Assessing the Impact of Financial Literacy on Investment Awareness: An Empirical Analysis of Retail Investors

Abstract

Financial Literacy is one of the most important factors in the determination of financial decisions. It is one of the most influential deciding factors which constitute good financial decision-making. This study focuses on the level of financial literacy and its impact on investment awareness among selected retail investors of Madhya Pradesh. The study is empirical in nature and is conducted on a sample size of 210 individuals residing in Madhya Pradesh state. Primary data has been collected through a structured questionnaire.
The study uses statistical tools such as descriptive analysis, correlation, chi-square test and multiple regression analysis to examine the relationship between financial literacy and investment awareness. The reliability of the constructs was tested using Cronbach’s alpha, which showed satisfactory internal consistency for financial literacy (0.842) and investment awareness (0.795).
The findings reveal that majority of the individuals are not fully aware about financial literacy and some of its important components. They do not prefer moderate risk instruments because of lack of knowledge and face difficulty in taking proper investment decisions regarding certain financial products. The correlation analysis shows a moderate positive relationship between financial literacy and investment awareness (r = 0.451, p < 0.01). The regression analysis indicates that financial literacy, income and education have a significant positive impact on investment awareness, explaining 40.2% of the variation (R² = 0.402). Among all the variables, financial literacy has the highest impact on investment awareness.
The study further reveals that majority of the respondents prefer low-risk investment avenues such as Fixed Deposits and Post Office Investments. The study provides valuable insights regarding the basic state of awareness of individuals towards financial literacy and investment decisions. It can be useful for policymakers, financial institutions and corporate organizations in designing effective financial literacy programs and strategies to improve investment awareness among retail investors.