An investigation on Financial Literacy: a case of Southern Punjab, Pakistan

Abstract

Financial literacy is recognized as the core skill for the people
participating in the financial markets. It plays a crucial role in
creating an environment that promotes desired financial
behaviors. It helps people in making more informed financial
decisions. It’s the matter of concern for both developed as well as
developing countries. In Pakistan, financial literacy is deemed as
the main reason of poor financial inclusion. In this study we aimed
to measure the basic and advance financial literacy among the
portfolio investors of Punjab by using the tools suggested by the
OECD and Lusardi (2008). Previously, basic financial literacy
was measured either on the basis of understanding of basic finance
terms or on the basis of modules devised for HRS (2004). These
are the two extreme sides of the continuum of financial literacy.
Prior one follows a simple criterion to measure it by asking people
whether they have heard about or understand the basic finance
terms or not. While the later method is a complex one which
measures one’s financial literacy on the basis of people’s
understanding of finance concepts like numeracy, risk
diversification and inflation. There was a need to have an
intermediate way of measuring financial literacy. So
operationalizing the definition of OECD, we are not only
concerned about the people’s understanding of finance terms but
also their attitude and behavior about those financial terms by asking them whether they are in contact with these terms or not.
And by using the set of questions adopted from HRS used by the
most of the studies done on financial literacy, we measured
advance financial literacy. It is a descriptive study in which
quantitative methodology is used. We used simple descriptive
statistics for measuring basic and advance financial literacy and
sources of information.