The impact of demographic factors on financial literacy: evidence from stock market retail investors in Sri Lanka

Abstract

Financial literacy can be described as possessing some education and knowledge to manage personal finance, saving and investing, in an efficient manner. It includes the awareness of making proper decisions on personal finance. When people are limited with the knowledge of financial products and narrowed to a portfolio which is less risky and secure, it can have an indirect impact on sustainable economic growth. But when people have more knowledge, they can select an alternative such as mutual funds which is more secure and of low risk that ultimately have a positive impact on the growth of the economy. Past researches indicated that in the modern world without the ability to read and write (literacy) it is impossible to succeed. Same phenomenon is applied to financial system, as without knowing the basics of economics and finance (financial literacy) it is impossible to succeed (Lusardi, 2009). Considering financial literacy among Sri Lankans, Standard & Poor’s global financial literacy survey points out that, “Sri Lanka has a higher financial print literacy rate compared to South Asian countries. In contrast to that, Sri Lanka has a huge gap between print literacy and financial literacy”. This concludes that there is more space to provide awareness and promote the financial literacy among the Sri Lankan investors. Further, the Standard & Poor’s global financial literacy survey results show that the financial literacy rate in Sri Lanka is 35% as opposed to the average of 65% in more developed economies (Kulasena, 2017).