"Analyzing the Impact of Financial Literacy

on Investment Behavior: A Descriptive

Study of ABM Students' Choices in ACLC
College of Ormoc"

Group 3:

Armentano, Abigael
Laude, Natalie Nhez
Miral, Mariel
Rafael, Rnyle
Seranias, Danica Rose
Chapter 1: Introduction

Financial literacy is a fundamental skill crucial for navigating the complex landscape
of personal finance. For individuals, particularly students pursuing ABM courses, the
ability to make informed financial decisions can significantly impact their present and
future financial well-being. This study delves into the realm of financial literacy and its
influence on investment behavior, specifically among ABM students at ACLC College of
Ormoc.
The importance of financial literacy cannot be overstated, given the constant tradeoffs
individuals face in managing competing financial interests. Robb and Woodyard (2011)
highlight that sufficient financial literacy positively influences financial behavior, enabling
individuals to allocate resources appropriately. However, the current consumerism
attitude often discourages a culture of saving and investing.
In the context of ABM students, the misconception persists that financial investment
planning is reserved for individuals with high incomes. Pritazahara (2015) emphasizes
the significance of investment as a sacrifice in the present with the aim of reaping
greater benefits in the future. Yet, despite the potential rewards, a substantial gap in
financial literacy exists among students.
The World Bank's survey reveals that Indonesia's financial literacy rate is merely 20%,
underscoring the need for interventions to enhance financial knowledge and skills. ABM
students, as emerging professionals, not only face the increasing complexity of financial
products but are also more likely to encounter financial risks in the future (Lusardi and
Mitchell, 2007). Initial observations at ACLC College of Ormoc indicate a prevalence of
low financial literacy and suboptimal financial behaviors among students.
The primary problem addressed in this research is the observed low financial literacy
and suboptimal financial behavior among ABM students at ACLC College of Ormoc.
Initial observations suggest challenges in managing personal lifestyles, patterns, and
financial resources, leading to irrational spending habits and difficulty in navigating
complex financial options.
This research aims to assess the financial literacy of ABM students at ACLC College of
Ormoc and analyze its impact on investment behavior. Specific objectives include
examining the interrelationship between financial literacy and financial behavior,
investigating the potential influence of demographic factors on financial literacy, and
exploring the impact of financial literacy on holding stocks.
The findings of this study hold significance for both educational institutions and
policymakers. Understanding the financial literacy and investment behavior of ABM
students can inform the development of targeted interventions to enhance financial
education programs. Furthermore, insights from this research can contribute to shaping
the financial decision-making skills of future business leaders.

Chapter 2: Literature Review

Financial literacy is widely recognized as a cornerstone for individuals seeking to

navigate the complexities of personal finance and investment. Robb and Woodyard
(2011) assert that sufficient financial literacy significantly influences financial behavior,
allowing individuals to allocate finances judiciously. However, contemporary
consumerism has cultivated a culture of limited savings and investment, as people
grapple with tradeoffs between immediate gratification and long-term financial security
(Pritazahara, 2015).
The importance of financial management is often overlooked, with misconceptions
prevailing that only high-income individuals engage in personal financial investment
planning. This misconception is debunked by Pritazahara (2015), who notes that even
high-income individuals may lack investment planning on their personal finances. Thus,
financial literacy emerges as a crucial tool for all individuals, regardless of income, to
navigate the multifaceted landscape of personal finance.
Investment, identified as the most beneficial allocation of funds for future prosperity
(Masassya, 2006), demands careful planning and financial literacy. Haming and
Basalamah (2010) characterize investment as a contemporary sacrifice with the aim of
reaping greater benefits in the future. The decision to invest hinges on various factors,
including capital or funds, which can be sourced from loans or personal funds (Nababan
& Sadalia, 2013).
However, a World Bank survey reveals a concerning disparity in financial literacy rates,
with Indonesia lagging at 20%, highlighting the urgency of financial literacy programs to
bolster economic growth. This is particularly crucial for students, who not only confront
the increasing complexity of financial products but also face future financial risks
(Lusardi and Mitchell, 2007).
Financial behavior theory, grounded in the application of psychology to financial
science, underscores the pivotal role of psychological factors in investment decisions
(Christanti and Mahastanti, 2011). Individuals, when making investment decisions, are
influenced by expected utility theory, aiming to achieve maximum results (Tversky and
Kahneman, 1981). However, decision-makers are not always rational, as criticized by
Kahneman and Tversky (1979), leading to the development of prospect theory, which
acknowledges the role of psychological factors in decision-making.
Behavioral finance delves into the psychological aspects influencing investment
decisions, recognizing that human behavior in financial decisions is shaped by
emotional and psychological factors (Nofsinger, 2001). Welly's (2016) study and Ni
Made Dwiyana Rasuma Putri et al.'s (2017) research further underline the impact of
financial literacy on investment decisions among diverse groups, including students,
employees, and lecturers.
Globally, the need for financial literacy is evident, with studies such as Rejichi and
Aloui's (2012) highlighting inefficiencies in stock markets. The Organization for
Economic Cooperation and Development (OECD) emphasizes the low financial literacy
levels among consumers across member countries, with Shena et al. (2016) connecting
low financial literacy to increased financial disputes.
As financial markets evolve, Kenourgios and Samitas (2011) confirm the herding
behavior during the 2008 stock market crash, emphasizing the intricate dynamics of
financial systems. Developed countries have recognized the need for regular financial
literacy programs, and Tunisia has initiated the "Investia Academy" to enhance financial
awareness and literacy nationally.
This literature review establishes the critical role of financial literacy in shaping
investment behavior. The evolving landscape of global financial markets underscores
the urgency of equipping individuals, particularly students, with the necessary financial
knowledge to make informed and forward-thinking investment choices.