An empirical study on the relationship between financial literacy and emotional biases

Abstract

Purpose of the study: This paper aims to establish a relationship between investors’ financial literacy and emotional biases in India. Financial literacy holds tremendous importance for making systematic financial choices and decisions. Today, with ever-rising economic unpredictability, uncertainties, governments and companies pulling out of welfare schemes such as the pension system in India and worldwide bring out the undisputed significance of financial literacy and systematic financial planning. Methodology: A total of 412 responses were obtained for the research study. The research study was carried on using Pearson’s Chi-square test, Cronbach’s alpha, and factor analysis. Findings: It was found through the research that there exists a significant relationship between financial literacy and risk aversion, overconfidence bias. Both genders were equally risk averted. Men are more overconfident than women; there is a relationship between age group and overconfidence bias. Implications: This study holds its significance in finding out the degree of biases and financial literacy of investors in India, and thus with greater accessibility of information and expanding awareness shall ameliorate financial skills, knowledge, and decisions concerning investments. Novelty/Originality of this study: The prevailing studies have studied the relationship between financial literacy and cognitive biases, portfolio selection, retirement plans; the same has not studied the relationship between financial literacy and emotional biases encompassing Affinity bias, Snakebite Effect, and Myopic Loss Aversion of Indian Investors specifically.

Imprint

Smriti Dureha, Vaishali Jain. An empirical study on the relationship between financial literacy and emotional biases. Cardiometry; Issue 23; August 2022; p.413-422; DOI: 10.18137/cardiometry.2022.23.413422; Available from: https://www.cardiometry.net/issues/no23-august-2022/empirical-study-relationship