Financial Literacy and Financial Well Being

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FINANCIAL LITERACY AND FINANCIAL WELL BEING
- Ms. Sudeshna T (Assistant Professor, Dept of Commerce, Ethiraj College for Women)
- Dr. Sujatha Balakrishnan (Associate Professor, Dept of Commerce, Ethiraj College for Women)
ABSTRACT
A person’s ability to manage his personal finance has become important in today’s world.
Increased complexities of the economy, other factors such as low savings rates, growing
bankruptcy rates and debt levels, and increased responsibility among individuals for making
decisions that affect their economic future has generated an interest in measuring the financial
literacy. This paper measures the level of financial literacy of individuals and analyses the
relationship between financial literacy and financial wellbeing. The results of the research
show that individuals have a reasonable level of financial literacy. Those with low education
and women had low financial literacy levels. On analyzing various demographic variables
like gender, education and age, it was found that there was a significant difference in literacy
levels. Financial literacy can enhance people’s skills and abilities to make more informed
choices and ultimately lead to a positive financial wellbeing.
Key words: basic financial literacy, advanced financial literacy, financial wellbeing
INTRODUCTION
“Financial literacy is not an end in itself, but a step-by-step process. It begins in
childhood and continues throughout a person’s life all the way to retirement” – George
Karl.
Financial Literacy is the ability to understand how money works in the world and take
an informed as well as a judicious decision with regard to all financial activities. A person
who is financially literate knows how to earn, manage and invest money. He is familiar with
financial products and applies his knowledge to make the best use of them. Recent
developments have made financial education and awareness increasingly important for
financial wellbeing.
The information available on consumer financial literacy shows that individuals
generally lack an adequate financial background or understanding to navigate today’s
complex market, but unfortunately they also generally believe that they are far more
financially literate than is really the case. The level of financial literacy tends to vary

according to education and income levels, but the evidence shows that highly educated
consumers with high incomes can be just as ignorant about financial issues as less educated,
lower income consumers.
According to a global financial literacy survey conducted by Standard & Poor’s among
158 Countries of the world, it was found that countries with higher literacy rates include
Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden,
and the UK, where more than 65% of adults are financially literate. Singapore has the highest
percentage of financially literate adults (59%) in Asia. India was among the least financially
literate countries and was ranked 121 with just 24% being financial literate. While the
number is much lower than the worldwide financial literacy rate, it’s roughly in line with the
BRIC and South Asian nations.
The objective of this paper is to attempt to understand the level of financial literacy of
individuals. The relationship between financial literacy and financial wellbeing is also
studied. Although several studies have been conducted in the subject of financial literacy but
not many have considered impact of financial literacy on financial wellbeing. This paper
helps to fill this gap.
REVIEW OF LITERATURE
Annamaria Lusardi 2008: Individual are in charge of their own financial security.
However they are not well equipped to make sound saving decisions. The paper studies
financial literacy among the US population and the result show those with low education,
women, African-Americans & Hispanics have low literacy levels.
Haiyang Chen & Roanld P. Volpe – 2002 USA. On surveying financial literacy among
college students found that women generally have less knowledge about personal finance
topics. Gender differences were statistically significant and it was found education &
experience have a significant impact on the financial literacy of men and women.
Maarten van Rooij, Annamaria Lusardi, Rob Alessie: To understand financial
literacy and its relation to financial decision making it is essential to measure numeracy and
basic knowledge related to the working of inflation and interest rates as well as to measure
advanced financial knowledge related to financial market instruments like stocks, bonds and
mutual funds. The study showed that those who have low financial literacy are significantly
less likely to invest in stocks.

OBJECTIVES
The main objectives of the paper are as follows:
1. To measure the level of financial literacy. This is done by measuring both basic and
advanced financial literacy. An analysis of the relationship between demographic
characteristics and basic & advanced financial literacy has also been covered.
2. To measure financial wellbeing.
3. To analyze the relationship between financial literacy and financial wellbeing
DATA AND METHODOLOGY
For the purpose of the study convenience sampling was followed and 100 responses were
collected. The study uses questionnaire method of data collection. The questionnaire
consisted of three parts: the first part covers demographic information, the second part aims
at measuring the level of financial literacy and the third part aims to analyze the financial
wellbeing of the respondents.
ANALYSIS AND RESULTS
Preliminary analysis
Cronbach’s alpha test was administered to assess the reliability of the questionnaire. The
result of the reliability coefficient (alpha) was 0.730. Demographic profile of the
respondents show that majority of the respondents were male (70%). 47% of the respondents
were upto 40 years of age and 53% of them were above the age of 40. 60% of the
respondents were post graduates or professionals. 84% of them were married and 70% work
in the private sector. 61% of the respondents had a job profile which is non-financial in
nature. The sample was fairly evenly distributed with respect to income, 35% were earning
below Rs 50,000/- per month, 27% were in the income range of Rs 50,000/- to 1 lakh per
month and 38% were earning more than a lakh per month.
Overall literacy
To test the level of literacy of the respondents, 20 questions were asked to assess their
knowledge on various concepts like simple interest, compounding, time value of money,
inflation, credit purchase, savings interest, diversification, stock markets, bonds, debentures,
mutual funds and loan financing. For each of the questions three options (Yes / No / Don’t
know) were given to the respondents. The answers given by the respondents were evaluated
for each of the questions and categorized into ‘correct answers’, ‘incorrect answers’ and
‘don’t know’

TABLE – 1 : CONCEPT WISE FINANCIAL LITERACY SCORE
Financial Concept Incorrect
Answer Don’t Know Correct
Answer Total
Simple interest 9 3 88 100
Compound interest 16 15 69 100
Inflation -1 22 0 78 100
Time value of money 38 0 62 100
Inflation – 1 17 0 83 100
Stock market – 1 13 11 76 100
Stock market – 2 20 11 69 100
Mutual fund – 1 8 13 79 100
Mutual fund – 2 21 15 64 100
Bonds / debentures – 1 33 32 35 100
Bonds / debentures - 2 13 20 67 100
Stocks and mutual funds –
comparison 21 20 59 100
Stocks and Bonds /
debentures – comparison 11 12 77 100
Long period returns 6 14 80 100
Stock market fluctuation 11 5 84 100
Diversification 17 7 76 100
Credit purchase 56 1 44 100
Credit card 13 0 87 100
Bank interest rate 14 0 86 100
Loan financing 4 16 80 100
An item wise analysis was conducted for each of the questions on knowledge.More
than 80% of the respondents were well aware about the concept of simple interest, inflation,
stock price fluctuations, credit cards and savings account interest as they have answered the
questions on the above concepts correctly. The respondents had a reasonably good score of
70 – 80% for concepts such as stock market functions, mutual fund, stock & bond risk
factors, diversification and loan financing by answering them correctly. This is followed by
respondents having 60 – 70% score for concepts such as compounding, time value of money,
stock markets, return on mutual funds and bonds. It is observed that most don’t have
knowledge about bond / debenture prices and credit purchasing power, as only 35% and 44%
of the respondents answered the two questions correct respectively.
To obtainan overall score on financial literacy for each respondent, the ‘correct’answers
given by the respondents for each of the questionis considered. It can be summarized that the
overall mean score of the respondents for ‘correct’ answer was 14.43 and SD was 4.02. The
minimum score was 2 and maximum was 20. It is found that 64% of the respondents have a

fairly reasonable overall financial literacy score as they have answered more than two thirds
of the questions correctly. 3% of the respondents have answered less than one third of the
questions correctly and have a low overall financial literacy and 33% of the respondents
have moderate financial literacy as they have answered 7 to 13 questions correctly.
For a deeper analysis the questions were categorized into two groups (basic literacy and
advanced literacy). The first group consists of questions which capture people’s capacity to
handle basic financial literacy concepts such as simple interest, compounding, time value of
money, inflation, credit purchase and savings interest. The second group is intended to
capture sophisticated or advanced financial literacy concepts such as risk / return, difference
between stocks and bonds, functioning of the stock market, relationship between bond prices
and interest rates, working of mutual funds, risk diversification and loan financing.
Basic literacy
The mean score of the respondents for basic literacy was 5.97 and SD was 1.50. 75%
of the respondents have a score higher than the mean value. This shows that ¾ of the
respondents are well aware of basic literacy concepts. Further the respondents were grouped
into three categories – those with low, moderate and high level of knowledge. It is observed
that 68% of the respondents fall into the ‘high’ category and have answered 6 or more
questions correctly from a total of 8. 31% of the respondents fall in the moderate segment by
having given 3 to 5 correct answers and just 1% of the respondents fall in the low basic
literacy segment with a maximum score of just 2 correct answers.
With respect to individual questions on basic literacy more than 80% of the people have
got questions on simple interest, inflation, credit cards and savings interest rate correct.
However only 44% were aware of the concept of how credit purchase affects purchasing
power. 60 to 70% of them were well informed about time value of money.
DEMOGRAPHIC ANALYSIS WITH RESPECT TO BASIC LITERACY
TABLE – 2 : ANALYSIS OF BASIC LITERACY QUESTIONS – GENDER
MALE
Concepts Simple
interest Compounding Inflation-
1
Time
Value of
Money
Inflation-
2
Credit
Purchase
Credit
Card
Bank
Interest
Rate
Correct 88.57 70.00 81.43 60.00 81.43 44.29 88.57 91.43
Wrong 8.57 15.71 18.57 40.00 18.57 54.29 11.43 8.57
Don’t
Know 2.86 14.29 0.00 0.00 0.00 1.43 0.00 0.00
FEMALE
Concepts Simple Compounding Inflation- Time Inflation- Credit Credit Bank

interest 1 Value of
Money 2 Purchase Card Interest
Rate
Correct 86.67 66.67 70.00 66.67 86.67 43.33 83.33 73.33
Wrong 10.00 16.67 30.00 33.33 13.33 56.67 16.67 26.67
Don’t
Know 3.33 16.67 0.00 0.00 0.00 0.00 0.00 0.00
Gender - Analysis of basic literacy with respect to gender showed that for 6 out of eight
questions a higher percentage of males answered correctly when compared to females.
However for inflation, females fared slightly better. For the concept of compounding the
percentage of respondents who opted ‘don’t know’ was very high when compared to other
questions in this section among both men and women. It is also interesting to note that on an
average 86% of the respondents answered the question on bank interest rate correctly,
however only 73% of the women got it right while the same was 91% for men.
TABLE – 3 : ANALYSIS OF BASIC LITERACY QUESTIONS – EDUCATION
UPTO DEGREE
Concepts Simple
interest Compounding Inflation
-1
Time
Value of
Money
Inflation
-2
Credit
Purchase
Credit
Card
Bank
Interest
Rate
Correct 87.5 65 72.5 52.5 80 35 80 92.5
Wrong 7.5 17.5 27.5 47.5 20 65 20 7.5
Don’t
Know 5 17.5 0 0 0 0 0 0
POSTGRADUATION AND ABOVE
Concepts Simple
interest Compounding Inflation-
1
Time
Value of
Money
Inflation
-2
Credit
Purchase
Credit
Card
Bank
Interest
Rate
Correct 88.33 71.67 81.67 68.33 85.00 50.00 91.67 81.67
Wrong 10.00 15.00 18.33 31.67 15.00 48.33 8.33 18.33
Don’t Know 1.67 13.33 0.00 0.00 0.00 1.67 0.00 0.00
Education – Except for the question on bank interest rate as is expected those with higher
education fared better than those who received education only upto the graduation level.
Also those who were graduates or less qualified were more unaware about simple &
compound interest compared to those with higher education. Further it is noticed that
maximum incorrect responses was received for the question on credit purchase. (65% in the
upto degree category and 48% in the post graduate & above category)
TABLE – 4 : ANALYSIS OF BASIC LITERACY QUESTIONS – MONTHLY
INCOME
UPTO RS.50,000/-
Concepts Simple
interest
Compoundin
g
Inflatio
n-1
Time
Value
Inflatio
n-2
Credit
Purchas
Credit
Card
Bank
Interest Rate

of
Money e
Correct 88.57 65.71 74.29 45.71 91.43 40.00 80.00 74.29
Wrong 5.71 17.14 25.71 54.29 8.57 60.00 20.00 25.71
Don’t
Know 5.71 17.14 0.00 0.00 0.00 0.00 0.00 0.00
RS.50,000/- TO RS.1,00,000/-
Concepts Simple
interest
Compoundin
g
Inflation-
1
Time
Value of
Money
Inflation-2 Credit
Purchase
Credit
Card
Bank
Interest
Rate
Correct 96.30 74.07 77.78 59.26 74.07 59.26 96.30 100.00
Wrong 3.70 14.81 22.22 40.74 25.93 40.74 3.70 0.00
Don’t
Know 0.00 11.11 0.00 0.00 0.00 0.00 0.00 0.00
MORE THAN RS.1,00,000/-
Concepts Simple
interest
Compoundin
gInflation-1
Time
Value of
Money
Inflation-2
Credit
Purchas
e
Credit
Card
Bank
Interest
Rate
Correct 81.58 68.42 81.58 78.95 81.58 36.84 86.84 86.84
Wrong 15.79 15.79 18.42 21.05 18.42 60.53 13.16 13.16
Don’t
Know 2.63 15.79 0.00 0.00 0.00 2.63 0.00 0.00
Income – For the question on time value of money those in the income group above one lakh
have a much higher scope (79%) compared to the other two income categories i.eRs 50,000/-
to 1 lakh (46%) and less than Rs 50,000/- (54%). For 5 out of 8 questions the middle income
group have highest correct answer scores. It is also worth noting that for the question on
inflation alone the group with income below Rs 50,000/- has scored highest (91%) compared
to the others.In comparison with the others, it may be concluded that the middle income
group appears to be more aware with respect to savings interest rate as 100% of the
respondents answered this question correctly.
Advanced literacy
Mean score of the respondents for advanced literacy is 8.46 with a SD of 2.95. Questions
on stock markets, bonds, debentures, mutual funds, diversification and loan financing were
asked to test the level of advanced literacy among respondents.
A similar analysis as that of basic literacy was performed and the scores of the
respondents in this group were also categorized into low, moderate and highlevel. The results
show that 58% of the respondents fall into the high category and have answered 9 or more
out of 12 questions correctly. 29% of the respondents are in the moderate literacy level by

giving between 5 to 8 correct answers. 13% of the respondents belong to the low advanced
literacy segment.
A comparison of the two levels of literacy – basic and advanced, shows that only 1% of
respondents had poor knowledge of basic literacy concepts, whereas the same is 13% for
advanced literacy. Also 68% of respondents had good knowledge on basic literacy concepts,
whereas the same is 58% for advanced literacy.
In the advanced literacy segment for 7 out of 12 questions more than 75% of the
respondents gave correct answers. A large number of respondents were not aware of bond
prices as only 35% gave the ‘correct’ answer. For the question on comparison between stocks
& bonds and stocks & mutual funds, number of respondents who opted ‘don’t know’ is
higher than those who gave the wrong answer.
DEMOGRAPHIC ANALYSIS WITH RESPECT TO ADVANCED BASIC LITERACY
TABLE –5: ANALYSIS OF ADVANCED LITERACY QUESTIONS – GENDER
MALE
Concept
s
Stock
market – 1
Stock
market – 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 74.29 74.29 77.14 68.57 34.29 74.29
Wrong 14.29 15.71 10.00 18.57 35.71 8.57
Don’t
Know 11.43 10.00 11.43 12.86 30.00 17.14
Concept
s
Stocks and
mutual
funds –
comparison
Stocks and
Bonds /
debentures–
comparison
Long
period
returns
Stock
market
fluctuatio
n
Diversification Loan Financing
Correct 70.00 80.00 84.29 84.29 77.14 81.43
Wrong 18.57 8.57 5.71 10.00 15.71 4.29
Don’t
Know 11.43 11.43 10.00 5.71 7.14 14.29
FEMALE
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 80.00 56.67 80.00 53.33 36.67 50.00
Wrong 10.00 30.00 3.33 26.67 26.67 23.33
Don’t
Know 10.00 13.33 16.67 20.00 36.67 26.67
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 33.33 70.00 70.00 83.33 73.33 76.67
Wrong 26.67 16.67 6.67 13.33 20.00 3.33
Don’t
Know 40.00 13.33 23.33 3.33 6.67 20.00

Gender – For concepts on stock market, debentures, stocks and mutual funds there is a
significant difference in the correct answers given by male and female respondents’ i.e.
higher percentage of men have answered them correctly. For questions on mutual fund
functions, interest rates and long period returns there is only moderate difference in
percentage of correct answers between genders. For 75% of questions males have fared
better than females. Also females are more unsure of the answers for concepts on mutual
funds, bond prices, stock returns and loan financing when compared to males.
TABLE – 6 : ANALYSIS OF ADVANCED LITERACY QUESTIONS – EDUCATION
UPTO DEGREE
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 60.00 57.50 72.50 57.50 30.00 52.50
Wrong 15.00 27.50 10.00 22.50 27.50 17.50
Don’t
Know 25.00 15.00 17.50 20.00 42.50 30.00
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 42.50 67.50 72.50 72.50 67.50 75.00
Wrong 30.00 12.50 5.00 17.50 25.00 0.00
Don’t
Know 27.50 20.00 22.50 10.00 7.50 25.00
GRADUATION AND ABOVE
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 86.67 76.67 83.33 68.33 38.33 76.67
Wrong 11.67 15.00 6.67 20.00 36.67 10.00
Don’t
Know 1.67 8.33 10.00 11.67 25.00 13.33
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 70.00 83.33 85.00 91.67 81.67 83.33
Wrong 15.00 10.00 6.67 6.67 11.67 6.67
Don’t
Know 15.00 6.67 8.33 1.67 6.67 10.00
Education – More educated the respondents were, more financially literate they are. Also a
number of less qualified respondents have opted ‘don’t know’ for 11 out of 12 questions.
This is not the case with respect to postgraduates or professionals. As expected it is seen that
education plays an important role with respect to financial literacy.
TABLE – 7 : ANALYSIS OF ADVANCED LITERACY QUESTIONS – MONTHLY
INCOME

BELOW RS.50,000/-
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 74.29 51.43 71.43 45.71 34.29 51.43
Wrong 11.43 31.43 8.57 31.43 34.29 22.86
Don’t
Know 14.29 17.14 20.00 22.86 31.43 25.71
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 42.86 60.00 71.43 68.57 57.14 71.43
Wrong 31.43 20.00 2.85714286 20 28.5714286 5.71428571
Don’t
Know 25.71 20.00 25.7142857 11.4285714 14.2857143 22.8571429
RS.50,000/- TO RS.1,00,000/-
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 70.37 70.37 85.19 77.78 40.74 70.37
Wrong 18.52 18.52 3.70 14.81 22.22 3.70
Don’t
Know 11.11 11.11 11.11 7.41 37.04 25.93
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 70.37 85.19 88.89 88.89 81.48 77.78
Wrong 14.81 7.41 3.7037037 7.40740741 11.1111111 7.40740741
Don’t
Know 14.81 7.41 7.40740741 3.7037037 7.40740741 14.8148148
MORE THAN RS.1,00,000/-
Concept
s
Stock market
– 1
Stock market
– 2
Mutual
fund – 1
Mutual
fund – 2
Bonds /
debentures – 1
Bonds /
debentures – 2
Correct 81.58 84.21 81.58 71.05 31.58 78.95
Wrong 10.53 10.53 10.53 15.79 39.47 10.53
Don’t
Know 7.89 5.26 7.89 13.16 28.95 10.53
Concept
s
Stocks and
mutual funds
– comparison
Stocks and
Bonds /
debentures–
comparison
Long period
returns
Stock
market
fluctuation
Diversification Loan Financing
Correct 65.79 86.84 81.58 94.74 89.47 89.47
Wrong 15.79 5.26 10.5263158 5.26315789 10.5263158 0
Don’t
Know 18.42 7.89 7.89473684 0 0 10.5263158
Income – Those in the high income group performed the best by scoring highest percentage
of correct answers for 7 out of 12, compared to the other two groups. Respondents in the
middle income group fared better by receiving maximum scores for 5 out of 12 questions
compared to the low income group. The usage of ‘don’t know’ was highestin the low income
group.

TEST OF SIGNIFICANCE
A t-test for equality of means was conducted to find if there was any significant
difference among respondents with respect to various demographics such as age, gender,
education, income & work profile, in the basic, advanced and overall literacy categories. The
results show that there is no significant difference between male and female respondents in
the basic and overall literacy segments. Whereas there is a significant difference at 5% level
among gender in the advanced literacy category.
No significant difference was found between age groups for basic, advanced and overall
literacy.
TABLE – 8& 9 : t TEST FOR SIGNIFICANT DIFFERENCE
Particular
s
EDUCATION
t value p valueUpto Degree Degree & above
Mean SD Mean SD
Basic
Literacy -
70.62 18.02 77.29 18.90 1.777 0.079
Advanced
Literacy -
60.62 26.28 77.08 21.23 3.306 0.001**
Overall
Literacy -
64.62 20.20 77.16 18.55 3.141 0.002**
Particular
s
WORK PROFILE
t value p valueFinancial Non Financial
Mean SD Mean SD
Basic
Literacy -
82.05 16.67 69.87 18.59 3.404 0.001**
Advanced
Literacy -
75.85 22.68 67.07 25.38 1.801 0.075
Overall
Literacy -
78.33 17.06 68.19 21.01 2.643 0.010**
TABLE -10: ANOVA FOR SIGNIFICANT DIFFERENCE BETWEEN INCOME
Particulars f value p value
Basic Literacy - 2.097 0.128
Advanced Literacy - 7.524 0.001**
Overall Literacy - 6.160 0.003**
** Denotes significant at 1% level
With respect to education there was no significant difference in the basic literacy for
respondents who were educated up to the graduate level and post graduates. In case of
advanced & overall literacy there was a significant difference at 1% level among respondents
in the two categories. It may be concluded that education plays a major role in making
people more financially literate.

While examining work profile, respondents exhibited significant difference at 1% level
in case of basic and overall literacy but there was no significant difference between
respondents in the financial and non-financial segments with respect to advanced financial
literacy.
One way ANOVA is performed to test for significance among three income levels for
basic, advanced & overall literacy. The test shows that there is no significant difference
among income levels for basic literacy. However for advanced and overall literacy scores
there is a significant difference at 1% level among the three income groups. It is to be noted
that the respondents in the high income group performed better than the middle and low
income groups, whereas the middle income group performed better than the low income
group.
FINANCIAL WELLBEING
Financial wellbeing includes elements such as having control over ones’ finances,
capacity to absorb a financial shock, being on track to meet financial goals and the financial
freedom to make choices that allow one to enjoy life. A section of the questionnaire in this
paper is devoted to studying financial wellbeing.
Majority of the respondents (65%) appear to be satisfied with their financial status. 64%
of the respondents spend well within their monthly budget thereby leaving them with some
excess funds at the end of the month. However 45% of the respondents were not very sure if
they could handle unexpected emergency expenses. With respect to loans 63% were worried
about their debt and therefore do not exhibit financial wellbeing. 46% of the people feel they
could enjoy life because of the way they manage their funds, which show that a majority do
not enjoy wellbeing with respect to this factor.
Level of financial literacy and wellbeing
This section aims to study the relationship between the level of literacy (knowledge) and
financial wellbeing. Pearson’s correlation test is used to determine the relationship between
the basic literacy, advanced literacy, overall literacy and financial wellbeing. The results
show that the correlation coefficient between basic literacy and financial wellbeing is 0.436
which indicates 43.6% positive relationship between basic literacy and wellbeing and this is
significant at 1% level. The correlation coefficient between advanced literacy and wellbeing
indicates 51.3% positive relationship between the two variables and correlation between
overall literacy score and wellbeing is 54% positive at 1% level. It is clear from the above
analysis that the level of literacy has a positive relationship with financial wellbeing.

TABLE – 11 : CORRELATION
Basic
Literacy
Advanced
Literacy
Overall
Literacy
Self Assessment
Literacy
Financial well
being
Basic
Literacy 1 .584(**) .802(**) .349(**) .436(**)
Advanced
Literacy - 1 .953(**) .455(**) .513(**)
Overall
Literacy - - 1 .465(**) .540(**)
Self
Assessment
Literacy
- - - 1 .373(**)
** Correlation is significant at the 0.01 level (2-tailed).
TABLE – 12 : MULTIPLE REGRESSION ANLAYSIS
Variables
Unstandardized
Coefficients SE of B
Standardized
Coefficients t Sig.
(Constant) 11.246 1.319 8.529 .000
Basic Literacy .512 .261 .207 1.964 .050
Advanced Literacy .493 .132 .392 3.726 .000
Dependent Variable: Financial well being
These results are further validated by performing a regression analysis. The
dependent variable is financial wellbeing and the independent variables are basic and
advanced literacy. Based on the standardized coefficient it can be inferred that advanced
literacy (0.392) is the most important factor influencing wellbeing followed by basic literacy
(0.207)
CONCLUSION AND DISCUSSION
This paper attempts to evaluate the level of financial literacy (knowledge) and bring out its
impact on financial wellbeing.
The major findings of this study are that most of the respondents (64%) have a
reasonable level of financial literacy. This is a positive sign. It is found that 80% of the
respondents are well aware of basic literacy concepts such as simple interest, inflation, credit
cards and savings interest rate. Only 56% of the respondents are well aware of advanced
literacy concepts such as long period returns, stock price fluctuations, risk / return on stocks /
bonds and diversification. Respondents are quite unaware with basic financial concept such
as compounding, time value of money and credit purchase and advanced financial concepts
such as functioning of the stock market, bond prices, mutual fund and loan financing. Men

seem to have better basic and advanced financial literacy than women. Education plays an
important role in enhancing financial literacy as it is found that those with higher education
have better financial literacy. Those above the age of 40 have performed better than the
younger generation.
About half of the respondents (54%) have perceived themselves to have good
knowledge about financial concepts. Most of the respondents (65%) have assessed their
knowledge of financial concepts correctly as their subjective and objective literacy scores are
similar. However 20% do exhibit under confidence and 15% are over confident.
Results also show that though more than 60% of the respondents appear to be satisfied
with their financial status, but there seems to be a problem with too much loan for most of
them (63%). Overall more than 50% of the respondents do not enjoy financial wellbeing.
With respect to the relationship between financial literacy and financial wellbeing it may be
concluded that the result show a positive relationship between basic and advance financial
literacy and financial wellbeing.
Limitations of the study and scope for further research
Though the present study throws light on the level of financial literacy of individuals, the
study was conducted in the urban area of Chennai, where most of the people who received
formal education answered the questionnaire. Also a larger sample could have helped to draw
a more emphatic conclusion. Future studies can be widespread covering semi-urban and rural
areas, to draw conclusion on financial literacy levels in India.
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