

 Financial Literacy and Investment Behaviour

 Financial Literacy and Socio-Demographic Factors

 Financial Literacy: Advantages

 Impact of Financial Education and Literacy Initiatives

The review contains valuable literature regarding financial literacy as a whole.

3.6.3 Chapter 3-Research Methodology

This chapter describes the research design: objectives of the study, hypotheses,
questionnaire design, sampling and data collection, analytical tools and conceptual
framework of scores of financial literacy, financial knowledge, financial behaviour,
financial attitude and investment behaviour.

3.6.4 Chapter 4-Financial literacy: Measurement and Evidences

In this chapter, the collected data regarding financial literacy of the respondents have
been analysed and interpreted. The hypotheses that have been formulated regarding
financial literacy are also tested by using various statistical techniques in this chapter.

3.6.5 Chapter 5-Investment Behaviour and Financial Literacy: The Linkage

In this chapter, the collected data regarding investment behaviour of the respondents
have been analysed and interpreted. The hypotheses that have been formulated
regarding investment behaviour are also tested using various appropriate statistical
techniques in this chapter.

3.6.6 Chapter 6-Summary and Conclusions

The conclusions derived from the analysis of data have been included in this chapter.
Suggestions are made to improve the level of financial literacy of the people.

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3.7 Significance of the Study

Financial literacy is considered as an important component for financial well-being of

an individual as well as for financial stability of a nation. The concept of financial
literacy is gaining momentum due to increase in complexity of the financial market,
financial innovations and resultant development of new products, growing access to
credit and financial instruments and shifting of defined pension scheme to ‘do it
yourself’ scheme. Global financial crisis has also highlighted the disastrous
consequences of uninformed financial decisions. Resultantly, there is increase in the
responsibility of consumers for managing their funds towards safe financial future.
Moreover, the cost of financial ignorance is huge that may create financial unrest for
households and pose a threat to the financial stability of the country if considerable
degree of consumer participation is there. In such circumstances, it becomes essential
for the individuals to be well versed with financial concepts and be sufficiently
financially literate in order to take responsible financial decisions. In addition,
demystifying financial concepts to the people of a country and improving their
knowledge and behaviour towards finance is also considered important for consumer
protection as well as financial inclusion.

Research evidences exhibit that people who have better understanding and knowledge
of financial matters are more likely to enter in financial transactions in a responsible
manner. They create genuine competition in the market, are more aware of their rights
and obligations in case of any financial fraud or scam, understand the sensitivity in
the market and do not over react in extreme market conditions in the lure of more
profits, and thus, makes a significant contribution in creating an efficient financial
market and indeed towards development of the economy.

Existing literature exhibits that Indians are among the least financially literate people
across the globe. With the purpose of ensuring risk free provision for children
education, regularity of income after superannuation, financial security in economic
emergencies and optimum utilization of the existing financial resources; an individual
needs to have knowledge and understanding of finance to make effective decisions
and these well informed decisions will have multiplier effects on the individuals,
financial markets and the economy.

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The present study aimed at making some contribution towards evaluating the financial
literacy level of the people as well as examining the impact of financial literacy on the
investment behaviour of the people.

3.8 Potential Contribution to Knowledge

Financial literacy is an essential component for financial inclusion and consumer

protection. This triad of financial literacy, financial inclusion and consumer protection
makes a sound financial regulatory system and contributes towards financial stability
of the economy. For the government and the policy makers, financial literacy means
a move towards inclusive growth and sustainable development. For the financial
institutions, it is a tool to educate the people about the market, the instruments and the
market players that improve the efficiency of the economic system. For a common
man, it means possessing the money management skills needed for his financial well-
being. The present study aims at contributing towards the financial literacy endeavour
by evaluating the financial literacy level and investment behaviour of the people of
Haryana. The data have been collected on the basis of various socio demographic
factors. Having identified the people with inadequate knowledge of financial aspects
from the findings, appropriate study material can be designed with due consideration
to the educational background, residence, socio economic status of the people. Tailor
made strategies could be framed for uplifting the particular sub groups of population
through financial education. A study of this type could be helpful for the development
of financial literacy programmes or training modules to improve the financial literacy
of the people of Haryana.

3.9 Limitations of the Study

Intensive care has been taken during all the stages of conducting research, from data
collection to analysis and interpretation of data for achieving the desired research
objectives. Due to time and resource constraints, certain limitations emerge and these
are:

 The sample is drawn from the people of Haryana only.

 The study is based on primary data; respondents might not disclose all the facts.

 The respondents have been selected by convenience random sampling method.

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References

1. Atkinson, A., & Messy, F. A. (2012). Measuring financial literacy: Results of the
OECD International Network on Financial Education (INFE) Pilot Study. OECD
Working Papers on Finance, Insurance and Private Pensions, (15). OECD
Publishing. http://dx.doi.org/10.1787/5k9csfs90fr4-en

2. Agarwalla, S. K., Barua, S., Jacob, J., & Varma, J. R. (2012). A survey of
financial literacy among students, young employees and the retired in
India. Retrieved from http://www.iimahd.ernet.in/fls/youngemployessandretired
2012.pdf.

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