PREDICTING INDIVIDUAL INVESTOR’S INTENTION TO INVEST: A COMPARISON BETWEEN ACTUAL AND PERCEIVED FINANCIAL KNOWLEDGE
Abstract
This paper aimed to empirically check and evaluate statistically significant differences in structural relationships of actual and perceived financial knowledge, risk tolerance, and risky investment intention, via in total of 995 questionnaires sent to a sample group of the informal laborers in southern Thailand. Partial least squares structural equation modelling was used to analyze the results. It is worth noting that even though both actual and perceived financial knowledge affected each individual’s risk tolerance, still perceived knowledge affected more the individual’s risk tolerance. The actual and perceived financial knowledge that the individuals possess would enable them to make sound investments. Our study added the multi-group analyses in order to investigate if gender affected each individual’s decision-making on investment. The results revealed that in the case of men, both actual and perceived financial knowledge positively correlated with risky investment intention, whereas in the case of women only actual financial knowledge did. The key point from our study indicated that confidence or self-perceived knowledge was a significant factor affecting individual decision-making on investments. Hence, the educators and policymakers should provide effective lessons on financial knowledge by creating actual knowledge in order to help avoid overconfidence.
References
Agnew, J. R., & Szykman, L. R. (2005). Asset allocation and information overload: The influence of information display, asset choice, and investor experience. The Journal of Behavioral Finance, 6(2), 57-70. Ajzen, I. (1991). The theory of planned behavior. Organizational behavior and human decision processes, 50(2), 179-211.
https://doi.org/10.1207/s15427579jpfm0602_2
Allgood, S., & Walstad, W. (2013). Financial literacy and credit card behaviors: A cross-sectional analysis by age. Numeracy, 6(2), 3.
https://doi.org/10.5038/1936-4660.6.2.3
Allgood, S., & Walstad, W. B. (2016). The effects of perceived and actual financial literacy on financial behaviors. Economic Inquiry, 54(1), 675-697.
https://doi.org/10.1111/ecin.12255
Amonhaemanon, D., & Vora-Sitta, P. (2020). From financial literacy to financial capability: A preliminary study of difference generations in informal labor market. Journal of Asian Finance, Economics and Business, 7(12), 355-363.
https://doi.org/10.13106/jafeb.2020.vol7.no12.355
Aren, S., & Aydemir, S. D. (2015). The moderation of financial literacy on the relationship between individual factors and risky investment intention. International Business Research, 8(6), 17-28.
https://doi.org/10.5539/ibr.v8n6p17
Atkinson, A., & Messy, F. A. (2012). Measuring financial literacy: Results of the OECD/International Network on Financial Education (INFE) pilot study.
Bannier, C. E., & Neubert, M. (2016). Gender differences in financial risk taking: The role of financial literacy and risk tolerance. Economics Letters, 145, 130-135.
https://doi.org/10.1016/j.econlet.2016.05.033
Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, 116(1), 261-292.
https://doi.org/10.1162/003355301556400
Beal, D. J., & Delpachitra, S. B. (2003). Financial literacy among Australian university students. Economic Papers: A Journal of Applied Economics and Policy, 22(1), 65-78.
https://doi.org/10.1111/j.1759-3441.2003.tb00337.x
Benjamin, D. J., Brown, S. A., & Shapiro, J. M. (2013). Who is "behavioral"? Cognitive ability and anomalous preferences. Journal of the European Economic Association, 11(6), 1231-1255.
https://doi.org/10.1111/jeea.12055
Byrne, K. (2005). How do consumers evaluate risk in financial products?. Journal of Financial Services Marketing, 10(1), 21-36.
https://doi.org/10.1057/palgrave.fsm.4770171
Cardak, B. A., & Wilkins, R. (2009). The determinants of household risky asset holdings: Australian evidence on background risk and other factors. Journal of Banking & Finance, 33(5), 850-860.
https://doi.org/10.1016/j.jbankfin.2008.09.021
Carpena, F., Cole, S., Shapiro, J., & Zia, B. (2011). The ABCs of financial literacy-experimental evidence on attitudes, behavior and cognitive biases. In Preliminary Conference Draft-Not for General Distribution.
Chen, H., & Volpe, R. P. (2002). Gender differences in personal financial literacy among college students. Financial Services Review, 11(3), 289-307.
Chong, K. F., Sabri, M. F., Magli, A. S., Abd Rahim, H., Mokhtar, N., & Othman, M. A. (2021). The effects of financial literacy, self-efficacy and self-coping on financial behavior of emerging adults. Journal of Asian Finance, Economics and Business, 8(3), 905-915.
Cordell, D. M., Smith, R., & Terry, A. (2011). Overconfidence in financial planners. Financial Services Review, 20(4).
Courchane, M., Gailey, A., & Zorn, P. (2008). Consumer credit literacy: What price perception?. Journal of Economics and Business, 60(1-2), 125-138.
https://doi.org/10.1016/j.jeconbus.2007.08.003
De Bortoli, D., da Costa Jr, N., Goulart, M., & Campara, J. (2019). Personality traits and investor profile analysis: A behavioral finance study. PLOS ONE, 14(3), e0214062.
https://doi.org/10.1371/journal.pone.0214062
De Dreu, J., & Bikker, J. A. (2012). Investor sophistication and risk taking. Journal of Banking & Finance, 36(7), 2145-2156.
https://doi.org/10.1016/j.jbankfin.2012.03.023
Diacon, S. (2004). Investment risk perceptions. International Journal of Bank Marketing, 22(3), 180-198.
https://doi.org/10.1108/02652320410530304
Doane, D., Ofreneo, S., & Srikajon, D. (2003). Social protection for informal workers in the garment industry: Philippines and Thailand. In F. Lund & J. Nicholson (Eds.), Chains of Production, Ladders of Protection (pp. 59-109). University of Natal Press.
Dodds, W. B., Monroe, K. B., & Grewal, D. (1991). Effects of price, brand, and store information on buyers' product evaluations. Journal of Marketing Research, 28(3), 307-319.
https://doi.org/10.1177/002224379102800305
Dohmen, T., Falk, A., Huffman, D., & Sunde, U. (2010). Are risk aversion and impatience related to cognitive ability?. American Economic Review, 100(3), 1238-1260.
https://doi.org/10.1257/aer.100.3.1238
Dyer, J. S., & Sarin, R. K. (1982). Relative risk aversion. Management Science, 28(8), 875-886.
https://doi.org/10.1287/mnsc.28.8.875
Fernquest, J. (2012, December 19). Debt and poverty: Trapped by loan sharks. Bangkok Post.
https://www.bangkokpost.com/learning/learning-news/326980/debt-poverty-trapped-by-loan-sharks
Filipiak, U., & Walle, Y. M. (2015). The financial literacy gender gap: A question of nature or nurture?. (No. 176). Courant Research Centre: Poverty, Equity and Growth-Discussion Papers.
Finnegan, G., & Singh, A. (2004). Role of the informal sector in coping with economic crisis in Thailand and Zambia (No. 993657013402676). International Labour Organization.
Firat, D., & Fettahoglu, S. (2011). Investors' Purchasing Behaviour via a Behavioural Finance Approach. International Journal of Business and Management, 6(7), 153.
https://doi.org/10.5539/ijbm.v6n7p153
Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error: Algebra and statistics. Journal of Marketing Research, 18(1), 39-50.
https://doi.org/10.1177/002224378101800104
Frijns, B., Koellen, E., & Lehnert, T. (2008). On the determinants of portfolio choice. Journal of Economic Behavior & Organization, 66(2), 373-386.
https://doi.org/10.1016/j.jebo.2006.04.004
Gibson, J., McKenzie, D., & Zia, B. (2012). The impact of financial literacy training for migrants. The World Bank Economic Review, 28(1), 130-161.
https://doi.org/10.1093/wber/lhs034
Glova, J., & Gavurova, B. (2012). Perspectives in Assessment of Intellectual Capital. Hradecke ekonomicke dny, 2012, PT I, Edited by: Jedlicka, P., 10th International Scientific Conference on Hradec Economic Days 2012: Economic Development and Management of Regions, Hradec Kralove, pp. 73-78.
Goldsmith, R. E., Goldsmith, E. B., & Heaney, J. G. (1997). Sex differences in financial knowledge: A replication and extension. Psychological Reports, 81(3_suppl), 1169-1170.
https://doi.org/10.2466/pr0.1997.81.3f.1169
Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of Business and Psychology,14(4), 625-630.
https://doi.org/10.1023/A:1022994314982
Grable, J. E. (2016). Grable, J. E. (2016). Financial risk tolerance. Handbook of consumer finance research, 19-31.
https://doi.org/10.1007/978-3-319-28887-1_2
Grable, J. E., & Joo, S. H. (1999). Factors related to risk tolerance: A further examination. Consumer Interests Annual, 45(1), 53-58.
Grable, J. E., & Lytton, R. H. (2003). The development of a risk assessment instrument: A follow-up study. Financial Services Review, 12(3), 257-274.
Grable, J. E., & Roszkowski, M. J. (2008). The influence of mood on the willingness to take financial risks. Journal of Risk Research, 11(7), 905-923. Guiso, L., Jappelli, T., & Padula, M. (2009). Pension risk, retirement saving and insurance. EIEF Working Papers Series 0902, Einaudi Institute for Economics and Finance (EIEF).
https://doi.org/10.1080/13669870802090390
Hair Jr, J. F., Sarstedt, M., Hopkins, L., & Kuppelwieser, V. G. (2014). Partial least squares structural equation modeling (PLS-SEM). European Business Review, 26, 106-121.
https://doi.org/10.1108/EBR-10-2013-0128
Hallahan, T. A., Faff, R. W., & McKenzie, M. D. (2004). An empirical investigation of personal financial risk tolerance. Financial Services Review-Greenwich, 13(1), 57-78.
Hariharan, G., Chapman, K. S., & Domian, D. L. (2000). Risk tolerance and asset allocation for investors nearing retirement. Financial Services Review, 9(2), 159-170.
https://doi.org/10.1016/S1057-0810(00)00063-9
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.
https://doi.org/10.1108/15265940911001402
Hawley, C. B., & Fujii, E. T. (1993). An empirical analysis of preferences for financial risk: Further evidence on the Friedman-Savage model. Journal of Post Keynesian Economics, 16(2), 197-204.
https://doi.org/10.1080/01603477.1993.11489978
Hsu, J. (2011). Aging and strategic learning: The impact of spousal incentives on financial literacy. SSRN Electronic Journal. Hung, A., Parker, A. M., & Yoong, J. (2009). Defining and measuring financial literacy. RAND Working Paper Series WR-708.
https://doi.org/10.2139/ssrn.1969411
Huston, S. J. (2010). Measuring financial literacy. Journal of Consumer Affairs, 44(2), 296-316.
https://doi.org/10.1111/j.1745-6606.2010.01170.x
Huzdik, K., Béres, D., & Németh, E. (2014). An Empirical Study of Financial Literacy versus Risk Tolerance Among Higher Education Students. Pénzügyi Szemle/Public Finance Quarterly, 59(4), 476-488.
International Labor Organization. (2016). Social protection for domestic workers: Key policy trends and statistics (Social Protection Policy Papers #16).
Jianakoplos, N. A., & Bernasek, A. (1998). Are women more risk averse?. Economic Inquiry, 36(4), 620-630.
https://doi.org/10.1111/j.1465-7295.1998.tb01740.x
Jureviciene, D., & Jermakova, K. (2012). The impact of individuals' financial behaviour on investment decisions. In Electronic International Interdisciplinary Conference (pp. 242-250).
Kahneman, D. (1994). New Challenges to the Rationality Assumption. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift Für Die Gesamte Staatswissenschaft, 150(1), 18-36.
Komin, W., Thepparp, R., Subsing, B., & Engstrom, D. (2021). Covid-19 and its impact on informal sector workers: a case study of Thailand. Asia Pacific Journal of Social Work and Development, 31(1-2), 80-88.
https://doi.org/10.1080/02185385.2020.1832564
Li, J., Lim, B., Pazim, K. H., & Furuoka, F. (2021). COVID-19 pandemic's impact on the labour market in ASEAN countries. AEI INSIGHTS, 7(1), 59-76.
https://doi.org/10.37353/aei-insights.vol7.issue1.5
Lusardi, A., & Mitchell, O. S. (2007). The importance of financial literacy: Evidence and implications for financial education programs. Policy Brief.
https://doi.org/10.2139/ssrn.957796
Lusardi, A., & Mitchell, O. S. (2008). Planning and financial literacy: How do women fare?. American Economic Review, 98(2), 413-17.
https://doi.org/10.1257/aer.98.2.413
Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44. Mandell, L., & Klein, L. S. (2009). The impact of financial literacy education on subsequent financial behavior. Journal of Financial Counseling and Planning, 20(1).
https://doi.org/10.1257/jel.52.1.5
Mehrotra, S. (2009). The impact of the economic crisis on the informal sector and poverty in East Asia. Global Social Policy, 9(1_suppl), 101-118.
https://doi.org/10.1177/1468018109106887
Nguyen, T. A. N., Rózsa, Z., Belás, J., & Belásová, Ľ. (2017). The effects of perceived and actual financial knowledge on regular personal savings: Case of Vietnam. Journal of International Studies, 10(2), 278-291.
https://doi.org/10.14254/2071-8330.2017/10-2/19
OECD/INFE. (2016) OECD/INFE international survey of adult financial literacy competencies. Paris. www.oecd. org/finance/oecd-infe-international-survey-of-adult-financial-literacy-competencies.pdf.
Parker, A. M., De Bruin, W. B., Yoong, J., & Willis, R. (2012). Inappropriate confidence and retirement planning: Four studies with a national sample. Journal of Behavioral Decision Making, 25(4), 382-389. Parks, T., Chatsuwan, M., & Pillai, S. (2020). Enduring the pandemic: Surveys of the impact of COVID-19 on the livelihoods of Thai people.
https://doi.org/10.1002/bdm.745
Perrig, W. J., & Grob, A. (2013). Control of human behavior, mental processes, and consciousness: essays in honor of the 60th birthday of August Flammer. Psychology Press.
https://doi.org/10.4324/9781410605412
Popay, J. (2010). Understanding and tackling social exclusion. Journal of Research in Nursing, 15(4), 295-297.
https://doi.org/10.1177/1744987110370529
Powell, M., & Ansic, D. (1997). Gender differences in risk behaviour in financial decision-making: An experimental analysis. Journal of Economic Psychology, 18(6), 605-628.
https://doi.org/10.1016/S0167-4870(97)00026-3
Prabhakaran, K., & Karthika, P. (2011). A study on risk perception and portfolio management of equity investors in Coimbatore city. Journal of Management and Science, 1(2), 1-13.
https://doi.org/10.26524/jms.2011.9
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. Robb, C. A., & Woodyard, A. S. (2011). Financial knowledge and best practice behavior. Journal of Financial Counseling and Planning, 22(1), 60-70.
https://doi.org/10.1111/j.1745-6606.2010.01169.x
Roszkowski, M. J., & Grable, J. E. (2005). Estimating risk tolerance: The degree of accuracy and the paramorphic representations of the estimate. Journal of Financial Counseling and Planning, 16(2), 29-47.
Ryack, K. (2011). The impact of family relationships and financial education on financial risk tolerance. Financial Services Review, 20(3), 181-193.
Schoemaker, P. J. (1993). Multiple scenario development: Its conceptual and behavioral foundation. Strategic Management Journal, 14(3), 193-213.
https://doi.org/10.1002/smj.4250140304
Sedikides, C. (1993). Assessment, enhancement, and verification determinants of the self-evaluation process. Journal of personality and social psychology, 65(2), 317. Senanuch, P., & Suntonanantachai, T. (2018). Social welfare development for the elderly informal workers in order to reduce social disparity. Journal of Social Work, 26(1), 146-164.
https://doi.org/10.1037/0022-3514.65.2.317
Shahrabani, S. (2012). The effect of financial literacy and emotions on intent to control personal budget: A study among Israeli college students. International Journal of Economics and Finance, 4(9), 156-163.
https://doi.org/10.5539/ijef.v4n9p156
Shahrabani, S. (2013). Financial literacy among Israeli college students. Journal of College Student Development, 54(4), 439-446.
https://doi.org/10.1353/csd.2013.0063
Sitkin, S. B., & Weingart, L. R. (1995). Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of management Journal, 38(6), 1573-1592.
https://doi.org/10.2307/256844
Sjöberg, L., & Engelberg, E. (2009). Attitudes to economic risk taking, sensation seeking and values of business students specializing in finance. The Journal of Behavioral Finance, 10(1), 33-43.
https://doi.org/10.1080/15427560902728712
Thailand National Statistics Office. (2019). The informal employment survey 2019. http://www.nso. go.th
Tokar Asaad, C. (2015). Financial literacy and financial behavior: Assessing knowledge and confidence. Financial Services Review, 24(2), 101-117.
Van de Venter, G., Michayluk, D., & Davey, G. (2012). A longitudinal study of financial risk tolerance. Journal of Economic Psychology, 33(4), 794-800.
https://doi.org/10.1016/j.joep.2012.03.001
Vlaev, I., Chater 1, N., & Stewart, N. (2009). Dimensionality of risk perception: Factors affecting consumer understanding and evaluation of financial risk. The Journal of Behavioral Finance, 10(3), 158-181.
https://doi.org/10.1080/15427560903167720
Wanyana, B., Nabeta, I. N., & Ntayi, J. (2011). Investor awareness, perceived risk attitudes, and stock market investor behaviour: A case of Uganda securities exchange. Kampala, Uganda: Master thesis, Makerere University, Business School.
Williams, E. F., & Gilovich, T. (2008). Do people really believe they are above average?. Journal of Experimental Social Psychology, 44(4), 1121-1128. World Bank (2020). World Development Indicators. https://databank.worldbank.org/ Yang, M., Mamun, A. A., Mohiuddin, M., Al-Shami, S. S. A., & Zainol, N. R. (2021). Predicting stock market investment intention and behavior among Malaysian working adults using partial least squares structural equation modeling. Mathematics, 9(8), 873.
https://doi.org/10.1016/j.jesp.2008.01.002
YimYam, S., Misith, C., Udomvong, N., & Lee Chana, W. R. (2000). The synthesis of knowledge on informal workers. Chiangmai Province: Chiangmai University.
Zahra, D. R., & Anoraga, P. (2021). The influence of lifestyle, financial literacy, and social demographics on consumptive behavior. Journal of Asian Finance, Economics and Business, 8(2), 1033-1041.
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.
