Investment Literacy, Risk Tolerance and Mutual Fund Investments: An Exploratory Study of Working Adults in Kuala Lumpur
Abstract
Financial literacy empowers consumers to make more informedfinancial decisions,including investing in mutual funds. In thisstudy,thesociodemographic profile of working adultswith low investment literacyvis-à-vis high investment literacyare examined first. Next, the impact of investment literacyand risk toleranceon the likelihood of investing in mutual fundsare explored. Among a sample of 260 working adults comprising mainly of Masters of Business Administration(MBA) studentsfrom a leading public higher institution in Kuala Lumpur, Malaysia, the study showsthat those withBusiness/Economics education backgroundshave the highest investment literacyand are more likely to invest in mutual funds compared to individuals from the Arts and other miscellaneous backgrounds. Although Muslims are the least literatein investment matters, they are more likely to hold mutual fundinvestments relative to those who profess Christianity and Hinduism. Individuals with relatively high income and occupational levels have relatively higher investment literacy. Risk tolerance does not influence the likelihood of investing in mutual fund investments.Policymakers should focus on females, those with Arts education background, Muslims, and those from the lower income/employment ranks to increase their investment literacythrough financial education workshops. Mutual fund companies may consider embarking an aggressive knowledge sharing videos related to mutual funds via non-mainstream mediasuch as social mediato increase the penetration of mutual fund investments, among the untapped markets.
References
Alexander, G. J., Jones, J. D., & Nigro, P. J. (1998). Mutual fund shareholders: characteristics, investor knowledge, and sources of information. Financial Services Review, 7(4), 301-316.
Ali, A., Rahman, M. S. A., & Bakar, A. (2015). Financial satisfaction and the influence of financial literacy in Malaysia. Social Indicators Research, 120(1), 137-156.
Almenberg, J., & Dreber, A. (2015). Gender, stock market participation and financial literacy. Economics Letters, 137, 140-142.
Arathy, B., Nair, A. A., Sai, A., & Pravitha, N. R. (2015). A study on factors affecting investment on mutual funds and its preference of retail investors. International Journal of Scientific and Research Publications, 5(8), 430-433.
Athey, L. A., & Kennickell, A. B. (2005). Managing Data Quality on the 2004 Survey of Consumer Finances. Annual Meetings of the American Association for Public Opinion Research, Miami Beach, Florida, May 12–15.
Atkinson, A., & F. Messy (2012). Measuring Financial Literacy: Results of the OECD / International Network on Financial Education (INFE) Pilot Study, OECD Working Papers on Finance, Insurance and Private Pensions, No. 15, OECD Publishing, Paris. Retrieved from http://dx.doi.org/10.1787/5k9csfs90fr4-en
Bakar, E. A., Masud, J., & Jusoh, Z. M. (2006). Knowledge, attitude and perceptions of university students towards educational loans in Malaysia. Journal of Family and Economic Issues, 27(4), 692-701.
Barro, R., & McCleary, R. (2003). Religion and economic Growth. American Sociological Review, 68(5), 760-781.
Bello, D., Leung, K., Radebaugh, L., Tung, R. L., & Van Witteloostuijn, A. (2009). From the editors: Student samples in international business research. Journal of International Business Studies, 40(3), 361-364.
Benjamin, D. J., Choi, J. J., & Fisher, G. (2016). Religious identity and economic behavior. Review of Economics and Statistics, 98(4), 617-637.
Boon, T. H., Yee, H. S., & Ting, H. W. (2011). Financial literacy and personal financial planning in Klang Valley, Malaysia. International Journal of Economics and Management, 5(1), 149-168.
Brimble, M., Vyvyan, V., & Ng, C. (2013). Belief and investing: Preferences and attitudes of the faithful. Australasian Accounting, Business and Finance Journal, 7(1), 23-41.
Chatman, J. A., & Barsade, S. G. (1995). Personality, organizational culture, and cooperation: Evidence from a business simulation. Administrative Science Quarterly, 423-443.
Chu, Z., Wang, Z., Xiao, J. J., & Zhang, W. (2017). Financial Literacy, Portfolio Choice and Financial Well-Being. Social Indicators Research, 132(2), 799-820.
Cocco, J. F., Gomes, F. J., & Maenhout, P. J. (2005). Consumption and portfolio choice over the life cycle. Review of Financial Studies, 18(2), 491-533.
Cohn, R. A., Lewellen, W. G., Lease, R. C., & Schlarbaum, G. G. (1975). Individual investor risk aversion and investment portfolio composition. The Journal of Finance, 30(2), 605-620.
Constantinides, G. M., Donaldson, J. B., & Mehra, R. (2002), Junior can’t borrow: A new perspective on the equity premium puzzle. Quarterly Journal of Economics, 117(1), 269-296.
Davar, Y. P., & Gill, S. (2007). Investment decision making: An empirical study of perceptual view of Investors. Metamorphosis, 6(2), 115-135.
Deb, S., & Singh, R. (2016). Impact of risk perception on investors towards their investment in mutual fund. Pacific Business Review International, 1(2), 16-23.
Department of Statistics Malaysia (n.d.). Federal Territory of Kuala Lumpur @ a Glance. Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cone&menu_id=bjRlZXVGdnBueDJKY1BPWEFPRlhIdz09
Eeckhoudt, L., Gollier, C., & Schlesinger, H. (2005). Economic and Financial Decisions Under Risk. Princeton: Princeton University Press.
Fauzi, A. A., Husniyah, A. R., Fazli, S. M., & Amim, O. M. (2017). Financial risk tolerance as a predictor for malaysian employees’ gold investment behavior. In M.H. Bilgin et al. (Eds.), Regional Studies on Economic Growth, Financial Economics and Management, Eurasian Studies in Business and Economics 7. Retrieved from DOI 10.1007/978-3-319-54112-9_5
Ferguson, A. J., & Peterson, R. S. (2015). Sinking slowly: Diversity in propensity to trust predicts downward trust spirals in small groups. Journal of Applied Psychology, 100(4), 1012.
Fonseca, R., Mullen, K. J., Zamarro, G., & Zissimopoulos, J. (2012). What explains the gender gap in financial literacy? The role of household decision making. Journal of Consumer Affairs, 46(1), 90-106.
Fornero, E., & Monticone, C. (2011). Financial literacy and pension plan participation in Italy. Journal of Pension Economics & Finance, 10(4), 547-564.
Friedman, R., Chi, S. C., & Liu, L. A. (2006). An expectancy model of Chinese–American differences in conflict-avoiding. Journal of International Business Studies, 37(1), 76-91.
Geetha, N., & Ramesh, M. (2011). A study on people’s preferences in investment behaviour. International Journal of Engineering and Management Research, 1(6), 285-306.
Gerardi, K., Goette, L., & Meier, S. (2010). Financial literacy and subprime mortgage delinquency: Evidence from a survey matched to administrative data. Working Paper. April 2010.
Giannetti, M., & Koskinen, Y. (2010). Investor protection, equity returns, and financial globalization. Journal of Financial and Quantitative Analysis, 45(1), 135-168.
Gilliam, J., Chatterjee, S., & Grable, J. E. (2010). Measuring the perception of financial risk tolerance: A tale of two measures. Journal of Financial Counselling and Planning, 21(2).
Gittleman, M., & Wolff, E. N. (2004). Racial differences in patterns of wealth accumulation. Journal of Human Resources, 39(1), 193-227.
Goldsmith, E. B. (2009). Consumer economics: Issues and behaviors. Upper Saddle River, NJ: Pearson/ Prentice Hall.
Grable, J., & Lytton, R. H. (1999). Financial Risk tolerance revisited: The development of a risk assessment instrument. Financial Services Review, 8(3), 163-181.
Guiso, L., & Viviano, E. (2014). How much can financial literacy Help? Review of Finance, 19(4), 1347-1382.
Hassan Al-Tamimi, H. A., & Anood Bin Kalli, A. (2009). Financial literacy and investment decisions of UAE investors. The Journal of Risk Finance, 10(5), 500-516.
Hastings, J., & Mitchell, O. S. (2011). How financial literacy and impatience shape retirement wealth and investment behaviors. Journal of Pension Economics & Finance, 19(1), 1-20.
Heo, W., Grable, J. E., & O’Neill, B. (2017). Wealth accumulation inequality: Does investment risk tolerance and equity ownership drive wealth Accumulation? Social Indicators Research, 133(1), 209-225.
Hess, D.W. (2012). The impact of religiosity on personal financial decisions. Journal of Religion and Society, 14, 1-13.
Huston, S. J. (2010). Measuring financial literacy. Journal of Consumer Affairs, 44(2), 296-316.
Idris, F. H., Krishnan, K. S. D., & Azmi, N. (2013). Relationship between financial literacy and financial distress among youths in Malaysia-An empirical study. Geografia-Malaysian Journal of Society and Space, 9(4), 106-117.
Ismail, N. A., & Awang, H. (2008). Differentials in Mathematics achievement among eighth-grade students in Malaysia. International Journal of Science and Mathematics Education, 6(3), 559-571.
Jacobs-Lawson, J. M., & Hershey, D. A. (2005). Influence of future time perspective, financial knowledge, and financial risk tolerance on retirement saving behaviors. Financial Services Review, 14(4), 331-344.
Jagongo, A. O., & Mutswenje, V. S. (2014). A survey of the factors influencing investment decisions: The Case of individual investors at the NSE. International Journal of Humanities and Social Science, 4(4), 92-102.
Jaiyeoba, H. B., Adewale, A. A., Haron, R., & Che Ismail, C. M. H. (2018). Investment decision behaviour of the Malaysian retail investors and fund managers: A qualitative inquiry. Qualitative Research in Financial Markets, 10(2), 134-151.
Jamaludin, N., & Gerrans, P. (2015). Retirement savings investment decisions: Evidence from Malaysia. Journal of the Asia Pacific Economy, 20(4), 644-657.
Jamaludin, N., Smith, M., & Gerrans, P. (2012). Mutual fund selection criteria: Evidence from Malaysia. Asian Review of Accounting, 20(2), 140-151.
Jonsson, S., Soderberg, I. L., & Wilhelmsson, M. (2017). An investigation of the impact of financial literacy, risk attitude, and saving motives on the attenuation of mutual fund investors’ disposition bias. Managerial Finance, 43(3), 282-298.
Kaur, I., & Kaushik, K. P. (2016). mutual fund ownership and sponsor background: Effect on performance and risk strategy. International Journal of Management Practice, 9(3), 282-301.
Khorana, A., Servaes, H., & Tufano, P. (2005). Explaining the size of the mutual fund industry around the world. Journal of Financial Economics, 78(1), 145-185.
Leon, A. K., & Pfeifer, C. (2013). Religious Activity, Risk Taking Preferences, and Financial Behaviour: Empirical Evidence from German Survey Data. Federal Reserve Bank of St Louis, St. Louis. Retrieved from http://ezproxy.um.edu.my/docview/1698742508?accountid=28930
Lusardi, A., & Mitchell, O. S. (2005). Financial Literacy and Planning: Implications for Retirement Wellbeing. Michigan Retirement Research Centre Research Paper, No. w17078.
Lusardi, A., & Mitchell, O. S. (2007a). Baby boomer retirement Security: The roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics, 54(1), 205-224.
Lusardi, A., & Mitchell, O.S. (2007b). Financial literacy and retirement preparedness: Evidence and implications for financial education. Business Economics, 42(1), 35-44.
Lusardi, A., & Mitchell, O.S. (2008). Planning and financial literacy: How do women fare? National Bureau of Economic Research, No. w13750.
Lusardi, A., & Mitchell, O.S. (2011a). Financial literacy around the world: An overview. Journal of Pension Economics and Finance, 10(4), 497-508.
Lusardi, A., & Mitchell, O.S. (2011b). Financial literacy and planning: Implications for retirement wellbeing. National Bureau of Economic Research, No. w17078.
Lusardi, A., & Scheresberg, C. D. B. (2013). Financial literacy and high-cost borrowing in the United States. National Bureau of Economic Research, No. w18969.
Mahdzan, N.S. & Tabiani, S. (2013) The impact of financial literacy on individual saving: An exploratory study in the Malaysian context. Transformations in Business & Economics, 12(1), 41-55.
Mahmood, I., Ahmad, H., Khan, A. Z., & Anjum, M. (2011). behavioral implications of investors for investments in the stock market. European Journal of Social Science, 20(2), 240-247.
Malaysian Digital Association (2016). Malaysia Digital Landscape. Digital Integration & Business Transformation Asia Conference, 3-4 August 2016, JW MARRIOTT Kuala Lumpur, Malaysia. Retrieved from http://www.malaysiandigitalassociation.org.my/wp-content/uploads/2016/08/Malaysia-Digital-Landscape-August-2016.pdf
Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
Muller, S., & Weber, M. (2010). Financial literacy and mutual fund investments: Who buys actively managed funds? Schmalenbach Business Review, 62(2), 126-153.
Norvilitis, J. M., Merwin, M. M., Osberg, T. M., Roehling, P. V., Young, P., & Kamas, M. M. (2006). Personality factors, money attitudes, financial knowledge, and credit-card debt in college students. Journal of Applied Social Psychology, 36(6), 1395-1413.
Pellinen, A., Tormakangas, K., Uusitalo, O., & Raijas, A. (2011). Measuring the financial capability of investors: A case of the customers of mutual funds in Finland. International Journal of Bank Marketing, 29(2), 107-133.
Peng, C. Y. J., Lee, K. L., & Ingersoll, G. M. (2002). An introduction to logistic regression analysis and reporting. The Journal of Educational Research, 96(1), 3-14.
Remund, D. L. (2010). Financial literacy explicated: The case for a clearer definition in an increasingly complex economy. Journal of Consumer Affairs, 44(2), 276-295.
Riley Jr, W. B., & Chow, K. V. (1992). Asset allocation and individual risk aversion. Financial Analysts Journal, 48(6), 32-37.
Ripain, N., & Ahmad, N. W. (2018). An overview of unit trust funds in Malaysia. Reports on Economics and Finance, 4(3), 117-123.
Rootman, C., & Kruger, J. (2016). Determining consumers' intention to use unit trusts. Journal of Economic and Financial Sciences, 9(2), 436-454.
Sabri, M. F., MacDonald, M., Hira, T. K., & Masud, J. (2010). Childhood consumer experience and the financial literacy of college students in Malaysia. Family and Consumer Sciences Research Journal, 38(4), 455-467.
Securities Commission. (2011). Capital Market Masterplan 2. Retrieved from https://www.sc.com.my/api/documentms/download.ashx?id=68e637ca-543b-47cc-9b4d-0a4a282fd5c5
Securities Commission. (2017). Annual Report 2017. Retrieved from https://www.sc.com.my/api/documentms/download.ashx?id=097e62ec-8464-46a2-a3e0-9cb4ee164ca7
Sivaramakrishnan, S., Srivastava, M., & Rastogi, A. (2017). Attitudinal factors, financial literacy, and stock market participation. International Journal of Bank Marketing, 35(5), 818-841.
The Star (2013, October 12). Unit trust’s CG challenge. The Star Online. Retrieved from http://www.thestar.com.my/business/business-news/2013/10/12/the-industry-lackscorporate-governance-shareholder-activism/
The Star (2017, May 3). More young investors entering into Malaysian market. The Star Online. Retrieved from https://www.thestar.com.my/business/business-news/2017/05/03/younginvestors/#sMyVXDfIeY3r2ZAL.99.
Thomas, A., & Spataro, L. (2015). Financial literacy, human capital and stock market participation in Europe: An empirical exercise under endogenous framework. Discussion Papers del Dipartimento di Scienze Economiche–Universita di Pisa, 2015-194.
Van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449-472.
Wang, A. (2011). Younger generations’ investing behaviors in mutual funds: Does gender matter? The Journal of Wealth Management, 13(4), 13-23.
Xia, T., Wang, Z., & Li, K. (2014). Financial literacy overconfidence and stock market participation. Social Indicators Research, 119(3), 1233-1245.
Yoo, P. S. (1994). Age Dependent Portfolio Selection. Working Paper Series (No. 1994-003A). The Federal Reserve Bank of St. Louis.
Yusuff, N., & Mansor, F. (2016). Proposed model for the factors influencing Muslim investors in choosing Islamic unit trust funds. Journal of Global Business and Social Entrepreneurship, 1(2), 113-120.
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
