Beyond Knowledge: A Pilot Study on the Multidimensional Impact of Financial Literacy on Investment Decision Making in the Pakistan Stock Exchange

Abstract

The study examines the relationship between financial literacy dimensions i.e. (financial knowledge, financial behavior and financial attitude) and investment decision making in individual investors of the Pakistan Stock Exchange (PSX). Financial literacy is treated as multidimensional construct, based on the provided framework of OECD (2023). A pilot quantitative design was adopted and data collected from 30 individual investors were analysed by using Partial Least Squares Structural Equation Modelling (PLS-SEM).

The measurement model determines satisfactory reliability and validity. The structural model explains 56.2% of the variance in investment decision making (R² =0.562) and shows predictive relevance (Q² = 0.309). Bootstrapping results indicate that financial knowledge demonstrations a positive but statistically non significant relationship, while financial behavior has a positive and marginally significant effect on investment decision making (β= 0.550, p< 0.10). Whereas, financial attitude does not show a significant effect.

The findings of the paper suggest that financial behavior can drive better investment choices more than financial knowledge and attitude factors alone.  As this is the pilot study, so the results provide preliminary empirical evidence from an emerging market context and establish a foundation for future research with larger samples.