Finance Research Letters 52 (2023) 103582

Contents lists available at ScienceDirect

Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Examining the relationship between financial literacy and

demographic factors and the overconfidence of Saudi investors
Yasmeen Ansari *, Mansour Saleh Albarrak , Noorjahan Sherfudeen , Arfia Aman
Department of Finance, College of Administrative and Financial Sciences, Saudi Electronic University, Riyadh 13316, Saudi Arabia

A R T I C L E I N F O A B S T R A C T

JEL codes: The study explores the effects of demographic factors on basic and advanced financial literacy and
G51 financial knowledge perception. Complete data from 468 investors were collected via conve­
G53 nience sampling and analyzed with various technologies. Saudi investors did better on basic than
G11
advanced financial literacy questions. The regression result reveals that most demographic factors
G18
G41
affect basic and advanced financial literacy. Only income level and occupation affect over­
confidence in financial expertise. The current study is unique to the Saudi context and gives policy
Keywords:
implications to increase financial knowledge among Saudi Arabians to promote better financial
Financial literacy
Financial knowledge well-being and avert future financial distress.
Overconfidence
Saudi Arabia
Demographic factors

1. Introduction

The OECD defines financial literacy as "knowledge and understanding of financial concepts and risks, and the skills, motivation and
confidence to apply such knowledge and understanding to make effective decisions across a range of financial contexts." Among the
most significant financial concerns in recent years has been the idea of financial literacy. Due to the fast advancement of financial
services and several economic meltdowns experienced globally, there has been an ongoing growth in the degree of financial knowledge
among people of all ages (Hastings et al., 2013; Lusardi and Mitchell, 2011). This implies that individuals must be knowledgeable
about financial planning principles and proficient at using them in normal behavior (Boora and Agarwal, 2018). People’s financial
literacy depends on various factors, including their ability to save, invest, plan their finances, manage their money, and devise a
budget. Therefore, people must possess the necessary skills, understanding, and opinions about financial matters to endure everyday
financial challenges (Kramer, 2016). Financial literacy facilitates sound financial decision-making, fast-paced economic development,
and improved personal financial health (Potrich et al., 2018). It also increases the rate of securities market participation (van Rooij
et al., 2011a). Moreover, it significantly influences the diverse dimensions of financial behavior. It shares a positive relationship with
the capability to manage personal finances. Similarly, it is usually difficult to accumulate an adequate fund for retirement for people
lacking financial literacy (Van Rooij et al., 2011a). Lack of personal finance knowledge reduces the ability to have an adequate
emergency fund and makes it difficult to sustain financial hardships imposed by unpredictable factors (Allgood and Walstad, 2016). In
a fast developing financial world where the complexity of financial products is gradually increasing, financial literacy for all is a major

* Corresponding author.
E-mail address: y.ansari@seu.edu.sa (Y. Ansari).

https://doi.org/10.1016/j.frl.2022.103582
Received 10 October 2022; Received in revised form 25 November 2022; Accepted 8 December 2022
Available online 9 December 2022
1544-6123/© 2022 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Y. Ansari et al. Finance Research Letters 52 (2023) 103582

concern. There is increasing interest among researchers, academicians, and policymakers in identifying the determinants of financial
literacy and ways to improve financial literacy among people of diverse age groups (Allgood and Walstad, 2016). Numerous studies
have examined the impact of demographic factors on financial literacy in several countries. The effect of education, gender, and in­
come on basic and advanced financial literacy has usually been significant (Cude et al., 2019; Karakurum-Ozdemir et al., 2019;
Mahdzan et al., 2017). However, some inconsistent findings have surfaced in several cross-cultural studies concerning such de­
mographic factors.
Strategies for finances and investments are becoming a major concern for individuals, particularly in the Kingdom of Saudi Arabia
(KSA). Since oil supplies account for about 95% of the nation’s overall income, oil prices hugely impact the economy’s health
(Alshahrani and Alsadiq, 2014). However, after the substantial oil price plunge in the middle of 2015, the country’s economic situ­
ation worsened greatly, forcing the administration to cut spending through successive extraordinary decisions, such as downsizing the
public sector and cutting down on employees’ emoluments. The recently implemented government fiscal measures intended to address
dwindling government revenue have financially disadvantaged some people. These new fiscal measures have made it difficult for
consumers to maintain spending following their changing earning capacity. The historic low price of crude oil resulting from lower
energy consumption due to COVID-19 had a devastating impact on the country’s budgetary condition. Additionally, handling private
consumption has grown increasingly difficult. Individuals may face financial troubles when they cannot fulfill their long-term debt
repayment obligations. A financially informed person may handle the issue more effectively than an ignorant person in an economic
meltdown. According to Alnefaee (2019), most of the economic choices made by individuals are typically substandard in MENA re­
gions, including Saudi Arabia, which has a great influence in the region. Making wise financial choices will be essential to Saudi
Arabia’s economic expansion. Therefore, if the Saudi government wants to adequately diversify its economy, it needs to focus on
financial education and entrepreneurship culture (Saber, 2020). Additionally, a wide spectrum of people now have easy access to
broad financial choices, making decision-making difficult (Lusardi and Mitchell, 2011).The Saudi government has undertaken several
remarkable initiatives to strengthen the country’s educational sector, including boosting the level of financial understanding. Despite
these initiatives, Saudi Arabia’s total literacy rate is lower than predicted compared to other wealthy nations (Mahmood and Alka­
htani, 2018).
In the current study, we have examined the level of financial literacy of Saudi Arabian investors. Additionally, we investigate the
relationship of demographic factors with basic financial literacy, advanced financial literacy, and overconfidence in the financial
knowledge of Saudi Arabian investors. Based on the study’s outcomes, we provide some insightful recommendations to improve the
financial literacy of Saudi Arabian investors. The paper is organised in the following sequence: The introduction section is followed by
a literature review, where past studies have been discussed and research gaps concerning financial literacy, especially in the Saudi
Arabian context, have been pointed out. The literature review section also discusses hypotheses formulated in the study. The next
section discusses the research methodology used in the study for data collection and analysis. It is then followed by the result section,
which describes the outcome of the analysis. Afterwards, the study’s findings are discussed in the next section, and crucial suggestions
for improvement in financial literacy are provided. Finally, the paper concludes by briefly summarizing the comprehensive research
process and output.

2. Review of literature

2.1. Objective & subjective financial literacy

The majority of the previous literature has used objective financial knowledge to measure financial literacy. It uses a set of
fundamental questions related to financial management. It is believed to measure people’s actual understanding of financial concepts.
At the same time, some studies have also used subjective financial knowledge, measured using a self-rated evaluation of one’s financial
understanding. Though both measures of financial knowledge are responsible for an individual’s financial behavior, subjective
financial awareness could best predict only the psychological factors of financial decisions (Hastings et al., 2013).
Consequently, a majority of the previous studies on financial literacy have largely relied on objective measures of financial literacy
(Ansari et al., 2022). It is believed that a high level of objective financial knowledge manifests itself in better financial decisions,
including an adequate emergency fund, proper retirement provisions, and regular cash flows. It also results in limited debt obligations,
lower borrowing costs, optimal portfolio diversification, and proper budgeting. On the contrary, a lack of financial literacy leads to
high borrowing costs, increased debt obligations, and an inadequate safety net (Kaiser et al., 2022; Lusardi, 2005; Lusardi et al., 2017;
Lusardi and Mitchell, 2011, 2017; van Rooij et al., 2011a). Although objective financial literacy has caught the attention of a large
body of literature, undermining the relevance of subjective financial awareness would not be considered wise, given the increased
research on behavioural biases. Recently, a growing number of studies have elicited investor characteristics using surveys about
perceived financial awareness (Cude et al., 2019; Karakurum-Ozdemir et al., 2019; Mahdzan et al., 2017). A combination of objective
and subjective financial knowledge is considered the most appropriate measure, as the former reflects the actual financial knowledge,
whereas the latter shows the willingness to apply the knowledge. Willingness to apply rather than just acquisition of knowledge might
also lead to better financial behavior (Karakurum-Ozdemir et al., 2019). Self-control or different types of bias also influence the
financial behavior that usually stems from objective financial knowledge (Carlin and Robinson, 2012).

2.2. Measurement of financial literacy

Usually, basic financial literacy has been measured by five fundamental questions developed by Lusardi and Mitchell (2007) in

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previous studies. The basic financial literacy questions cater to numeracy, compound interest, inflation, money’s time value, and
money illusion. Studies using these five questions have been conducted worldwide to assess the understanding of basic financial
concepts. Similarly, the OECD developed another method to measure basic financial literacy. They measured financial literacy using 7
measures, catering compound interest, inflation, and investment risk. To measure advanced financial literacy, Lusardi and Mitchell
(2007) developed a set of 11 questions mainly focusing on investment knowledge. Some researchers have also used it to examine the
level of advanced financial knowledge across different populations.
Regarding the level of financial literacy, a similar pattern has been observed worldwide as people have fared poorly on financial
literacy questions (Potrich et al., 2015). Studies have also looked into overconfidence in financial knowledge or inflated self-rated
financial awareness and concluded that it significantly affects one’s financial behavior (Boora and Agarwal, 2018; Hastings et al.,
2013). Lack of financial literacy leads to substandard financial behavior, which could have a disastrous impact in the face of adverse
events. The subprime crisis of 2008 and COVID-19, which led to a health and economic crisis, are some of the events that exposed such
poor financial choices due to a lack of financial literacy. The following points present a summary of results from various studies about
basic and advanced financial literacy, as summarised by Lusardi and Mitchell (2014) :

• Lack of financial literacy is a common feature worldwide, regardless of population. Not more than fifty percent can correctly
answer at least 3 basic financial knowledge questions.
• Financial knowledge varies by country, as only 35% of Swedish respondents correctly answered the numeracy question, whereas
86% of respondents from New Zealand correctly marked it. Similarly, the question about inflation was correctly answered by 80%
of respondents from New Zealand, while only 21% of French respondents could answer it correctly.
• Research conducted in other parts of the world, such as Bangkok, the United Arab Emirates, Malaysia, and Brunei has typically
shown responses similar to those in the United States and Europe. When asked about inflation, 92% of the Korean respondents gave
accurate answers, which was higher than knowledge rates in the US and Europe.
• Indian and Mexican respondents fared poorly on numeracy questions compared to US and Europe, as only around 30% could
answer them correctly.
• Dutch respondents scored 3.94 on 5 basic financial literacy questions and 5.93 on 11 advanced financial literacy questions. On
average, they did not know the answer to 2.65 questions. On self-rated financial knowledge, 85% of respondents scored 3 or higher
on a 7-pointer scale.

2.3. Understanding Saudi Arabia

Saudi Arabia is one of the most rapidly developing MENA economies. Oil is the main source of the country’s revenue, making KSA
the biggest oil supplier internationally. As per a 2019 report by the General Authority for Statistics in Saudi Arabia (GAFSISA), the
estimated population of Saudi Arabia was 34.81 million, 59% male and 41% female. The workforce in the age group of 15–65 years
constitutes about 40% of the total population, of which around 69% are males, and the remaining 31% are females. For the native
Saudis, the average income was SAR 9970, while for the outsiders, it was SAR 4136. Over 68% were married, 24% were unmarried, 5%
were divorced, and around 2% were widowed, constituting the population of people over 20 years old. In a different survey, GAFSISA
found that around 5% workforce qualified below or at par the elementary level. Besides, 32% had completed schooling, and 52% were
graduates. The workforce with post-graduate qualifications was 4.5%, and 3% had PhD qualifications. Data were not available for
around 3.5% workforce. 12% of the workforce were employed in the public departments, 61% were private sector employees, and the
remaining 27% were self-employed or domestic workers.
The current study finds relevance regarding MENA countries, particularly Saudi Arabia, for several reasons. First, given that
economic downturns deeply impact many people, personal finance and family wealth are essential research subjects. For instance, the
Saudi economic system was severely impacted by the decline in global crude prices in the middle of 2015, and consequently, the Saudi
Arabian government slashed its expenditures, including employee remunerations as well. Additionally, a revised tax structure was
implemented in 2018, combined with a two-fold increase in the price of necessities such as petrol, water, electricity, etc. Their reduced
earnings and increasing daily costs compelled Saudi Arabians to alter their spending patterns. Second, under Saudi Vision 2030, which
intends to minimize Saudi Arabia’s reliance on oil as its primary source of revenue, the Saudi Ministry announced its goal in 2013 to
improve the country’s financial status. The key objectives of Vision 2030 focused on less reliance on oil exports and new investment
prospects through a distinguished educational system that meets society’s demands today and supports the private sector. It also
intends to eliminate current barriers, promote the growth of new companies, and foster more entrepreneurship.
Additionally, a financial sector development program has also been initiated under the ambit of Saudi Vision 2030. It aims to
promote the private sector’s growth, develop an advanced capital market, and enable sound financial planning. Through the Institute
of Finance, later renamed the Financial Academy in 2019, a comprehensive financial literacy course has been developed that covers
broad banking, insurance, and capital markets, along with several cross-sector disciplines. It is intended to equip the kingdom’s cit­
izens to pursue the Saudiisation of the workforce in crucial financial sectors. Besides, several financial literacy programmes in
collaboration with financial sector firms are organised frequently to promote financial awareness among Saudis. Successful cooper­
ation between the administration and financially educated individuals who possess the abilities necessary to generate wealth can
accomplish such aspirational aims. This report sheds information on one of the most critical concerns, i.e., financial literacy, and
presents helpful suggestions to various stakeholders and officials in Saudi Arabia and the MENA region.

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2.4. Demographic factors and financial literacy

A significant relationship between some demographic factors and financial literacy has been found in previous studies. As per the
studies by Cude et al. (2019), Karakurum-Ozdemir et al. (2019), Mahdzan et al. (2017), education has been found to have a significant
relationship with financial literacy. Age generally shows a U-shaped relation with financial literacy, wherein younger and older people
showed relatively better financial literacy than mid-age people. The effect of income on financial literacy has also been found sig­
nificant in countries like Mexico, Lebanon, Uruguay, Columbia, and Malaysia. However, income is not significant in Turkey. Similarly,
the effect of gender has been found to be significant in countries other than Mexico. Higher financial literacy is associated with higher
educational attainment, higher income level, male respondents, and people with stable jobs (Lusardi and Mitchell, 2014).

2.5. Demographic factors and overconfidence

Holding a mistaken opinion of one’s abilities and capabilities is the conventional understanding of overconfidence in behavioural
finance. According to Daniel and Hirshleifer (2015), it is a crucial component of behavioural finance theories and explains the
disagreement among investors, frequent trading, and ignorance of crucial information despite possessing the same information.
Overconfidence also leads to a less diversified portfolio and risky decisions (Merkle, 2017). Someone unaware of their lack of
knowledge may make worse judgments than someone conscious of their incapacity and may look for more data before making an
investment decision. When a person believes or perceives that he or she has superior financial knowledge to what they actually know,
the likelihood of engaging in high-risk financial decisions and financial traps increases. Also termed a ’blind spot,’ overconfidence is
usually measured by comparing the self-rated financial knowledge with the actual or objective financial knowledge. In the majority of
the studies, at least a fraction of the sample showed overconfidence in their financial knowledge. The effect of various demographic
factors such as gender, educational qualification, income level, etc. on overconfidence in financial knowledge has been the subject of
several previous studies (Barber and Odean, 2001; Cude et al., 2019; Daniel and Hirshleifer, 2015). Some of the studies concluded that
males are likely to have more overconfidence in their financial knowledge than females (Barber and Odean, 2001). In this study, we
also emphasize the exaggerated impressions or discrepancy between subjective and actual financial knowledge. Moreover, we
investigate the effect of some important demographic factors on overconfidence in financial knowledge.
The above discussion leads to the development of the following hypotheses:
H01: Gender has a significant influence on financial literacy.
H02: Age has a significant influence on financial literacy.
H03: Marital status has a significant influence on financial literacy.
H04: Education has a significant influence on financial literacy.
H05: Occupation has a significant influence on financial literacy.
H06: Income has a significant influence on financial literacy.
H07: Gender has a significant influence on overconfidence in financial knowledge.
H08: Age has a significant influence on overconfidence in financial knowledge.
H09: Marital status has a significant influence on overconfidence in financial knowledge.
H10: Education has a significant influence on overconfidence in financial knowledge.
H11: Occupation has a significant influence on overconfidence in financial knowledge.
H12: Income has a significant influence on overconfidence in financial knowledge.

3. Methodology

3.1. Data collection process

3.1.1. Dependent and independent variables

Basic financial literacy, advanced financial literacy, and overconfidence were the key dependent variables in the current study.
Basic financial literacy was measured using five items outlined by Lusardi and Mitchelli (2007), whereas advanced financial literacy
was measured through 11 items (van Rooij et al., 2011a) plus an additional question to suit the Saudi Arabian investment landscape. A
score of basic financial knowledge ranged from 0 to 5, whereas a score of advanced financial knowledge ranged from 0 to 12. Investors’
perceived subjective financial knowledge was measured using a self-rated question, which was later compared with actual financial
knowledge to evaluate investors’ overconfidence in their financial knowledge. Those with perceived high subjective financial
knowledge but actual low objective financial knowledge were labelled as overconfident. Out of the total of 549 responses received, 468
were used for analysis after removing the cases of refusal. 114 respondents were found to have overconfidence in their financial
knowledge after a comparison of subjective and objective financial knowledge. The relationship between demographic factors and
basic and advanced financial knowledge was checked using separate linear regression models. The regression model estimated for this
purpose is:
[Yi = β0 + β1 Gender + β2 Age + β3 Marital status + β4 Education + β5 Current employment status + β6 Occupation + β7 Income + εi ] (1)
Where, Y1 = Basic financial knowledge, Y2 = advanced financial knowledge and εi = Error term.
Since overconfidence as a dependent variable was binary coded, i.e., overconfidence = 1 and 0, otherwise, its relationship with

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demographic factors was checked using logistic regression, as estimated below, and the odd ratio was also calculated for the proba­
bility of overconfidence:

[Logit(Poc ) = β0 + β1 Gender + β2 Age + β3 Marital status + β4 Education + β5 Current employment status + β6 Occupation + β7 Income
+ εi ]
(2)
Where Poc is the probability of overconfidence.

4. Results

The respondents performed better on basic financial knowledge questions than on advanced financial knowledge parameters. The
average score for basic financial knowledge was 2.643 out of 5, or 52.86%. Contrary to that, respondents scored 5.267 out of 12
(43.89%) on the advance financial knowledge questions. Respondents scored 46.53% on basic and advanced financial knowledge
questions combined.
Panel-A of Table 1 indicates that respondents performed the best (70.09%) on Numeracy Q1, followed by Money Illusion Q5
(56.84%), Compound Interest Q2 (54.70%), Inflation Q3 (44.23%), and Time Value of Money Q4 (38.46%). It can be inferred that less
than half of the respondents had a basic knowledge of inflation and the time value of money. Around 1/3 of the respondents were more
likely to mark an incorrect answer than mark "do not know." Panel-B of Table 1 shows that 13.25% of respondents marked correct
answers for all the basic financial questions, whereas more than 50% answered three or more questions correctly. 6.62% of re­
spondents marked the wrong answer for all 5 questions. 19.66% of respondents did not mark any wrong answer, whereas about 80% of
the respondents answered 1 question incorrectly. More than 22% of the respondents have selected "do not know" for 1 out of 5
questions. None of the respondents incorrectly answered two or more basic financial knowledge questions.
In Panel-A of Table 2, we have incorporated the response summary of the advance financial knowledge questions. The table in­
dicates that the sample investors’ understanding of stocks (Q7) is the best, with more than 65% correct responses. Besides, more than
half of the respondents correctly answered Q6 (51.50%), Q12 (55.98%), Q14 (58.12%), and Q17 (58.33%), whereas Q15 was felt to be
difficult by the majority of the respondents, on which only 17.74% could answer correctly. Similarly, 1/4th of the respondents
incorrectly answered Q6, Q8, Q9, Q10, Q11, Q12, Q15, and Q16. Subsequently, more than 25% of the respondents did not know the
answer to questions Q8, Q11, Q13, Q14, Q15, Q16, and Q17. Panel-B of Table 2 indicates the summary of responses for the advanced
financial knowledge section 5.77% of respondents marked the wrong answer for all the advance financial knowledge questions,
whereas only 0.21% answered correctly. Less than 50% of respondents could correctly answer more than 5 out of 12 advanced
financial knowledge questions, whereas only 8% could answer 10 or more. Less than 25% of respondents incorrectly answered five or
more questions, whereas around 20% of respondents marked that they did not know the answer to more than five advanced financial
knowledge questions (Tables 3–5)
We initially performed regression analysis on the model with basic financial knowledge as the dependent variable. The VIF value of
the model ranged between 1.063 and 3.497, implying the absence of a multi-collinearity problem. The R-square of the model stood at
0.093. We further performed the regression analysis with advanced financial knowledge as the dependent variable. The VIF value of
the model ranged between 1.063 and 3.497, implying the absence of a multi-collinearity problem. The R-square of the model stood at
0.085. Prior to analysing the results of the regression model, observations were made on the nature of residuals. Residuals were
observed to be approximately normal for both dependent variables, and the same is reflected through the normal P-P plot.

Table 1
Basic financial knowledge.
Basic financial knowledge among Saudi Arabian investors

Panel A Q1 Q2 Q3 Q4 Q5
Correct 70.09% 54.70% 44.23% 38.46% 56.84%
Incorrect 18.16% 34.83% 32.26% 44.02% 30.13%
Do not know 11.75% 10.47% 23.50% 17.52% 13.03%
Summary of Responses
Panel B None 1 2 3 4 5
Correct 6.62% 16.24% 25.64% 22.44% 15.81% 13.25%
Incorrect 19.66% 80.34% 0.00% 0.00% 0.00% 0.00%
Do not know 63.46% 22.65% 7.26% 3.42% 0.43% 2.78%

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Table 2
Advance financial knowledge.
Advanced financial knowledge among Saudi Arabian investors

Panel A Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17

Correct 51.50% 65.38% 46.15% 37.82% 30.13% 41.45% 55.98% 35.26% 58.12% 17.74% 28.85% 58.33%
Incorrect 34.19% 18.38% 25.64% 38.03% 46.15% 30.34% 26.92% 23.50% 14.96% 41.03% 45.51% 6.20%
6

Do not know 14.32% 16.24% 28.21% 24.15% 23.72% 28.21% 17.09% 41.24% 26.92% 41.24% 25.64% 35.47%
Summary of Responses
Panel B None 1 2 3 4 5 6 7 8 9 10 11 12
Correct 5.77% 3.85% 7.05% 10.04% 12.18% 15.17% 13.25% 11.11% 7.91% 5.34% 6.41% 1.71% 0.21%
Incorrect 0.85% 13.89% 15.81% 17.31% 15.81% 12.61% 10.26% 9.19% 3.42% 0.64% 0.21% 0.00% 0.00%
Do not know 29.49% 17.09% 11.97% 11.54% 4.49% 5.34% 4.06% 3.42% 3.21% 1.92% 1.71% 1.50% 4.27%

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Table 3
Linear model- basic financial knowledge.
Dependent Variable-Basic Financial Knowledge
Beta Std. Error Sig. VIF

Gender (Ref¼Male) 0.457 0.160 0.004 1.183

Age (Ref¼ 24 years or less)
25–34 years 0.448 0.193 0.021 2.198
35–44 years 0.362 0.263 0.170 2.418
45–54 years 0.313 0.364 0.389 1.479
54 years and above 1.496 0.630 0.018 1.201
Marital Status (Ref¼Single)
Married 0.154 0.152 0.313 1.374
Divorced − 0.384 0.344 0.265 1.103
Education (Ref¼ High school or less)
Undergraduate 0.262 0.236 0.269 3.280
Graduate 0.025 0.247 0.919 3.497
Doctorate − 0.148 0.362 0.682 1.999
Current Status (Ref¼ Student)
Employee − 0.169 0.179 0.347 1.923
Faculty − 0.097 0.285 0.734 1.558
Others 0.245 0.334 0.464 1.297
Occupation (Ref¼ Public Sector)
Private Sector 0.284 0.147 0.053 1.283
Student 0.334 0.549 0.543 1.063
Others 0.632 0.255 0.013 1.374
Monthly Income (Ref¼ SR5,000- SR15,000)
SR15,001- SR25,000 − 0.061 0.199 0.758 1.180
SR25,001- SR35,000 0.352 0.286 0.219 1.279
SR35,001 and above 0.572 0.305 0.062 1.211
Intercept 1.838 0.258 0.000
R Square 0.093
N 468

Table 4
Linear model- advance financial knowledge.
Dependent Variable-Advanced Financial Knowledge
Beta Std. Error Sig. VIF

Gender (Ref¼Male) 0.718 0.308 0.020 1.183

Age (Ref¼ 24 years or less)
25–34 years − 0.102 0.372 0.783 2.198
35–44 years − 0.209 0.508 0.680 2.418
45–54 years 0.101 0.701 0.886 1.479
54 years and above − 0.356 1.214 0.769 1.201
Marital Status (Ref¼Single)
Married 0.399 0.294 0.176 1.374
Divorced − 0.344 0.663 0.605 1.103
Education (Ref¼ High school or less)
Undergraduate 0.764 0.456 0.094 3.280
Graduate 0.508 0.476 0.286 3.497
Doctorate 0.085 0.698 0.903 1.999
Current Status (Ref¼ Student)
Employee − 0.024 0.346 0.944 1.923
Faculty 0.390 0.550 0.478 1.558
Others 1.194 0.644 0.064 1.297
Occupation (Ref¼ Public Sector)
Private Sector 0.510 0.283 0.072 1.283
Student 2.333 1.059 0.028 1.063
Others 0.926 0.491 0.060 1.374
Monthly Income (Ref¼ SR5,000- SR15,000)
SR15,001- SR25,000 0.011 0.384 0.978 1.180
SR25,001- SR35,000 1.055 0.551 0.056 1.279
SR35,001 and above 1.551 0.588 0.009 1.211
Intercept 3.851 0.498 0.000
R Square 0.085
N 468

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Table 5
Logit model- overconfidence.
Dependent Variable-Overconfidence
Beta Std. Error Sig. Odd Ratio

Gender (Ref¼Male) − 0.284 0.279 0.308 0.753

Age (Ref¼ 24 years or less)
25–34 years − 0.278 0.323 0.388 0.757
35–44 years − 0.338 0.454 0.456 0.713
45–54 years − 0.047 0.636 0.941 0.954
54 years and above 0.089 1.225 0.942 1.093
Marital Status (Ref¼Single)
Married − 0.192 0.260 0.461 0.825
Divorced − 1.157 0.780 0.138 0.315
Education (Ref¼ High school or less)
Undergraduate 0.204 0.443 0.645 1.226
Graduate 0.306 0.423 0.470 1.358
Doctorate 0.287 0.667 0.667 1.332
Current Status (Ref¼ Student)
Employee 0.468 0.301 0.120 1.597
Faculty 0.223 0.501 0.656 1.250
Others − 0.768 0.790 0.331 0.464
Occupation (Ref¼ Public Sector)
Private Sector − 0.217 0.243 0.373 0.805
Student − 0.969 1.113 0.384 0.379
Others − 1.015 0.531 0.056 0.362
Monthly Income (Ref¼ SR5,000- SR15,000)
SR15,001- SR25,000 − 0.465 0.350 0.183 0.628
SR25,001- SR35,000 − 1.123 0.600 0.061 0.325
SR35,001 and above − 0.997 0.675 0.140 0.369
Intercept − 0.838 0.456 0.066 0.433
Pseudo R-Square 0.083
N 114

As per the regression analysis, male respondents were positively related to basic and advanced financial knowledge. Therefore,
hypothesis H01 is supported. It implies that gender has a significant relationship with financial literacy. Moving forward, those aged
25–34 years and above 54 years were positively related to basic financial knowledge (relative to those aged 24 years or less). Hence,
hypothesis H02 is supported. It indicates that age indeed shows a significant relationship with financial literacy. The regression
analysis result indicates that people’s marital status does not have a significant relation with financial literacy. Hence, hypothesis H03
is not supported. Additionally, undergraduates showed a significant positive relationship with advanced financial knowledge. It
signifies that an individual’s education level has a bearing on financial knowledge. The result leads to acceptance of hypothesis
H04. People employed in the private sector and those listed in the ‘other sector’ were positively associated with basic and advanced
financial knowledge (relative to public sector employees).
Additionally, students also shared direct relations with advanced financial knowledge. Thus, hypothesis H05 is supported. It
reflects that the occupation of an individual influences the level of financial literacy. People earning SR35,001 and above (relative to a
monthly income of SR5,000-SR15,000) showed a positive association with basic and advanced financial knowledge. Further, those

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falling under the monthly income group of SR25,000-SR35,000 showed a positive relationship with advanced financial knowledge.
Therefore, hypothesis H06 is supported, implying that an individual’s income level has a bearing on the level of financial literacy.
In the next step, we examined the inflated investor’s financial knowledge perception. For this purpose, we compared the actual
financial knowledge of the respondents with their self-rated financial knowledge. The mean score of actual (objective) and self-rated
(subjective) financial knowledge was taken as the cut-off point for determining overconfidence in financial knowledge. Those who
rated themselves above average on the self-rated (subjective) financial awareness question but scored below average on the actual
(objective) financial knowledge question were marked overconfident. Out of a total sample of 468 respondents, 114 had over­
confidence in their financial knowledge. We then performed regression analysis to check the relationship of demographic factors with
overconfidence. Overconfident people were coded as "1′′ and "0′′ otherwise for regression analysis. Since the dependent variable
"overconfidence" was binary coded, we used a logistic regression model to analyze the relationship. The outcome from the logit model
with pseudo R-Square = 0.083 shows that the occupation and income level were found to be significant. Hence, hypotheses H11 and
H12 were supported. Employment in the ‘other’ sector (relative to the public sector) decreased the odds of being overconfident about
their financial knowledge by around 64%.
Additionally, falling in the income category of SR25001-SR35000 (relative to SR5000-SR15000) reduced the odds of being
overconfident by around 67%. The relationships for the remaining hypotheses H07, H08, H09, and H10 were not found to be sig­
nificant. Thus, the above-mentioned hypotheses were not supported (Table 6)

Table 6: Relationship between demographic factors and financial literacy and overconfidence

Null Hypothesis Relationship Test Result-Null Hypothesis

H01 Gender-> Financial Literacy Supported

H02 Age-> Financial Literacy Supported
H03 Marital status-> Financial Literacy Not Supported
H04 Education-> Financial Literacy Supported
H05 Occupation-> Financial Literacy Supported
H06 Income-> Financial Literacy Supported
H07 Gender-> Financial Knowledge Overconfidence Not Supported
H08 Age-> Financial Knowledge Overconfidence Not Supported
H09 Marital status-> Financial Knowledge Overconfidence Not Supported
H10 Education-> Financial Knowledge Overconfidence Not Supported
H11 Occupation-> Financial Knowledge Overconfidence Supported
H12 Income-> Financial Knowledge Overconfidence Supported

5. Discussion

It can be inferred that less than half of the respondents had a basic knowledge of inflation and the time value of money. According to
the findings, male respondents had a higher level of basic and advanced financial knowledge.Therefore, it implies that gender has a
significant relationship with financial literacy. Also, age plays a significant role in describing the level of financial knowledge; those
aged 25–34 years and older than 54 years have a positive relationship with basic financial knowledge. It signifies that an individual’s
education level has a bearing on the level of financial knowledge; undergraduates showed a significant positive relationship with
advanced financial knowledge. People employed in the private sector and those listed in the "other sector" were positively associated
with basic and advanced financial knowledge. Also, people earning SR35,001 and above (relative to a monthly income of
SR5,000–SR15,000) showed a positive association with basic and advanced financial knowledge.
The outcome from the logit model shows that the occupation and income level were found to be significant. Financial knowledge is
a powerful predictor, indicating that excellent financial knowledge is a strong predictor of good investment avenues. Also, this result is
consistent with the proposed positive impact in the several hypotheses. It confirms that the greater the financial knowledge, the more
people are likely to use credit cards for bills, shopping, payment wallets, etc. This is an exciting result that requires further
examination.
As for the advanced financial knowledge analysis, several aspects are interesting to note. Respondents were more likely to answer
definitional questions correctly than applied questions.The sample mean scores for two of these questions were higher than those
reported in the previous literature. This could also be attributed to the students in the sample, many of whom were interning with
brokerage firms located in the stock exchange where the surveys were distributed. Almost 50% of respondents correctly answered
more than 5 out of 12 advanced financial knowledge questions, whereas only 8% could answer 10 or more. Less than 25% of re­
spondents incorrectly answered five or more questions, whereas around 20% of respondents marked that they did not know the answer
to more than five advanced financial knowledge questions. The result shows that most respondents were confident about their
financial knowledge. Also, gender was a significant predictor of overconfidence in one’s financial knowledge. This study has
enlightened our understanding of financial knowledge in the Asian context, further enriching the collected works. This study differs
from the usual studies conducted on awareness or financial knowledge because it focuses on various parameters and methodologies. It
provides new evidence to support the current literature on financial knowledge.

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6. Conclusion

This research effectively investigated the determinants and understanding of basic and advanced financial knowledge. Based on the
results, it is suggested to prioritize financial literacy among women. Many developing countries have launched female education
campaigns and programs. These programmes should also focus on improving financial knowledge among women. Additionally,
financial awareness programmes for public sector employees are also required to improve their financial literacy. It will enable them to
make wise financial decisions. To have better and prolonged retention, the study also recommends policies for encouraging college
students to practically apply the financial knowledge gained in college. People younger than 24 have lower financial literacy than the
older ones. The study suggests introducing financial awareness programmes for people reaching the age of 18. It will enable and
prepare them to face any financial difficulties they may face later in life. According to the current study, people with monthly incomes
ranging from SR 5,000 to SR 15,000 perform poorly on financial literacy when compared to those with higher incomes.People with
lower incomes are the worst affected during financial crises. Hence, there is a need for them to have adequate financial knowledge so
that they can plan for future emergencies and have a buffer zone in the form of savings and investments. People employed in the public
sector and those falling under an income bracket of SR 5,000 to SR 15,000 reflected overconfidence in their financial knowledge. Their
perceived financial awareness was greater than their actual financial awareness. Overconfidence in financial knowledge results in poor
financial choices and ultimately leads to financial losses for individuals. On the contrary, lack of confidence prevents even people with
adequate financial knowledge from taking bold financial decisions. Therefore, a balance between perceived and actual financial
awareness is necessary for optimum financial decisions..
There is a need for national policy and strategies on financial awareness in Saudi Arabia. In most developing countries, the central
bank has been leading such initiatives. This study suggests the development of a strong ecosystem and policies focused on household
economics, financial education, and financial inclusion. Additionally, the government should be focused on strengthening its central
bank and other government organisations by launching campaigns and programmes directed towards the same. We also recommended
a future-oriented national financial education strategy. Efficient structures for public entities to cooperate with the private sector and
consider the needs of the financially excluded and semi-urban populations are recommended. A specific educational challenge sug­
gested by this research is the high proportion of Saudi Arabian citizens who chose an incorrect response rather than indicate they did
not know an answer. It implies fundamental and common mistakes that can be avoided with better financial knowledge. Apart from
improving financial knowledge, we have identified, as per previous literature, the following measures that are essential to harnessing
financial knowledge among users in Saudi Arabia: ease of transactions, robust security arrangements, addressing privacy concerns,
facilitating cross-border payments, and financial inclusion policy.
The current work limits itself to examining the financial literacy among Saudi investors and the influence of demographic factors on
basic financial literacy, advanced financial literacy, and overconfidence in financial knowledge. Due to just studying the demographic
factors, the overall explanatory power of the model has been low. Therefore, we call upon future researchers to identify determinants
of financial well-being apart from demographic factors.

Funding

This research was funded by the Deputyship for Research & Innovation, Ministry of Education in Saudi Arabia, Grant No. 8027. The
APC was funded by the Deputyship for Research & Innovation, Ministry of Education, Saudi Arabia.

Ethical approval

Ethical approval (SEUREC-22012) was obtained from the Research Ethics Committee.

CRediT authorship contribution statement

Yasmeen Ansari: Data curation, Software, Validation, Methodology, Writing – original draft. Mansour Saleh Albarrak: Super­
vision, Formal analysis, Funding acquisition, Project administration, Writing – review & editing. Noorjahan Sherfudeen: Concep­
tualization, Resources. Arfia Aman: Visualization, Investigation.

Declaration of Competing Interest

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and publication of this article.

Data availability

The data that has been used is confidential.

Acknowledgement

We would like to express our gratitude to The Vice Presidency for Graduate Studies and Scientific Research and to the Deanship of

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Y. Ansari et al. Finance Research Letters 52 (2023) 103582

Scientific Research, Saudi Electronic University, Riyadh, Kingdom of Saudi Arabia for their continuous support. Special thanks to all
the respondents who participated in the study and willingly extend all the help and support for the data collection. We are also
indebted to all the authors of the research papers and articles, and the websites to whom we have referred.

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