Factors Influencing Financial Literacy: A review of literature

*Dr. Kamini Rai

Associate Professor, Rukmini Devi Institute of Advanced Studies, Delhi
**Ms. Shikha Dua
Assistant Professor, Rukmini Devi Institute of Advanced Studies, Delhi

Abstract:

Financial literacy is a step towards financial inclusion of any country. In order to

increase people participation in financial products and services, increased level of
financial literacy is very important. The effort to enhance financial literacy in India
over the last decade has also been given an impetus by the country’s Central Bank, the
Reserve Bank of India that has mandated that banks have to take the initiative to
enhance financial inclusion and financial literacy in the country.In thisreview paper
the researcher proposes to study the factors influencing financial literacy among
individuals, students, working women and retired persons by collecting and compiling
the previous studies in field of financial literacy. By compiling previous studies the
factors like financial knowledge, financial attitude, Financial Skills, Financial risk
tolerance, financial awareness, financial behavior and other socio economic factors
have found important that affect the level of financial literacy. This study is useful for
the policy makers, government, financial institutions and banks for making strategies
to increase financial literacy among individuals.

Key words:Financial literacy, factors influencing, financial knowledge, financial

attitude, Financial Skills

Introduction:

Financial literacy is the major challenge faced by all the countries globally. Adequate
level of financial literacy is required for financial wellbeing of the individual and that
of the family. Ineffective money management can also result in behavior that makes
consumers more vulnerable to a financial crisis (Braunstein and Welch, 2002).

Financial literacy means understanding of personal financial matters. Personal

financial matters means being able to balance a checkbook, knowing about interest
rates, compare prices, compare saving and investment products, increasing risk
tolerance capability, financial awareness and planning in advance about retirement
financial needs. It also includes skills like planning for long term financial goals,
retirement planning, and the discipline to use those skills every day. Financial Literacy
can broadly be defined as the capacity to have familiarity with and understanding of
financial market products, especially rewards and risks in order to make informed
choices. It is the ability to know, monitor and effectively use financial resources to
enhance the well-being and economic security of an individual, his family, and his
business.
OECD[2] in 2013 defines “Financial literacy is a combination of awareness,
knowledge, skill, attitude and behavior necessary to make sound financial decisions
and ultimately achieve individual financial wellbeing." This review paper has a
significance to understand the reason to increased importance the financial literacy in
countries economy. The previous studies from 1998 to year 2018 have been complies to find
out the factors influencing financial literacy.

Aut Paper Objectives Variables/ Tools/ Findings/ Results

hors Title Dimensions/ Techniques
/ Attributes
Yea
rs
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yan Analysis was aimed to independent of survey the study college
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Che Personal relationship for logistic essed using personal finance is
n Financia between regression in Cronbach's inadequate. The reason
and l financial this paper are alpha and to behind low level of
Ron Literacy literacy and variables such analyze the financial knowledge is
ald Among its impact on as academic variance on the systematic lack of a
P. College students' discipline, financial literacy sound personal finance
Vol Students financial class rank, on the basis of education in college
pe/ opinions and gender, race, demographic curriculum. The
199 decisions. nationality, variable findings show levels of
8 work ANOVA and financial knowledge
experience, logistic varies with different
age, and regression class ranks.
income and models have
dependent been used.
variable is
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Can Importa The purpose The variables The researcher The findings suggested
dice nce of of this are Financial designed a that it is important to
Arri financial quantitative education for survey that was know what the
ngt literacy descriptive financial used in this teachers,
on and research products and study. To collect administrators, parents,
Tsc financial study was to services, the information business owners, and
hac literacy discover the Teaching for the survey, community members
he/ content importance investment two Likert of Bozeman feel is the
200 in that teachers, principles and scales were value of the content of
9 curricul administrator financial used. In order to this type of curriculum
um s, parents, curriculum analyze the and also which content
business results, each is most important. It is
owners, and answer was the belief of the
community tabulated in an researcher that students
 members excel can be exposed to
place on spreadsheet. instruction on
having a Numbers were managing their money
Personal added up to through a Personal
Finance class make sure there Finance class and
and the were 49 answers increase their
content that for each of the knowledge and skills to
should be 14 questions and handle financial issues
included in a 20 concepts. For in their future.
financial each statement a
literacy percentage was
curriculum at used.
Bozeman
High School.
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tha Assessm objectives of education and of 300 women
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t/ Women' were tofind demographic various
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and occupation and questions based
understandin educational on Likert scale
g from being level. was used. The
translated mean, variance,
into actual and standard
behavior. deviation were
What found for each
resources are question for the
needed to total group as a
provide basis for
women with comparison. A
financial graph was
information constructed to
and Whether show which
there is a criteria received
need for the greatest
more number of
resources reactions and
and training which received
programs on the least number
financial of reactions.
literacy for
women
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h Literacy investigation Financial working youth high financial
Ku among of a study on Behavior, in urban India. knowledge. Only about
mar Workin the influence Financial The target 19% of the respondents
Aga g Young of various Attitude, were sample size was understood the impact
rwa in Urban socio- the main 1,000, after of inflation on the rate
lla India demographic attributes on preliminary of return. Even on the
Sa factors on which data was analysis of the other dimensions of
mir different collected were data, the usable financial knowledge,
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uaJ literacy education, all dimensions compared to the
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y working family income, reduced to 754. the OECD. A majority
Jac young in financial The researchers of the respondents
ob urban decision adopted the engaged in desirable
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anth study also and budgeting by the OECD when dealing with
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Var the earlier. financial household finance.
ma/ relationship knowledge, Based on the financial
201 between the financial behavior score, about
3 dimensions behavior and 68% of the employed
of financial financial attitude were classified as
literacy. was separately possessing positive
analyzed using financial behaviour.
ordered Close to half of the
multinomial respondents exhibited a
logistic positive attitude
regression. towards financial
planning and did not
show a very high
propensity for
consumption. The
correlation between
financial knowledge
and financial behavior
was positive and highly
significant.
Carl Financia First, it High-cost The sample Results show that
o de l reports new borrowing, consists of 4,468 financial literacy is
Bas Literacy data on precautionary observations for negatively correlated
saS and financial savings, and which data were with use of high cost
cher Financia behavior planning for available for all borrowing methods
esb l among retirement variables, and while positively
erg/ Behavio young adults, were used as the same correlated with having
201 r among with a dependent specification precautionary savings
3 Young special focus variables.Cova was used for all and planning for
Adults: on short- riates include regressions. retirement. Women are
Evidenc term controls for Percentage less likely to have
e andborrowing gender, method has been precautionary savings
Implicatand short- income, used to identify than men, while
ions term and education, demographic African-Americans are
long-term marital status, variable more likely than whites
saving. employment differences. to use high-cost
Second, the status, borrowing methods.
paper ethnicity, age, Income and education
documents and number of are positively
subjective children. associated with
evaluations Geographical financial outcomes:
of financial differences are those with high income
knowledge accounted for and high education are
among by using much less likely to use
young dummies for high-cost methods of
American each US state.8 borrowing and are
adults, more likely to have a
showing the stock of precautionary
divergence savings and to plan for
between retirement.
subjective
and objective
evaluations
of financial
literacy and
their strong
association
with
financial
decision
making.
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ama l literacy demographic designed to financial literacy is
riaL Literacy among the characteristics document young low; less than one-third
usar among young was (e.g., gender adults’ transition of young adults possess
di, the examined and from school to basic knowledge of
Oli Young using the race/ethnicity) work and to interest rates, inflation
via most recent to see whether identify defining and risk diversification.
and wave of the these were characteristics of Financial literacy was
Cur 1997 related to that transition. strongly related to
to/ National financial The analysis socio demographic
201 Longitudinal literacy. The sample included characteristics and
0 Survey of variables 7,417 family financial
 Youth. (1) related to costs respondents. A sophistication.
How well- and multivariate Specifically, a college
equipped are opportunities analysis educated male whose
young were followed to parents had stocks and
people to considered for determine which retirement savings was
make learning, such of the variables about 45 percentage
financial as cognitive measured during points more likely to
decisions? ability, the respondents’ know about risk
(2) What are schooling and teenage years diversification than a
the exposure to determinants of female with less than a
determinants financial financial literacy high school education
of financial knowledge via later in life whose parents were not
literacy family and were. wealthy.
among peers and
young respondent
people? (3) educational
How can this attainment.
information
aid
policymakers
seeking to
devise
interventions
aimed at
young
consumers?
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my l reports on analysis was examines the that the determinants of
M., Literacy the potential done to find potential use of credit card are
Ta of use of Neural out the neural networks significantly dependent
wfi Youth. Network as a relationship to analyse the on a student’s year of
k, A sensitivity between data (n= 1010) study, credit card status
H., Sensitivi modeling education, on financial and daily routine,
Hua ty tool for the financial understanding of which has a strong
ng, Analysis determinants independence, youth at a major relevance to
R of the of financial work status, Australian respondents’
and Determi literacy. The financial stress, university. knowledge of credit
Nag nants financial age, gender Causal decision cards. (n=1070; 9.0070
ar, literacy and marital models, such as and 10.5898
A. modeling in status and mathematical respectively). This was
Κ./ this research financial programming the first attempt to
200 has been variables such models and understand financial
8 attempted to as Loans, simulations can literacy knowledge
measure the Credit cards provide through the
literacy of and information applications of neural
youth in the Superannuatio describing the networks. The results
 Australian n, Employment consequences of do indicate the logical
society with Length, Budget a change in a application of this
respect to Status, Hours proposed technique.
their for Work. parameter, and
financial certain
knowledge intelligent
of Credit systems can call
Cards, Loans on their internal
and symbolic
Superannuati structures to
on (Pensions explain the
scheme in chain of
Australia reasoning that
that allows led to a
for choice of particular
funds and conclusion.
investment
decisions by
the member).
Shir Inequali 1. To Saving The sample was The results of the
anth ties in identify the Behavior, selected from survey highlight a kind
aHe the levels of Investment and urban, rural and of functional financial
enk Financia financial payment estate strata literacy of the
ken l literacy in mechanisms, using multi- respondents in the
da/ Inclusio different Awareness on stage sampling sample areas. The
201 n in Sri communities Financial technique study shows that the
4 Lanka: in Sri Lanka. Products, Risk related to cluster financial literacy is
An 2. To Management, sampling. The quite diverse across the
Assessm investigate if Financial questionnaire settlement types
ent of there are Knowledge was somewhat (sector). The
the significant similar to that of characteristics that are
Functio inequalities a questionnaire most strongly
nal in financial developed by associated with levels
Financia literacy OECD for of financial literacy at
l between measuring domain level can also
Literacy different financial literacy be easily identified.
communities (OECD INFE, Generally, respondents
in Sri Lanka. 2011). In order acquired more scores
3. To to test on the financial
identify determinants knowledge domain
whether and disparity of while the worst
there is a financial literacy situation is displayed at
relationship of respondents, the function of risk
between factor analysis management domain.
financial method of the
literacy and principal
 the socio- components
economic- analysis, Tobit
demographic regression
characteristic analysis and
s of cluster analysis
individuals. were used.
Mrs A Study 1. To find Financial This is an Results of the analysis
. of out level of literacy making empirical study revealed that most of
Mal Financia financial personal based on survey the females in India do
tiCh l literacy. 2. finance method. The possess certain kind of
ijwa Literacy To find out decisions in techniques of financial knowledge,
ni among the most areas like real questionnaires, but they are still
and Workin popular and estate, discussion, financially illiterate.
Dr. g preferred insurance, interviews and Further analysis of
DY Women investment investing, observations paper indicates that in
Pati in Pune instruments. saving tax will be followed the Indian society,
lVi 3. There is a planning and to obtain the there are very few
dya belief among retirement. It required realistic examples
peet individuals also involves information. where women actually
h/ that they intimate Hypothesis participate in decision
201 have high knowledge of tesing through making process in the
4 financial financial mean percentage family. Still majority of
literacy and concepts like method. females are highly
are on the compound ignorant about different
right track of interest, investment
financial financial opportunities in the
planning – to planning, the market as majority of
check the mechanics of a them do not have a
same 4. To credit card, Demat account and
find out the advantageous who have they do not
level of savings trade frequently. They
professional methods, have said their most
help taken consumer preferred investment is
for financial rights, time systematic investment
planning and value of plan and have moderate
why? money, etc. risk appetite.
Ma A Study The Financial Primary data It is found out that all
ham on objective of Knowledge is was collected the respondents are
mad financial the study the step from having the opinion that
Riz literacy was to know towards administering there is a high need for
wan among the financial structured financial education in
, the awareness inclusion questionnaire to schools and colleges.
Ma college about selected This is because, the
ham students JnanaJyothi respondents. students are unaware
mad with Financial The respondents about any financial
Sad special Literacy were selected on products and services
hik, referenc Trust among convenient provided by Banks.
KS e to the college random Thus there is an need
Kis JnanaYo students, to sampling.The of financial education.
han thiFinan analyze their study was Majority of the
Ku cial financial madeon 30 respondents (43.33%)
mar Literacy literacy level Respondents. were not aware about
/ Trust and to Mean the JnanaJyothi
201 analyse the percentage financial literacy trust.
5 changes in method have This is because there
the savings been used to no aggressive
habit of the analyze the data. promotion of the trust
students in the public.It is found
before and out from the study that
after the there is positive change
financial in saving as well as
literacy deposit of the saving in
programme the bank of the
by the respondents. Majority
JnanaJyothi of the respondents are
Trust. satisfied with the
overall performance of
the trust.
Wel Financia 1. To Financial The study The study recommends
ling l establish literacy is employed an attention to be made to
ton Literacy various ways linked to the Electronic the identified methods
G. Improve that can be understanding Survey approach of raising financial
Bon ment adopted to of the financial to collect data literacy levels among
ga& among improve intermediation using the women, paying
Nel Women financial process. The Monkey Survey particular attention to
son in literacy financial site. Using the the best ranked
Mla Develop among intermediation Relative methods. The study
mb ing women in process is Importance found that all the
o/ Nations: developing based on a real Index (RII), the identified methods
201 A Case nations. 2. concept study seeks to were of greater
6 for To determine observed; in determine those importance to be
Zimbab the relative any economy, ways with implemented, since the
we importance at any given greater impact minimum RII was
(intensity) of time, there when found to be 0.7184
each exist deficit implemented. which is more close to
suggested units and Identified ways 1 (the maximum
method in surplus units of include micro- possible). There was no
relation to funds. interventions, much variability of the
other market RII of each method as
methods. 3. incentives and shown by the standard
To rank the macro- deviation and range.
suggested interventions. The study applied the
 methods of Box and Whisker plot
raising approach to identify
financial outliers in the data
literacy collected, and no
among outliers were detected,
women. 4. implying a favourable
To suggest distribution of data.
on policies
that can be
adopted to
raise
financial
literacy.
TH An 1. To In this study, The study The results show that
OM Analysis examine the the approach employs the participants
AS of knowledge was employed questionnaire answered about
TIB Personal of to establish designed to 40.71% of the
OH/ Financia Polytechnic how variables cover major questions correctly.
201 l students in such as age, aspects of None of the mean
6 Literacy money qualification, personal finance scores for financial
Among management. work management, literacy categories were
Polytech 2. To experience and investment and above 60%. The results
nic examine gender impact insurance. The also reveal that many
Students students‟ on Polytechnic responses from of the students are
-A Case understandin students‟ each participant familiar with issues
of g of savings, financial were used to relating to simple
Kumasi borrowing, literacy. calculate the interest calculations
Polytech insurance mean percentage and loan guarantee. In
nics and of correct scores contrast, the students
investment. for each are less knowledgeable
3. To question, and inexperienced with
examine section, and the issues concerning
factors that entire survey. personal financial
hinder the This study planning and
students provides budgeting, mutual
access to evidence of funds and risk return
acquire differences in associated with
financial the literacy level investment decisions.
literacy of subgroups in This led to the
information the school using conclusion that the
outside the analysis of students are not well-
classroom. variance informed about
(ANOVA). The personal financial
differences are literacy issues.
further analyzed
using logistic
 regression
models.
Bon The The main financial The sample used The analysis
gini challeng objective behavior, for the survey highlighted the crucial
, e of was to financial consisted of role that data analysis
Ian assessin evaluate attitude and 1247 Italian methods play in
nell g financial Financial residents of at assessing financial
o, financial literacy Knowledge least 18 years of literacy. Comparing the
Rin literacy: among the age who were results for classical test
aldi, alternati Italian adult reached via theory and IRT, this
Zen ve data population. It CATI. The paper suggests that
ga& analysis reviews data sample was financial literacy
Ant methods analysis obtained by research should be
onie within approaches appropriate open to alternative and
tti / the used to stratification multiple approaches to
201 Italian evaluate across several obtain reliable
8 context financial dimensions measures of financial
literacy and (gender, age, literacy that are able to
proposes a geographical capture the educational
new method area, and needs of different
to gauge this municipality population groups and
latent size). We can help to design
construct in propose effective financial
order to alternative data education programs.
obtain a analysis
valid and methods to treat
reliable the survey data:
index that is item response
able to theory (IRT) and
capture classification
educational and regression
needs in a tree analysis.
manner that
is as accurate
and targeted
as possible.

Conclusion:

Financial Literacy integrates the gap between developed countries and developing
countries. The main objective of this review paper has been to recognize and compile
the list of factors affecting the awareness level of individuals. The decision of
financial literacy has been influenced by various external and internal factors. Factors
like financial knowledge, financial attitude, Financial Skills, Financial risk tolerance,
financial awareness, financial behavior are important contributors to financial literacy
level. The above factors can be used for survey purpose to identify the level of
financial literacy among women, rural individual, students and retired persons.

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