Is There a Relationship between Financial literacy and Investment Decisions in the Kingdom of Bahrain?

Abstract

Financial literacy has ever increasing importance in our day. Whether people are financially knowledgeable, helps greatly in making rational investment decisions. Numerous studies have been undertaken to explore, investigate and measure financial literacy in several developed countries. However, very few of them have been conducted in the Arab World and Gulf Countries.  Therefore, the purpose of this study is to measure the level of financial literacy of the Bahraini individual investors. In addition to, examine the relationship between financial literacy and investment decisions in the Kingdom of Bahrain. Methodology: The study draws on 228 questionnaire surveys of investors in Bahrain. In order to measure the level of financial literacy of the Bahraini investors, the approach of Lusardi and Mitchell (2006) was utilized in this research effort. The data were analyzed using Pearson Correlation, t-teat and Chi-square test. Results: The results reveal that the financial literacy level of the Bahraini investors is found to be low (38.6%) and far from the needed level. When we analyzed the level of financial literacy based on the demographic variables, we found that women are generally less financially literate than are men; respondents of age 41-50 are more knowledgeable than all other age groups, and financial literacy is highly correlated with education. Moreover, participants in high financial literacy group (HFLG) have higher awareness level for all financial products except for certificate of deposit and post office savings. Conclusion: Further, participants in low financial literacy group (LFLG) mainly prefer to invest in traditional and safe financial products and do not invest much in complex financial products which are comparatively riskier and can give higher return.