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Is Financial Literacy Associated with Investment in Financial Markets in the United States?

Author

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  • Mostafa Saidur Rahim Khan

    (School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashi Hiroshima, Hiroshima 739-8525, Japan)

  • Naheed Rabbani

    (Department of Banking and Insurance, University of Dhaka, Dhaka 1000, Bangladesh)

  • Yoshihiko Kadoya

    (School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashi Hiroshima, Hiroshima 739-8525, Japan)

Abstract

Lack of investment in financial markets is one of the enduring puzzles in empirical finance. Although recent studies ascribe the lack of investment in stocks to financial literacy, the association between financial literacy and investment in financial markets remains inconclusive. We examine whether financial literacy is associated with investment in financial markets in the United States. We use investment in stocks, futures/options, investment trusts, corporate bonds, foreign currency deposits, and government bonds of foreign currency as a proxy for investment in financial markets. Using data from the Preference Parameter Study, a nationwide panel survey conducted by Osaka University of Japan, we provide evidence that financial literacy has a significantly positive association with investment in financial markets even after controlling for demographic, socioeconomic, and psychological factors. We check the robustness of our results by using an alternative proxy for investment in financial markets. Our study has far-reaching policy implications and we conclude by suggesting the introduction of financial literacy programs into the academic curriculum. Improving financial literacy could positively impact the mobilization of household funds and contribute to capital formation.

Suggested Citation

  • Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2020. "Is Financial Literacy Associated with Investment in Financial Markets in the United States?," Sustainability, MDPI, vol. 12(18), pages 1-14, September.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:18:p:7370-:d:410657
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    References listed on IDEAS

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    Cited by:

    1. Mostafa Saidur Rahim Khan & Pongpat Putthinun & Somtip Watanapongvanich & Pattaphol Yuktadatta & Md. Azad Uddin & Yoshihiko Kadoya, 2021. "Do Financial Literacy and Financial Education Influence Smoking Behavior in the United States?," IJERPH, MDPI, vol. 18(5), pages 1-18, March.
    2. Shunsuke Ono & Pattaphol Yuktadatta & Takafumi Taniguchi & Tomoe Iitsuka & Masafumi Noguchi & Sawa Tanaka & Haruka Ito & Kousei Nakamura & Nanako Yasuhara & Chihiro Miyawaki & Katsumi Mikura & Mostafa, 2021. "Financial Literacy and Exercise Behavior: Evidence from Japan," Sustainability, MDPI, vol. 13(8), pages 1-15, April.
    3. Yoshihiko Kadoya & Naheed Rabbani & Mostafa Saidur Rahim Khan, 2022. "Insurance literacy among older people in Japan: The role of socio‐economic status," Journal of Consumer Affairs, Wiley Blackwell, vol. 56(2), pages 788-805, June.
    4. Pattaphol Yuktadatta & Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2021. "Financial Literacy and Exercise Behavior in the United States," Sustainability, MDPI, vol. 13(16), pages 1-17, August.
    5. Takuya Katauke & Sayaka Fukuda & Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2023. "Financial Literacy and Impulsivity: Evidence from Japan," Sustainability, MDPI, vol. 15(9), pages 1-14, April.
    6. Chen, Haiyang & Dai, Ya & Guo, David, 2023. "Financial literacy as a determinant of market participation: New evidence from China using IV-GMM," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 611-623.
    7. Mostafa Saidur Rahim Khan & Pattaphol Yuktadatta & Yoshihiko Kadoya, 2022. "Who Became Lonely during the COVID-19 Pandemic? An Investigation of the Socioeconomic Aspects of Loneliness in Japan," IJERPH, MDPI, vol. 19(10), pages 1-18, May.
    8. Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2021. "Can Financial Literacy Explain Lack of Investment in Risky Assets in Japan?," Sustainability, MDPI, vol. 13(22), pages 1-12, November.
    9. Naheed Rabbani, 2023. "Financial Conditions and Borrowing Behavior of University Students during the COVID-19 Pandemic: Evidence from Bangladesh," Sustainability, MDPI, vol. 15(19), pages 1-16, September.
    10. Isidore, Renu & Arun, C. Joe, 2023. "The Moderating Effect of Financial Literacy on the Relationship Between Decision-Making Tools and Equity Returns in the Indian Secondary Equity Market," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 15(1), pages 185-211, January.
    11. Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2021. "Loneliness during the COVID-19 Pandemic: A Comparison between Older and Younger People," IJERPH, MDPI, vol. 18(15), pages 1-15, July.
    12. David Aristei & Manuela Gallo, 2021. "Financial Knowledge, Confidence, and Sustainable Financial Behavior," Sustainability, MDPI, vol. 13(19), pages 1-21, September.
    13. Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2023. "Who Became Victims of Financial Frauds during the COVID-19 Pandemic in Japan?," Sustainability, MDPI, vol. 15(4), pages 1-17, February.
    14. Pongpat Putthinun & Somtip Watanapongvanich & Mostafa Saidur Rahim Khan & Yoshihiko Kadoya, 2021. "Financial Literacy and Alcohol Drinking Behavior: Evidence from Japan," Sustainability, MDPI, vol. 13(16), pages 1-13, August.
    15. Tahira Iram & Ahmad Raza Bilal & Zeshan Ahmad & Shahid Latif, 2023. "Does Financial Mindfulness Make a Difference? A Nexus of Financial Literacy and Behavioural Biases in Women Entrepreneurs," IIM Kozhikode Society & Management Review, , vol. 12(1), pages 7-21, January.

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