IJIRMPS | Volume 9, Issue 4, 2021 ISSN: 2349-7300

A Study on the Impact of Financial Literacy on the

Financial Behaviour of College Students
Mahima Ninan1, Anu Kurian2
1
Student, 2Assistant Professor
Saintgits Institute of Management,
Kottayam, Kerala, India

Abstract: Financial literacy is increasingly vital as it has become essential that individuals acquire the skills to be able to
survive in modern society and cope with the increasing diversity and complexity of financial products and services available.
Financial literacy is the ability to take effective and sound decisions regarding the use and management of money. In the
current era, no one can deny the importance of proper decision-making in the finance sector. If someone is not having
enough financial literacy, how can he or she plan for a secure future! Especially when we talk about financial literacy among
the students it is always a big matter because ultimately, they are the future of the country. The main objective of the study
is to analyse the impact of financial literacy on the financial behaviour of college students. And also, the study examines the
level of financial literacy among college students in India by evaluating the influence of various demographic factors like
gender, type of courses, and income. The demographic, as well as financial behaviour and financial literacy, are the variables
used in this study. Regression proved that there is a statistically significant influence of financial literacy on the financial
behaviour of the students. And also, the demographics of student has a significant relationship with financial literacy.

Keywords: Financial Literacy, Financial Behaviour, Financial Planning, Saving Behaviour, Credit Behaviour

Introduction
“Financial literacy means knowledge and the ability to understand and apply different financial skills effectively on various financial
areas including personal finance management, budgeting and investing.” The people should need proper plans for the long-term
investments for their future aspects of emergency needs. On the other hand, they should hold strong financial literacy about personal
finance to decide on investment, especially students when they will start to earn. Additionally, they must manage their own medical
as well as life insurance needs. Nowadays, the younger generation, especially college students are lacking the financial knowledge
to make financial decisions. They love spending rather than saving. By keeping the future in mind, the students should develop the
habit of saving and investing their money in various financial instruments. They should be aware of the various financial services
and facilities provided by the banks and financial bodies which will influence them to make sound decisions and to plan a safe and
better future with a financial backup by not being dependent on anyone. Over the past two decades, both developed as well as
developing countries have become increasingly concerned about the level of financial literacy of their citizens, particularly among
young people.

To be financially literate is important to make good financial decisions. Young adults especially college students are facing a tough
financial decision in today’s demanding financial environment which will affect their financial behavior. This research objective is
to find out the influence of financial literacy on financial behavior and how financial behavior influences saving behavior, credit
behavior, and financial planning of college students.

 To study the association of financial literacy with various students’ demographics

 To analyze the effect of financial literacy on the financial savings behavior of college students.
 To analyze the effect of financial literacy on the financial credit behavior of the students.
 To analyze the effect of financial literacy on the financial planning of the students.

Literature Review
Financial Literacy
Many previous studies have assessed a range of measures of financial literacy, including objective and subjective measures, and
self-reported intentions and behaviours (Paul Gerrans, 2019). Kutlu Ergun (2018), in his study regarding financial literacy among
university students, stated that the lack of financial literacy has an impact on the ability of individuals to fulfill long-term goals such
as home purchase, tertiary education, and pension financing. Education and money attitude found to have positive significance in
financial literacy (Muhammad Albeerdy, 2015). The factors that influence the financial literacy level in both developed and non-
developed economies in general at a macro level are age, gender, educational (Vivek Kumar,2015) People with different age groups
have their different level of financial literacy. Many things are dependent on the level of financial literacy as consequences.

Saving Behaviour
The effects of the financial education courses at different levels and in different combinations high school, college, and employer
are great and more significant for long-term behaviors than short-term behaviors (Jamie Wagner, 2019). Interference that foster
financial information access are crucial for enhancing the financial literacy and financial literacy is crucial as this has a positive

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IJIRMPS | Volume 9, Issue 4, 2021 ISSN: 2349-7300

effect on individual saving behavior (Conrad Murendo, 2017). Financial behavior as whole has significant positive correlations
with all the dimensions of financial literacy and financial literacy has proved to facilitate student’s involvement in savings and
investment, freeing themselves from debt, effective money management through living on a budget (U.C. Edirisinghe, 2017). The
parental norms, perceived financial literacy and attitude towards money play a significant role on money management (Sheela Devi
D. Sundarasen, 2017). The knowledge and understanding of finance are not enough to make a change in financial behaviour.
Therefore, it takes self-control, motivation, and social skills which can help the students to behave better in terms of managing
money (Azizah Fauziyah, 2016).

Credit Behaviour
Financial literacy is mostly concerned with the financial behavior including financial planning, continuing wealth accumulation and
having better financial decision making (Jamal Mohammed Esmail Alekam, 2018). The more knowledge about personal finance
reduced risky paying behavior (Jing Jian Xiao, 2014). Financial behaviors are affected by a large number of internal factors such
as personality, individual psychology and cognition, family history, and environment (Tahira K. Hira, 2012).

Financial Planning
Financial literacy helps individuals to make well-informed financial decisions and the improvement in financial literacy will have
a positive effect on accessing the personal financial planning services (Vinod Krishna M. U, 2019).One of the aspect which will be
influenced by financial literacy is financial planning and it is important to individual’s financial wellbeing (G Surendar, 2017).

The impact of financial literacy on financial behaviorof college students has received increasing research attention. From the above
studies, it is inferred that financial literacy is highly influenced by various factors including demographic factors like gender,
income, education etc. These studies stated the need to know the impact of financial literacy among the college students is inevitable.
Hence, this study underwrites to the literatures by investigating the impact of financial literacy on the financial behavior of college
students.

Method
The present study is focus on the association between financial literacy and financial behaviour among college students in several
ways to prospectively test whether the financial literacy is associated with the financial behaviour among college students. Further,
the study examines how the financial literacy influence the financial behaviours, specifically credit behaviours as well as the saving
behaviour of students in this study.

Context
The Primary data collection method is used for collecting the data and using the questionnaire the data were collected from the
students. The questionnaire is designed in a simple and easy manner so that everyone can understand it. The questionnaire is
developed based on the study and questions were for understanding the impact of financial literacy on the financial behaviour of
the college students. Most of the questions were multiple choice questions using the Likert scale. For analyzing the collected data
SPSS package is used.

Participants
The survey was conducted on random basis. The questionnaire has been prepared and send to college students under the age group
ranging 18-25. The sample size taken for the study was from 250 respondents. Female respondents are majority in number. Most
of the students are doing their PG which include 47.8% of MBA students. There are 17.3% of students receive Rs.15000 above in
a month and 45.1% of students receive below Rs.5000 in a month.

Table 1 shows the descriptive statistics of the present study is as furnished which describes the characteristics of the population and
table 2 show the descriptive statistics of financial behavior. Female students are majority in number.

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Table 2 - Descriptive Statistics of financial behaviour

N Mean Std. Deviation
Have you taken a course in personal finance? (FL1) 255 3.494 1.9418
I am able to take financial decisions (FP1) 255 4.235 .7630
I am aware of financial products (FL2) 255 3.957 .7169
I can understand the basic principles of investing and make safe investments
255 3.776 .8139
(FL3)
I feel satisfied in controlling the finance (FP2) 255 3.753 .7873
Before buying something I carefully consider whether I can afford it (FP3) 255 4.584 .6458
I pay my bills on time (FP4) 255 4.490 .7201
I keep a track on my expenses on a regular basis (FP5) 255 4.090 .9069
I save regularly to meet my financial goals (SB1) 255 3.922 .8749
Before committing to a financial decision, I consult independent sources of
255 3.812 .8534
information/advice (FP6)
I set aside money for an emergency (SB2) 255 4.122 .8722
I save to acquire assets (SB3) 255 4.271 .9523
I use to keep money for entertainment (SB4) 255 3.792 .6930
I save to pay off my debts (SB5) 255 3.459 .8903
I save to keep my life insured (SB6) 255 3.820 .7035
I save for making purchases(SB7) 255 3.980 .8439
I use credit card for availing credit (CB1) 255 2.333 1.3291
I usually max out credit card limit (CB2) 255 2.059 1.2361
I withdraw cash using credit cards (CB3) 255 2.424 1.3722
I use payday loans (CB4) 255 2.125 1.2580
Relatives (FL4) 255 4.231 1.0298
Friends (FL5) 255 3.824 .6182
Colleagues (FL6) 255 3.306 .7790
Neighbors (FL7) 255 2.647 .9227
Financial advisors of banks insurance companies or financial service providers
255 3.482 .8822
(FL8)
I do not talk with any of these persons about financial topics (FL9) 255 2.137 1.2923
Personal financial planning involves (FP7) 255 4.208 1.2004
You will improve your creditworthiness by (FP8) 255 4.067 1.2453

Table 3 - Reliability Statistics

Variables Cronbach’s Alpha N of Items Reference Description
Reference value = a >
Financial Literacy .847 9 Reliable
0.70
Financial Behaviour .718 19 Reliable

Reliability test was conducted to examine whether the items of a particular constructs construe the single concept from different
dimensions or otherwise. It also shows inter item consistency. Cronbach’s alpha test was applied to check the reliability. The
suggested value of Cronbach’s alpha should be at least 0.50 If the Cronbach’s alpha is greater than .70, then the reliability is
acceptable; above 0.80 indicates good reliability and above 0.90 indicates the reliability is excellent. Since the values 0.87 and 0.718
is above 0.5, the reliability of the items used in questionnaire is well established and reliability measures of all variables are
acceptable.

Results
Table 4 shows that Pearson’s correlation coefficient is .806, which indicates significant association between the two variables,
financial literacy and financial behaviour. This shows that the financial literacy has a significant relationship with financial
behaviour. We can also see that Pearson’s correlation is statistically significant as p = 0.000, which satisfies the common cut-off
for statistical significance of p < .05.

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IJIRMPS | Volume 9, Issue 4, 2021 ISSN: 2349-7300

Table 5 - Financial literacy and Gender - Group Statistics

Gender N Mean Std. Deviation Std. Error Mean
Male 101 32.2376 4.12104 .41006
FINANCIAL_LITERACY
Female 154 29.9481 4.48059 .36106

Table 6 - Independent Samples Test

Levene's Test
for Equality of t-test for Equality of Means
Variances
95% Confidence
Sig. (2- Mean Std. Error Interval of the
F Sig. t df Difference
tailed) Difference Difference
Lower Upper
Equal
variances 2.66 .10 4.11 253 .000 2.289 .555 1.194 3.384
FINANCIAL_LI assumed
TERACY Equal
variances not 4.19 226.27 .000 2.289 .546 1.212 3.366
assumed

While going through the results for the t-test, the results will tell us if the means for the two groups were statistically different
(significantly different) or if they were relatively the same. Sig (2-Tailed) value will tell if the two-condition means are statistically
different. In this, the Sig (2-Tailed) value is 0.000. Since the Sig (2-Tailed) value is less than .05, we can interpret that there is a
significant difference between the two conditions. Thus, we can conclude that there is significant difference between the financial
literacy of female and male students. Male students are more financially literate than the female.

Table 7 - Financial Literacy and types of course - ANOVA

Sum of Squares df Mean Square F Sig.
Between Groups 233.031 4 58.258 2.999 .019
Within Groups 4856.600 250 19.426
Total 5089.631 254
Dependent Variable: FINANCIAL_LITERACY
Predictors: TYPE_OF_COURSE

The ANOVA table indicates that the regression model can predict the dependent variable significantly well as the significant value
(0.019) is lesser than 0.05. Hence the statistical significance of the regression model that was run is established. Here it is clear that,
p < 0.05, indicate that, overall, the regression model will significantly predict the outcome variable i.e. it is a good fit for the data.

Table 8 - Financial Literacy and Income - ANOVA

Sum of Squares df Mean Square F Sig.
Between Groups 188.362 3 62.787 3.215 .023
Within Groups 4901.270 251 19.527
Total 5089.631 254
Dependent Variable: FINANCIAL_LITERACY
Predictors: INCOME

The ANOVA table indicates that the regression model can predict the dependent variable significantly well as the significant value
(0.023) is lesser than 0.05. Hence the statistical significance of the regression model that was run is established. Here it is clear that,
p < 0.05, indicate that, overall, the regression model will significantly predict the outcome variable i.e. it is a good fit for the data.

Multiple regression of financial literacy and financial behaviour:

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Table 9 - Model Summary

Change Statistics
Adjusted R Std. Error of
Model R R Square R Square
Square the Estimate F Change df1 df2 Sig. F Change
Change
1 .555a .308 .299 3.7468 .308 37.181 3 251 .000
a. Predictors: (Constant), FINANCIAL_PLANNING, CREDIT_BEHAVIOUR, SAVINGS_BEHAVIOUR

Table 10 - ANOVA

Model Sum of Squares df Mean Square F Sig.

Regression 1565.925 3 521.975 37.181 .000b
Residual 3523.706 251 14.039
Total 5089.631 254
a. Dependent Variable: FINANCIAL_LITERACY
b. Predictors: (Constant), FINANCIAL_PLANNING, CREDIT_BEHAVIOUR,
SAVINGS_BEHAVIOUR

Table 11 - Coefficients

Unstandardized Coefficients Standardized Coefficients

Model B Std. Error Beta t Sig.
(Constant) 8.323 2.215 3.757 .000
SAVINGS_BEHAVIOUR .221 .078 .183 2.837 .005
CREDIT_BEHAVIOUR .381 .055 .403 6.975 .000
FINANCIAL_PLANNING .393 .068 .401 5.778 .000
a. Dependent Variable: FINANCIAL_LITERACY

The ANOVA table (table 10) indicates that the regression model can predict the dependent variable significantly well as the
significant value (0.000) is lesser than 0.05. Hence the statistical significance of the regression model that was run is established.
Here it is clear that, p < 0.05, indicate that, overall, the regression model will significantly predict the outcome variable i.e. it is a
good fit for the data.

Discussion
The research examined how the level of financial literacy influences students’ financial behaviour. It also analyzed the relationship
between the financial literacy and the respondents’ demographic data, characteristics such as: gender, income and type of course
they are doing. It can be suggested that the financial difficulties might have the effect of increasing the responsibility of students on
their financial planning and improving financial literacy. Courses in personal finances can be offered to students in campus and
these should be made mandatory for all disciplines. These courses should provide practical experience, promoting involvement as
well as transfer of knowledge and financial management skills to students. Websites providing financial information can be
launched which offer free independent financial knowledge to youth and these websites must be carry out to educate the public on
a wide range of financial topics. Professionals from banks can organize awareness programs for college students regarding different
kinds of investment schemes and all, so that students can able to choose the right savings and investments for themselves.

Limitations and Future Research

The present study investigated the impact of financial literacy on the financial behaviour of the college students in Kerala, India.
The sample size was 250, which is very limited for a good study. In this study human behavior plays a central role, and it is always
harder to understand human behavior because it is very complicated to study. Since financial behavior is related to human behavior
study, and its very hard to predict. The impact of socialization agents,investment knowledge can be included in the further scope of
this study.

Conclusion
Financial literacy has become a notable challenge in today’s society especially among the youth or young generation. It will help
the young generation to make good financial commitment. To be financially literate is very important in order to make a good
financial decision. Young adult especially the college students are facing tough financial decision in today’s demanding financial
environment and that will affect their financial behavior. And in current era no one can reject the importance of proper decision
making in the finance sector. The financial literacy among students is always a crucial matter because eventually they are the future
of the country. Hence, the research found the influence of financial literacy on financial behavior of college students.

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IJIRMPS | Volume 9, Issue 4, 2021 ISSN: 2349-7300

This study used a questionnaire instrument to survey a sample of 255 college students to determine the impact of their financial
literacy on financial behaviour and to assess the relationship between financial literacy and demographic attributes of these students.
The hypothesis result showed that gender, type of course and Income are significantly associated with the financial literacy of an
individual. As the research focused on college students, taking the age group between 18-25, young age group making them the
perfect respondents as they might start earning in upcoming years, so they are going to be the foundation of the economy. This
study is directed to impart the conclusions about the levels of financial literacy among the college students and found that it ranged
to moderate level of knowledge. The research examined how the level of financial literacy influences students’ financial behaviour.
It also analyzed the relationship between the financial literacy and the respondents’ demographic data, characteristics such as:
gender, income and type of course they are doing.

To conclude, we can observe that gender, education or the type of course, income, and financial behaviour have a direct influence
of financial literacy among students. Type of course was proven to have the significant relationship with financial literacy of the
students. Financial behaviour of the students is measured on the basis of the savings behaviour, credit behaviour and their financial
planning and it was also found to have a significant relationship with financial literacy of students. Based on current finding, it can
be seen that family and friends had the main influence for students in terms of managing their money followed by Peers.

Author Note
We have no conflicts of interest to disclose. Correspondence concerning this article should be addressed to Anu Kurian, Saintgits
Instiute of Technology, Kottayam, Kerala, India. Email: [email protected]

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