The International Conference of Business and Banking Innovations (ICOBBI 2019) Proceedings

Study of Demographic Factors and Financial Literation and its Effect on

Individual Investment Decision in Generation X and Generation Y

Valendy Pradita1, Lestari Wiwik2

1 STIE Perbanas Surabaya, Nginden Semolo 34-36 Street, Sukolilo, Surabaya, 60118, East Java, Indonesia
2 STIE Perbanas Surabaya, Nginden Semolo 34-36 Street, Sukolilo, Surabaya, 60118, East Java, Indonesia

ARTICLE INFO ABSTRACT←11

Article history: Individual investment decision behaviors are strongly influenced by factors
Received including demographics and financial literacy levels. The changing times
Revised such as technology developments, education levels, and income levels affect
Accepted
the difference of financial literacy levels between millennials and the
JEL Classification: previous ones. This study is aims to examine and analyze the influence of
genders, education level, income level, investment experience, financial
knowledge, financial behavior, and financial attitudes towards individual
Keywords: Financial Literacy, investment decisions generations X and Y. In this study it is explained that
Demographic Factors, Individual the benefits for investment decisions are to know the levels of financial
Investment Decisions literacy owned and as a material consideration in determining investment
decisions wisely.
DOI: 10.6084/m9.figshare.9849122
ABSTRAK
ISBN: 978-623-92358-0-2
Perilaku pengambilan keputusan investasi seseorang sangat
dipengaruhi banyak faktor diantaranya demografi dan tingkat literasi
keuangan. Adanya perubahan zaman seperti perkembangan
teknologi, tingkat pendidikan, dan tingkat pendapatan
mempengaruhi perbedaan tingkat literasi keuangan antara generasi
millennial dan generasi sebelumnya. Penelitian ini bertujuan untuk
menguji dan menganalisa pengaruh jenis kelamin, tingkat
pendidikan, tingkat pendapatan, pengalaman investasi, serta faktor
pengetahuan keuangan, perilaku keuangan, dan sikap keuangan
terhadap keputusan investasi individu pada generasi x dan generasi
y. Dalam kajian ini menjelaskan bahwa manfaat dari keputusan
investasi adalah mengetahui tingkat literasi keuangan yang dimiliki
dan sebagai bahan pertimbangan untuk menentukan keputusan
investasi secara bijak.

1. Introduction resulting in losses. Investments also need to

Investment helps people realize their
future plans and make an additional amount of
money through investment returns. In
investing, investors need to pay attention to
three important things that are the basis of
investment decisions, namely return, risk level,
and time period. Return on investment is a
profit or loss for investors when they have
invested their funds, both in real assets and
financial assets. Investment also has a risk that
is the possibility of actual investment results
that are different from what is expected
pay attention to the period of placement of
funds so that they can meet the expected return
on investment.
The phenomenon of changing a
person's investment decision making behavior
that is influenced by age factors along with
changing times. The influence of technology
and information on the current generation with
previous generations is very different. This
difference can be seen clearly with the
difference of the two generations that currently
dominate the world, namely generation X and

Corresponding author, email address: valenpradita@gmail.com

generation Y.
Lutfi (2010) revealed that investor
demographic factors are positively correlated
with investor behavior and the type of
investment chosen. Investors who are in the
type of risk seeking prefer to invest in the
capital market, while investors who avoid risk
prefer investing in real assets and bank
accounts.
Another study conducted by Ton and
Nguyen (2014) concluded that male gender is
more willing to take risks in investing than
female gender. Then for investors who are
retiring or elderly, they prefer not to take risks.
Finally, single investors prefer to take higher
risks than married investors. For income and
education level factors found the similarity of
investor behavior in taking risks.
Oteng (2019) in his research in Ghana
proved that knowledge about investing in
trading is very weak. Most traders do not
understand the concepts of liquidity, interest
and inflation, and their implications for the
decision to take high-risk return and low-risk
return.
Based on the background above, the
authors are interested in conducting research
on the influence of gender factors, level of
education, level of income, marital status,
financial knowledge, financial behavior, and
financial attitudes towards one's investment
decisions, and analyzing whether there are
differences between the X generation groups
and the generation Y, so this research is
entitled "Study of Demographic Factors and
Financial Literacy and Its Effects on Individual
Investment Decisions in Generation X and
Generation Y".
Based on that background, the authors
formulate the problem as follows:
1. Does gender significantly influence
individual investment decisions in
generation X and generation Y?
2. Does the level of age have a significant effect
on individual investment decisions in
generation X and generation Y?
3. Does the level of education have a
significant effect on individual investment
decisions in generation X and generation Y?
64
4. Does the level of income significantly
influence individual investment decisions in
generation X and generation Y?
5. Does Investment Experience significantly
influence individual investment decisions in
generation X and generation Y?
6. Does financial knowledge have a significant
effect on individual investment decisions in
generation X and generation Y?
7. Does financial behavior significantly
influence investment decisions individuals
in generation X and generation Y?
8. Does the financial attitude significantly
influence individual investment decisions in
generation X and generation Y?
2. Theoretical Framework, Literature Review,
Discussion and Hypotheses
Generation Theory
According to Kupperschmidt (2000)
generation is a group that is identified based
on the year of birth, age, location, and events in
the lives of groups of individuals who have a
significant influence in the growth phase.
Oblinger & Oblinger (2005) grouped
generations into five generations, namely
mature generation (<1946), baby boomer
generation (1946-1964), generation X (1965-
1981), generation Y or called net generation
(1982-1995), and generation post millennial
(<1995). Because the age range is different from
one generation to another, it influences their
behavior, their perspective, and how they
obtain or make a decision.
A Fidelity Investment study in the United
States concluded that generation Y considered
themselves more knowledgeable in finance
than their previous generation (Fidelity, 2013).
Demographic Factors
This factor plays an important role in
determining the investment decision chosen.
The influence of investor demographic factors
needs to be considered, because in decision
making investment, investors often involve
more than one individual. Individuals who
have different knowledge, expertise and
experience can be involved throughout the
process investment, from planning,
supervision, to coordinating investment plans
(Pratiwi & Prijati, 2015). Some demographic
factors in this study include gender, age,
occupation and income.
Based on research conducted by
Fidelity (2013), it was concluded that 55
percent of Generation Y felt more confident in
investing compared to 47 percent of the older
generation. About 64 percent of Generation Y
has more regular savings habits than 54
percent of the older generation.
Ciompi and Jacobs (2016) show that
most of the X generation prefers advisory or
financial consultant services to manage their
investment activities. They prefer this type of
long-term investment as the ultimate goal of
their retirement savings and strongly avoid
short-term and high-risk investments.
In this study, researchers used gender,
age, education, income and investment
experience as demographic factors that
influence investment decisions.
a. Gender Type much research has been
carried out on the effect of sex on investment
decisions. The study conducted by Barber &
Odean (2001), provides empirical evidence
that men are more willing to take risks in
investing. This is supported by research
conducted by Cooper (2011), quoted in
Kristanti (2012: 2), which states that women
tend to be more careful in investing
compared to men.
Kristanti (2012: 2), which states that
women tend to be more careful in investing
compared to men. Which states that men have
a higher level of confidence compared to
women, so this will affect the investment
decision-making process? With the evidence
from various studies which state that the level
of tolerance for risk in women is lower than
men, the authors want to participate and prove
that gender has an influence on investment
decisions.
H1: gender significantly influence individual
investment decisions in generation X and
generation Y
b. Age
Age determining level of life that affects a
65
person's physical condition, psychological
condition and maturity condition. This age
will cause differences in various aspects of
human life including the way the brain
works in thinking. This different way of
thinking will then be realized in human
behavior including in determining
investment decisions.
Evans (2004), states that the older a
person is, the more risk aversion in making
investment decisions, and vice versa. This
happens because as we get older the
knowledge and experience a person has in
decision making is also higher. This means that
investors with an older age are considered to
be more careful in considering the risk and
return of an investment. Older investors are
considered more mature and not rash in
determining an investment decision.
H2: the level of age has a significant effect on
individual investment decisions in
generation X and generation Y.
c. Education
The education factor is the level of academic
that determining someone ability and
knowledge to understand things properly.
The higher the level of one's education, it is
assumed that the person will have better
financial knowledge. This knowledge is the
basis for determining an investment
decision.
Lutfi (2010: 3) states that investors, who
study at least a diploma, invest their funds in
the capital market compared to investing in
bank products or real assets. This is because a
high level of education is considered to have
very good knowledge and ability in investing
so that it is able to analyze and calculate the
risks faced
H3: the level of education has a significant
effect on individual investment decisions
in generation X and generation Y.
d. Income
Income is the financial result that paid after
someone doing a job in order to meet the
needs of life.
According to Lutfi (2010: 10), investors
who have low incomes tend to be investors
who avoid risk. This happens because the
funds owned by investors with low incomes
tend to be used to meet the needs of life rather
than invested in some assets. Mahardika (2017:
4), i.e. investors who have the highest income
tend to have a portfolio that is more volatile or
has a greater risk.
H4: Does the level of income significantly
influence individual investment decisions
in generation X and generation.
e. Investment Experience
Demographic factors that influence
subsequent investment decisions are
investment experience. Utami and Kartini,
(2016: 2) state that experience or frequency
of investment is thought to be related to
investment decisions.
Utami and Kartini (2016: 2) revealed
that investor confidence increases when they
gain more experience. In line with this opinion,
Pratiwi (2015: 6), also said that the investment
experience owned by investors is thought to
influence the behavior of investors in investing.
H5: Investment Experience significantly
influence individual investment decisions
in generation X and generation Y
Financial Literacy
According to Andrew and Linawati
(2014: 1), financial literacy can be interpreted as
financial knowledge, with the aim of achieving
prosperity. Warsono (2010) stated that financial
literacy is the extent of knowledge and
implementation of a person or society in
managing their personal finances.
According to Janor et. al. (2016) there is
three components of financial literacy, namely
financial knowledge, financial behavior, and
financial attitudes. OECD (2005) explains that
financial literacy is the combination of
awareness, knowledge, attitude and behavior
which to be needed for making financial
decision.
1. Financial knowledge
The level of one's knowledge of financial
science. Knowledge refers to what
individuals know about personal financial
matters, as measured by their level of
knowledge about various personal financial
concepts (Marsh, 2006). These aspects
66
include knowledge of financial sharing,
understanding of the time value of money,
payment of interest and obtaining return on
loans, correct calculation of interest, multiple
interest, risk and return, definition of
inflation and different types of investment
(Janor et. al., 2016).
Robb & Woodyard (2011) who found
someone with a good level of financial literacy,
their financial behavior tends to be better than
someone with a lower level of financial
knowledge.
H6: Financial knowledge have a significant
effect on individual investment decisions
in generation X and generation Y.
2. Financial behavior
Human behavior and habits about how to
manage their finances, whether they have
the ability to buy things, pay bills in a timely
manner, monitor routine household
expenses and shopping preferences, save
and borrow habits, set financial designs, and
choose investment and financial products
(Janor et. al., 2016).
Behavioral finance is the study of how
humans interpret and act on information to make
informed investment decisions” This means that
behavioral finance is a science that studies how
humans react and react to information that is
then used to make decisions that can optimize
the rate of return decisions investment by
paying attention to the inherent risks (the
elements of human attitudes and actions are
the deciding factors in
invest). To understand issues related to the
financial behavior of each individual, one must
manage personal finances in one way or
different ways (Aminatuzzahra, 2014)
H7: Financial behavior significantly influences
investment decisions individuals in
generation X and generation Y.
3. Financial attitude
Attitude refers to how a person feels about
personal financial problems, as measured by
responses to a statement or opinion (Marsh,
2006).
Robb & Woodyard, (2011) who argue
that financial knowledge is objective and
financial beliefs or financial attitudes are
subjective resulting in a low level of correlation instruments that can be chosen by individuals,
to financial behavior and both have a both in real assets such as land, property and
significant impact on financial behavior. The real estate, and gold, as well as financial assets,
results of this study are supported by the such as stocks, bonds, certificates of deposit,
perspective of financial behavior perspectives and mutual funds. In investing, there are five
which in financial decision making factors that influence investment choices,
neurologically tends to incorporate influence namely:
(emotions) into the process of making decision. 1. Security and risk (security in an investment
The better the attitude or financial metal of a means minimal risk of loss)
person, the better the financial behavior in 2. Risk factor components (components of risk
investment decision making. factors relating to specific investments
H8: The financial attitude significantly change over time)
influences individual investment 3. Investment income (income in cash and
decisions in generation X and generation fixed)
Y 4. Investment growth (increase in value -
capital gain)
Individual Investment Decisions 5. Liquidity (high or low)
According to Warsono (2010) in
investing, there are currently many
Research Framework
From the results of the theoretical and problem, the current research framework is as follows:

Gender

Age

Education
Level

Income Level Investment

Decision

Investment
Experience

Financial
Knowledge

Financial
Behavior

Financial
Attitude

FIGURE 1.1
RESEARCH FRAMEWORK

67
3. RESEARCH METHOD
This study is based on a conceptual
model of the influence of gender, age,
education level, income level, investment
experience, financial knowledge, financial
behavior, and financial attitudes towards
one's investment decisions, and analyzed
whether there are differences between the X
generation and Y generations. According to
previous literature, researchers have found
several factors that influence investment
decisions. Reference is taken from the study
of several books and journals. Therefore, to
understand the factors that influence the
influence of gender, age, education level,
income level, investment experience,
financial knowledge, financial behavior, and
financial attitude towards one's investment
decisions viewed from the benefits,
secondary data is collected, compared, and
analyzed.
4. SUMMARY
In this study it is explained that the
benefits for investment decisions are to know
the levels of financial literacy owned and as a
material consideration in determining
investment decisions wisely so that
investment decisions made can bring benefits
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