Antecedents of the Youngster’s Awareness About Financial Literacy: A Structure Equation Modelling Approach

Abstract

Financial literacy has been identified as an important functional area that attains a special concern in the Indian government policies and plans specially designed for the financial market. SEBI has issued various guidelines and awareness programs towards investment financial products, digital payment systems, consumer protection and so on. Therefore, the purpose of the present article is to analyze the level of financial literacy among youngsters in India. The study examined the relationship between the antecedents of financial literacy, that is, financial attitude, financial knowledge and financial behavior. The theoretical purposed model was tested with the help of primary data that was collected with the help of the self-structured questionnaire. A total of 647 responses were obtained from the respondents belonging to the holy city Mathura, Uttar Pradesh, India. To identify the financial literacy antecedents and their inter-relationship, exploratory factor analysis (EFA), confirmatory factor analysis (CFA) and structural equation modeling were applied to the collected data. The findings indicated that in the case of the Indian population, financial attitude and financial behavior were significantly associated with financial literacy. The moderation analysis reveals that males are more particular about financial knowledge and financial behavior in comparison to females. Respondents belonging to the age group of 26–30 years have better financial knowledge. Respondents who have income more than ₹800 thousand and below two years have more financial knowledge. This article contributes to the theoretical body of knowledge by providing insights about the interesting topic of financial literacy by identifying its antecedents. The study also highlights the impact of the demographic variables as moderators on the antecedents of financial literacy. The outcomes of the study are vital for the government in the designing of public policies. The findings are helpful for the educational program designers for the outlining of the programs and syllabus for the subjects taught in the schools and colleges. The findings are useful for the bank managers to understand the psychological behavior as well as demographic variables for the effective marketing and communication of their financial products.

Keywords

Financial Literacy Financial Behaviour Financial Attitudes Demographic Variable Moderation Effect

Introduction

Financial illiteracy has been identified as a vital constraint for a country’s success and economic growth (Messy & Monticone, 2016). Worldwide, the governments are keen to know about the present level of financial literacy of their residents and methods to increase financial literacy. As a result, financial literacy gained a lot of momentum among public managers, government agencies and other organizations (Lusardi & Mitchell, 2014; OECD, 2016). The residents of the countries should know the risks and uncertainties associated with the investment financial services and products (Caroline et al., 2016) so that error in investment decisions can be minimized during financial decision-making (Braunstein & Welch, 2002). Sound financial literacy and knowledge play a significant role to motivate the individuals for full participation in the investment options (Potrich & Vieira, 2018). These individuals are more confident in making personal financial choices, saving and investment decisions perfectly for their life (Rai et al., 2019). But worldwide the problem of financial illiteracy exists which demands necessary actions that should be taken to overcome this issue (Atkinson & Messy, 2012; Brown & Graf, 2013).

Various studies have focused on and presented confusing and mixed views regarding financial literacy. Huston (2010) defined financial literacy as a person’s ability to understand the information regarding financial products so that purchases can be done wisely and with complete assurance. OECD (2016) defined financial literacy as the combination of ‘conscientiousness’, ‘knowledge’, ‘skills’, ‘attitudes’ and ‘behaviours’ which are requisite for financial well-being and financial decisions (OECD, 2016). Other researchers focused on dimensions such as ‘individual differences in disposition bias’ (Jonsson et al., 2017); ability to make informed judgments (Noctor et al., 1992). Lin (2011) explained the differences in investment behaviour due to various demographic characteristics of the population. Baker et al. (2018) examined the relationship between ‘financial literacy, demographic variables and behavioural biases’.

Financial literacy is a significant component for the entire world population and an emerging economy such as India. This will help the youth to become aware because in the future they are going to have a family responsibility in terms of their dependent parents and his/her own family too. This becomes more essentials when the government shifts the burden of financial planning (savings management, retirement planning) to earning individuals (Herd et al., 2012). However, for effective formulations and implementation of financial planning policies, it is important to know about the learning process of financial knowledge (Moreno-Herrero et al., 2018). In countries such as Australia, ‘the Czech Republic’, ‘Peru’ the formal school or college education system has been identified as a channel for providing financial knowledge to youngsters (OECD/INFE, 2015).

The changing scenario, such as demands of individuals, the dynamic nature of financial products, increasing competition and changing government norms, makes the financial literacy mandatory for all age and income group individuals (Bernanke, 2011). This is the reason why the governments of various countries are focusing on financial awareness creation and advancement programs. In Australia, ‘Australian Securities and Investment Commission launched the ASIC’ (2011); New Zealand framed the ‘National Strategy for Financial Literacy’ (2012), UK—Financial Services Authority of UK and in India—‘Reserve Bank of India’ have initiated the various awareness programs, organized guest lectures, conducted surveys to improve financial literacy (Garg & Singh, 2018).

The above-presented literature clearly identifies the various dimensions of financial literacy and importance in a particular dimension. Despite so many views and studies, there is a scarcity of literature available that examined the financial literacy level of the youngsters of the country. Therefore, it has become essential to purpose and validate a model that is expected to measure the antecedents of youngster financial literacy. The study also measures the effect of the demographic variables on the learning process and knowledge domain of youngsters. To examine the inter-relationships (direct or indirect); a structural equation modelling technique is applied. In this context, this article builds, explains the antecedents affecting the university students’ financial literacy and other factors affecting the learning outcomes. These types of models are helpful for banks and financial institutions or service providers to understand the level of financial literacy, buying behaviour of residents and the role of demographic variables in deciding the investment options to be considered. It is also helpful for the emerging country’s government to devise national policies to make residents aware of subject of financial literacy.

Literature Review and Theoretical Background of the Study

Financial Literacy

Messy and Monticone (2016) defined the term financial illiteracy as the ability of people to take inefficient decisions regarding the financial products offered which incline them to indebtedness. Lusardi and Tufano found that a low level of financial literacy for the credit card among the interviewees increases the likelihood of indebtedness. The poor awareness regarding the financial products makes it difficult for customers to identify the less-risky investment which reduces the default and indebtedness (Lyons, 2004). Disney and Gathergood (2013) pointed out the families having less financial literacy tend to a higher level of debts which increases their indebtedness. Thus, financial illiteracy makes the customer accumulate more wealth results in over-indebtedness, rather than investing in good alternatives (Lusardi et al., 2010).

The other side of the coin is financial literacy. Hung et al. (2009) defined financial literacy as the predictor of ‘perceived financial knowledge’ and ‘financial attitude’. Christelis et al. (2015) found that awareness regarding financial products such as bank account ownership had a positive impact on the youngster’s financial literacy. The knowledge regarding stock markets is quite low worldwide (Lusardi and Mitchell, 2011). The result of low financial knowledge (particularly about the stock) restricts people to invest in financial products such as stocks and bonds (Van Rooij et al., 2011). Bhushan and Medury (2013) surveyed in India and found only 58.3 per cent literacy towards the financial products and services. Similarly, a study by Agarwalla et al. (2012) reported that young Indian workers in Urban India have a low level of literacy. Agarwal et al. (2015) suggested that respondents should be financially literate based on certain questions related to ‘inflation’, ‘interest rates’ and ‘risk diversification’. Further, the researcher found that more financial literacy leads to better performance in numeracy (Rooij et al., 2011; Yu et al., 2015), savings (Jariwala & Sharma, 2016; Klapper et al., 2015), earnings on savings (Deuflhard et al., 2018), risk diversification (Agarwalla et al., 2013) and risk tolerance (Yu et al., 2015).

Financial Attitude

Attitude is defined as ‘the evaluation of ideas about event, objects or people’. Attitudes are a relatively good forecaster of ‘general behavioural possibility’ (Eagly & Chaiken, 1993). Financial attitude is defined as a mixture of ‘concepts, information and emotions about learning’, which guides to react favourably or unfavourably (Shockey, 2002). Attitudes help in analysing and understanding the behaviour of customers towards various products in different situations. Various researchers such as Hung et al. (2009) defined financial literacy as ‘financial knowledge, financial attitude, financial behaviour and financial ability’ which all are correlated.

Atkinson and Messy (2012) and Agarwalla et al. (2013) explained financial literacy by three variables such as ‘financial knowledge, financial attitudes and financial behaviour’. Tsui-Yii and Sheng-Chen (2014) found that ‘power prestige, retention, anxiety achievement and respect’ are the determinants of the financial attitude of a consumer. In the Switzerland region, Funfgeld and Wang (2009) highlighted the dimensions of financial attitudes and it includes ‘anxiety, interests in financial issues, decision styles, need for precautionary saving and spending tendency’. Paluri and Mehra (2016) divided the women into four clusters based on financial attitudes such as ‘judicious consumers, conservative consumers, acquisitive consumers and unsure consumers’. Student’s financial attitudes are affected by the financial knowledge or the effective management of finances (Norvilitis & Maclean, 2010; Xiao et al., 2011). Hence, the following hypothesis is formulated:

H₁: ‘Financial attitude is significantly associated with the financial literacy level of Indian customers’.

Financial Behaviour

Lusardi and Mitchell (2013) defined financial behaviour as an important dimension of financial literacy. Financial behaviour affects financial education and financial literacy (Kaiser & Menkhoff, 2017). Kerkmann et al. (2000) found that financial behaviour has a significant (positive) relationship with happiness and satisfaction. Hayhoe et al. (2005) and Miller and C’ de Baca (2001) found that financial behaviour is affecting knowledge and attitude. Hilgert et al. (2003) found a positive link between ‘financial knowledge and financial behaviour, that is, credit management, savings, and investments’. Totenhagen et al. (2019) found that financial knowledge affects financial behaviour and financial values which will have a social exchange perspective and higher relationship satisfaction. This affects the attitude of individuals towards money, and finance will decide the individual behaviour towards savings, borrowings and risk-taking (Agarwalla et al., 2013).

The previous literature has assessed the importance of increasing financial knowledge to increase financial behaviour towards greater financial well-being (Hilgert et al., 2003; Hira, 2012; Huston, 2010). Bernheim and Garrett (2003) found that the retirement saving-behaviour of the employees is positively affected by workplace financial education. Bucher-Koenen et al. (2017) confirmed that financial literacy improves financial behaviour and affects ‘retirement planning’ and ‘wealth accumulation’. Clark and d’Ambrosio (2003) found that financial education by the mode of seminars has changed the individual’s goals and retirement savings behaviour in a positive way. Kim and Maryland (2004) demonstrated a significant effect of the workplace financial education programs on financial behaviour, perceived knowledge and financial well-being. Cole et al. (2011) examined the population of two different countries, that is, Indonesia and India and found that financial behaviour in the emerging countries was affected by financial literacy. The government of these countries promotes financial literacy for the growth of the financial system in terms of depth and breadth. Hence, the following hypothesis is formulated:

H₂: ‘Financial behaviour is significantly associated with the financial literacy level of Indian customers’.

Financial Knowledge

Previous researches have highlighted the importance of financial knowledge as it reduces the individual risky feelings towards financial products (Xiao et al., 2011). As people have more clarity towards financial products, they have fewer problems of debt (Lusardi & Trufano, 2009) and mortgages (Gerardi, 2010). Managing financial resources deeply requires subjective and objective knowledge (Robb & Babiarz, 2014; Xiao et al., 2011). Individuals made effective decisions when they learn about how to manage their finances (Robb & Babiarz, 2014; Xiao et al., 2011). Behavioural outcomes appear when there exists a difference in individuals’ objective and subjective financial knowledge (Tang & Baker, 2016).

Previous research opined that individuals having more financial knowledge improve financial behaviour (Hilgert et al., 2003; Hira, 2012; Huston, 2010). Higher the individual financial knowledge; the chances of taking risky decisions reduce (Xiao et al. 2011). In comparison, individuals having less financial knowledge have more chances of a high level of debt (Lusardi & Trufano, 2009) and have more costly mortgages (Gerardi, 2010; Moore, 2003). Some studies defined that problems in personal relationships occur due to the wrong management of the finances (Papp et al., 2009). Dew and Xiao (2011) found that one of the reasons for the divorce between the married couple is disagreement on monetary matters. To tackle this problem, financial therapy has been promoted along with involvement with each other (Kim et al., 2011). To suppress the divorce rate, educating the couple for financial management and skills, along with ways to reduce the stress has been focused nowadays (Falconier, 2015). Hence, the following hypothesis is formulated:

H₃: ‘Financial knowledge is significantly associated with the financial literacy level of Indian customers’.

Moderation Effects: Age, Gender and Education

Prior studies highlighted the importance of the socio-demographic variables and financial planning (Allen & Seaman, 2008; Florendo & Estelami, 2019; Hayhoe et al., 2000; O’Connor, 2019; Roberts et al., 1999). Different researchers discussed that kind of family upbringing and type of childhood plays an important role in affecting youngsters’ financial decision (Danes & Hira, 1986; Hira & Mugenda, 2000; Watchravesringkan, 2008). Family members act as primary agents who educate and make girls and boys aware on the subject of financial matters, whereas, media, peers and the Internet act as secondary ones (Moschis, 1987; Watchravesringkan, 2008). Therefore, the influence of the demographic variables on the financial attributes such as financial knowledge, financial attitude and financial behaviour is an interesting dimension to be studied.

Age

Hayei and Khalid (2019) found that the young generation pays less focus on financial planning and investment decisions as compared to the older generation. The probable reasons are more spending habits, less saving appetite, the huge burden of credit and lack of financial knowledge. The habit of investment can be developed during early days of life-like school days, by giving pocket money and making them understand how to save it. Hayei and Khalid (2019) found that the young generation pays less focus on financial planning and investment decisions as compared to the older generation. The probable reasons are more spending habits, less saving appetite, the huge burden of credit and lack of financial knowledge. The habit of investment can be developed during the early days of life-like school days, by giving pocket money and making them understand how to save it by assisting with financial education provided in schools. The child can learn to plan future expenses and effective management of their pocket money (Rossi & Sansone, 2018). Habits learned from childhood are helpful in lifelong financial planning specifically for retirement also (Van der Cruijsen & Jonker, 2019). The youngsters are more inclined towards social media and have trust in the information shown on that media platform, which directly affects their information intake (Heinonen, 2011). Therefore, age is an important parameter to be studied as a moderator that is influencing financial literacy.

H₄: Age is strengthening the relationship between financial behaviour, financial attitude, financial knowledge and financial literacy.

Gender

Prior studies discussed the importance of gender in decision-making, logical abilities, visual reasoning and the thinking process (Byrnes et al., 1999; Smith & Buchanan, 1999; Enders, 2008). In terms of financial behaviour, investment preferences, financial skills and gender differences have been observed (Falahati & Paim, 2012). Danes and Haberman (2007) found that ‘values’, ‘beliefs’, ‘attitudes’, ‘expectations’ and ‘motivations’ towards the money are affecting the gender by internationalized norms. In the case of males and females, special learning and consumer socialization theory provides a different perspective towards financial skills and knowledge (Hira, 1997; Chen & Volpe, 2002; Shim et al., 2010). Lusardi et al. (2010) and Mandell (2008) found that male students have more financial knowledge, which makes gender a strong predictor. In the case of Singaporean Chinese, men are more anxious about money spending and consider it as a powerful tool, whereas women are concerned about the budget, maintenance and assessment of the money (Lim et al., 2003).

Lyons (2004) found that women university students have more risky credit card behaviour than men. On the contrary, Danes and Haberman (2007) discussed that boys pay more focus on financial goals, whereas girls are more involved in budgeting and price comparison. Amagir et al. (2020) reported gender differences in financial attitude and financial behaviour. Boys are found to be more concerned with power and prestige, whereas girls are more concerned about financial planning (Furnham, 1984; Edwards et al., 2007). The case is different in Asian countries, where men are considered as bread earners, head of the family, having more prestige and more power in financial decision-making as compared to females (Lim et al., 2003). Therefore, understanding the gender differences in the case of financial behaviour, financial attitudes and financial knowledge could provide a valid reason for investigation in the case of university students. Hence, we hypothesised:

H₅: Gender is strengthening the relationship between financial behaviour, financial attitude, financial knowledge and financial literacy.

Income

Income is found as an important determinant that is affecting financial literacy. The lower-income group’s families have lower levels of financial knowledge (Perry & Morris, 2005; Servon & Kaestner, 2008; Monticone, 2010). Lower-income group families delay the bill payment as compared to the higher income (Hilgert et al., 2003). The lower-income group family is least inclined towards saving behaviour (Aizcorbe et al., 2003). The lower-income group family has lower assessment capabilities and numerical knowledge (Jordan et al., 1992; Ramani & Siegler, 2014). Therefore, it is important to investigate the moderation effects of income on financial behaviour, financial attitude, financial knowledge and financial literacy. Hence, we hypothesized:

H₆: Income is strengthening the relationship between financial behaviour, financial attitude, financial knowledge and financial literacy.

Theoretical Model

Methodology

Research Design

The questionnaire used in the study was adopted that includes the constructs measuring financial literacy antecedents taken from the previous research papers. In the next step, the questionnaire was refined by adding the inputs from the financial experts, finance faculty and finance students. The main purpose was to explore the opinions and views of youngsters of India regarding the financial knowledge related to personal finance and investment decisions. Demographic data includes parameters such as age, gender, a field of study, family yearly income and father occupation. The final questionnaire was pretested on 25 respondents. Based on their suggestions and feedback, requisite change has been made in the questionnaire. The final circulated questionnaire consists of all the necessary modifications.

The data has been collected from the students at the private university located at Mathura. Graduate and post-graduate students of all the disciplines such as management, engineering, social sciences, humanities, pharmacy and law were consulted. The age group of surveyed students belongs to a group of 18–30 years. The students were handed over a questionnaire and asked to fill the questionnaire. The data collection survey was conducted from March 2019–May 2019 in Mathura city. Judgmental and convenience sampling was used due to the ‘exploratory nature’ of the study and scarcity of resources such as availability of monetary funds. A total of 850 questionnaires were distributed, 647 filled and complete questionnaires were received in return.

Measurement

The questionnaire utilized for the data collection is separated into two sections. The first part of the questionnaire measures the determinants of financial literacy such as financial attitude, financial knowledge and financial behaviour. The respondents were asked questions related to government investment schemes and plans, various financial options, interest rate, calculation of compound interest, tax benefits, bank fees, information sources and so on. The questionnaire also includes questions that investigate the basic and advanced financial knowledge such as how simple interest is calculated, views about mutual funds, opinion about stocks, risk assessment and so on. The responses were measured on a 5-point Likert scale having options strongly disagree (1) to strongly agree (5). The next part asks for information about respondents’ demographic characteristics. The responses were given multiple options and respondents have to select anyone.

Construct Description

The questions used in the questionnaire were used from various previous studies conducted by Chen & Volpe (1998) and Shockey (2002). The statements were modified and refined so that it will fit into the Indian context. Statements to measure financial knowledge have been adapted from Potrich et al. (2016, 2018) and Rooij et al. (2011). The part measuring the financial knowledge consists of two types of statements, that is, statements measuring the ‘basic financial knowledge’ and ‘advanced financial knowledge’. The inspiration behind this was taken from the studies conducted by Rooij et al. (2011) and Potrich et al. (2016, 2018). The basic financial knowledge was measured by the three statements taken from the scale given by Lusardi and Mitchell (2011). These include the statements relating to the interest calculation, inflation rate and risk diversification. The advanced financial knowledge consists of five statements that measure financial knowledge with ‘complex financial instruments, such as shares, public bonds and risk diversification’. The respondents were given 1 mark for the correct answer and 0 mark for the wrong answer. The higher score of the candidate indicates more financial awareness.

To measure the financial attitude, the scale developed by Shockey (2002) and used by Potrich et al. (2016, 2018) was adapted according to the Indian context. The scale consists of 10 statements that measure the individual’s financial management. The scale consists of 19 statements that measure the financial behaviour by 2 types of questions such as statements related to money saving behaviour and control behaviour. The more the respondents mark strongly agree options, more they are concerned about saving and expense control habit or behaviour.

Data Analysis and Results

Demographic Statistics

The Table 1 highlight that among the 647 total respondents, 65 per cent are males, and the rest 35 per cent are females. A total of 32.6 per cent of the respondents having the age of 18–19 years, 53.3 per cent having the age of 20–25 years and the rest 14 per cent lies in the age bar of 26–30 years. The majority of the respondents (45.7%) are doing their post-graduation program and 44.6 per cent of students have enrolled them in post-graduate programs and the rest 9.5 per cent are doing a doctorate. In the case of the field of study, 22.4 per cent belong to the management field, 38.1 per cent belong to Engineering, 12.8 per cent belong to social sciences field, 10.3 per cent are associated with the humanities, 14.6 per cent are studying pharmacy area and very less (1.5%) is studying law. The family income of the respondents falls maximum in the range of 400–600 thousand (38.1%) followed by 200–400 thousand (20.8) and 600–800 thousand (19.1%), 10.3 per cent have a family income below 200 thousand and 7.2 per cent have the family income more than 800 thousand. The majority of respondents’ parents were running their own business, that is, 52.7 per cent, 28.9 respondent’s father was doing a private job followed by 18.3 per cent—respondents whose father is doing a government job.

Table 1.

Demographic Details

Item	Characteristic Number	Number	Frequency
Gender	Male	421	65
Gender	Female	226	35
Age (years)	18–19	211	32.6
	20–25	345	53.3
	26–30	91	14
Education	Undergraduate	289	44.6
	Postgraduate	296	45.7
	Doctorate	62	9.5
Field of study	Management	145	22.4
	Engineering	247	38.1
	Social sciences	83	12.8
	Humanities	67	10.3
	Pharmacy	95	14.6
	Law	10	1.5
Family yearly income	Below 200 thousand	67	10.3
	200–400 thousand	135	20.8
	400–600 thousand	274	38.1
	600–800 thousand	124	19.1
	More than 800 thousand	47	7.2
Father occupation	Businessman	341	52.7
	Private employee	187	28.9
	Government employee	119	18.3

Source: Authors’ own calculations.

Reliability and Measure Purification

It is necessary to check the reliability of the adapted scale used for the study. Reliability ensures and tests the relationship between the individual items with the other items. It further ensures the internal inconsistency among all the listed variables in the questionnaire. For calculating the reliability, Cronbach’s alpha is mostly used with the value of alpha more than 0.70 (Nunnally, 1978), which depicts the high covariance among the measurements. Also, some of the measures were purified, that is, five statements having factor loading lower than 0.60 were eliminated as suggested by Anderson and Gerbing (1988). The important condition for the application of EFA is to first analyse the value of Kaiser–Meyer–Olkin (KMO). Value of KMO and Bartlett’s test of sphericity was carried out with the help of SPSS 20.0. Results show that KMO = 0.914 and the value of Bartlett’s test of sphericity was significant (<0.01), which confirms the application of the explanatory factor analysis to explore the financial literacy factors.

Exploratory Factor Analysis

Table 2 contains the results of EFA which explain the seven factors extracted factors which has 58.8 per cent of the total variance. All the factor loadings are greater than 0.5, which clearly indicated that the financial literacy questionnaire had good validity. The factors that are extracted consists of financial literacy which explain 15.66 per cent of the variance, expense control explains 11.27 per cent of the variance, credit card usage explains 7.18 per cent of the variance, investment management explains 6.98 per cent of the variance, monthly financial planning explains 6.27 per cent of the variance, purchase behaviour explains 6.07 per cent of the variance and saving explains 5.41 per cent of the variance.

Table 2.

Rotated Component Matrix

	Statements	Component
		1	2	3	4	5	6	7
Financial literacy	I believe that pre-existing conditions are covered in health insurance.	0.778
	I am aware that a mutual fund is a diversified investment pool of funds that is appropriate for investment.	0.800
	I feel that insurance gives me protection and investment return as well.	0.804
	I believe that reading about the best investment options helps to invest in the best future deals.	0.792
	I feel that financial literacy helps me to live a financially secure life.	0.776
Expense control	I believe that proper control of monthly expenses should be there.		0.812
	Establishing the financial targets prior is always advisable.		0.772
	I compare the real expenses with the estimated budget.		0.776
	During my purchase in instalments, I prefer to compare various credit cards.		0.739
	It is good to follow the budget.		0.715
Credit card usage	I can calculate the credit card usage.			0.735
	When I don’t have money, I use credit cards and an overdraft.
	I used to compare the available credit options.			0.527
	I generally use 20% of the credit card.			0.713
Investment management	It is really tuff to manage my investments.				0.660
	I tried to control my personal expenses by noting them down.				0.559
	Estimating the long-term financial targets always helps me to manage my expenses.				0.619
	I usually make a monthly or weekly spreadsheet for expenses.				0.715
Monthly financial planning	It is important to save money monthly.					0.786
	The way I manage my money today will affect my future.					0.713
	It is important to pay the full value on credit cards.					0.694
	It is important to invest regularly to achieve targets in the long term.					0.661
Purchase behaviour	I compare prices when buying something.						0.533
	I prefer to analyse my financial situation before a major purchase.						0.739
	I get excited after watching offers and buy on impulse.						0.748
Saving	I tried to save monthly in a small amount.							0.532
	Monthly saving helps me to purchase something big.							0.675
	I generally keep three times my monthly earnings for my expenses.							0.638
Eigen value		4.556	3.01	2.4	2.1	1.7	1.35	1.18
% Variance		15.66	11.27	7.18	6.98	6.27	6.07	5.41
Cumulative % variance		15.66	26.93	34.11	41.09	47.36	53.43	58.84
Scale reliability alpha		0.8	0.78	0.7	0.68	0.68	0.67	0.61

Source: Authors’ calculations.

Confirmatory Factor Analysis Approach

To verify the seven extracted factors, CFA was performed. Table 3 presents the results of CFA for all the seven factors which prove the goodness of fit (Ho, 2006) where all the values lie in the acceptable range. The indicators of the model fit summary explain that all the variables have a good result, and no modification is required. The fit indices provide that the value of ‘chi-square statistics (χ²)’, ‘root mean square residual (RMSR)’, ‘root means a square error of approximation (RMSEA)’, ‘goodness-of-fit index (GFI)’ and the comparatives fit indices: the comparative fit index (CFI), normed fit index (NFI) and Tucker–Lewis Index (TLI) lie in the acceptable range. The benefit of Comparative Fit Index (CFI), Tucker–Lewis index (TLI) and Incremental fit index (IFI) should be greater than 0.9 (Hoyle, 1995), which is represented by the indicator values in Table 3. The acceptable value ranges are supported with prior studies conducted by Bentler and Bonett (1980); Hooper et al., (2008) and Steiger (2007).

Table 3.

Model Fit Indices of the Measurement Model

Fit Indices	Recommended	Model Value(s)
Chi-square		1,107.339
GFI	(Joreskog & Sorbom, 1988) ≥0.90	0.921
AGFI	(Joreskog & Sorbom, 1988) ≥0.80	0.911
CFI	(Bentler, 1990) ≥0.90	0.961
RMSEA	(Hu & Bentler, 1999) ≤0.05	0.033
TLI	(Bentler, 1990) ≥0.90	0.954
NFI	(Bentler, 1990) ≥0.60	0.902
IFI	(Bentler, 1990) ≥0.90	0.959
RMR		0.047

Source: Authors’ calculations.

Model Fit and Path Analysis

The previous studies conducted by Caroline et al. (2016), Rai et al. (2019) and Agarwal et al. (2015) found that there exists a positive relationship between financial knowledge, financial behaviour and financial attitude. The impact of these three variables on financial literacy (Figure 1) had been tested with the help of structural equation modelling. The relationship between three independent variables and one dependent variable is tested by AMOS software and results are summarized in Table 4. The value of model fit statistics clearly demonstrates that χ²/df = 1.945, GFI (adjusted goodness of fit index), the CFI (0.921) and the NFI (0.911), exceeded or approached the recommended standard of 0.90 (Bentler, 1990). In total, all these values make the model a fit one.

Figure 1.

Source: Authors’ own calculation.

The hypothesis formulated is tested with the help of AMOS software and analysing the Path analysis. The result of the path analysis is presented in Table 4. Financial literacy is a second-order construct, but it is not mandatory that all the independent variables have a strong relationship with financial literacy. The result clearly reveals that financial behaviour (P < 0.00) and financial attitude (P < 0.00) have a significant relationship with financial literacy. Financial knowledge does not impact the financial literacy of the respondents. Thus, hypotheses H₁ and H₂ are supported whereas H₃ is not supported. The findings of the study resemble the study conducted by Rai et al. (2019), Garg and Singh (2018), Klapper et al. (2015) and Fernandes et al. (2014) which found that people belonging to India have less financial knowledge. Whereas financial behaviour and financial attitude are the important factors that affect the financial literacy of the respondents.

Table 4.

Path Coefficients of the Structural Model

Hypothesis	Paths	Estimates	P-value	Supported or Not
H₁	FB→customer attitude	0.514*	***	Supported
H₂	FA→customer attitude	0.222*	***	Supported
H₃	FK→customer attitude	0.356	.47	Not supported

Source: Authors’ own calculations.

Note: *** = 0.000.

Moderation Testing

Moderation testing was done to find out whether there are any significant associations between the antecedents of financial literacy and the demographic variables. The assessment is done by the model fit indices and the acceptable range as declared by Hu and Bentler’s (1999). Gaskin and Richard (2012) macros were used to achieve the testing results and moderating results were interpreted using z-scores. A positive z score signifies a positive moderation, and a negative z score signifies a negative moderation. The moderation results are presented in Table 5 and they predict that males have a strong relationship urge for financial knowledge and behaviour. In comparison to males, females have strong financial behaviour and in turn better financial attitude.

Table 5.

Moderation Results

Gender	Male		Female
Relationship	Estimate	P	Estimate	P
FB---->FL	0.241	<.001	0.0312	<.001
FA---->FL	0.541	.08	0.012	<.005
FK----->FL	0.214	<.001	0.0209	.009
Age	18–19		20–25		26–35
Relationship	Estimate	P	Estimate	P	Estimate	P
FB---->FL	0.301	<.002	0.295	<.004	0.041	.214
FA---->FL	0.141	.0345	0.361	<.001	0.012	<.003
FK----->FL	0.254	.213	0.341	.345	0.031	<.001
Income	Below 200 Thousand		200–400 Thousand		400–600 Thousand		600–800 Thousand		More than 800 Thousand
Relationship	Estimate	P	Estimate	P	Estimate	P	Estimate	P	Estimate	P
FB---->FL	0.051	.0515	0.054	<.05	0.64	<.001	0.71	<.02	0.072	.57
FA---->FL	0.06	<.05	0.23	.213	0.54	<.02	0.045	<.03	0.049	.36
FK----->FL	0.041	<.000	0.047	.045	0.61	.34	0.041	.57	0.67	<.01

Source: Authors’ own calculations.

Respondents belonging to the age group of 18–19 years have more financial behaviour and financial literacy. The respondents belonging to the age group of 20–25 years are more concerned about financial attitude and financial behaviour. Whereas respondents having 26–30 years are more concerned about financial knowledge and have a positive financial attitude. The result clearly explains that respondents having an income below 200 thousand are more concerned about financial knowledge and have a favourable financial attitude. Respondents who fall in the income range of 200–400 thousand have favourable financial behaviour and invest funds for future planning. The respondents having income 400–600 thousand and 600–800 thousand develop a favourable financial behaviour and financial attitude. However, the respondents who earn more than 800 thousand have the financial knowledge and they know how to invest the funds.

Discussion

Financial literacy is an important topic to be studied in developing and emerging economies such as India. Specifically, when the complexities of financial decisions increase, and individuals have to make those decisions at a younger age in their life, there is a strong need for financial literacy. It is vital to promote financial literacy to increase financial inclusion and financial stability. Inappropriate and incomplete financial information results in unproductive investment decisions. The statistics found that the majority of the Indian population are youngsters and by the end of 2020 it is expected to increase and reach 34.33 per cent (Government of India statistics, 2017). Henceforth, the main objective of the study was to identify the important antecedents and formulate a model that examines the financial literacy of the Indian youngsters. The moderation effect of the demographic variable such as age, gender and income has been examined on the antecedents of financial literacy.

The outcomes of the study enlighten that financial behaviour and financial attitude are favourable for the youngsters in India. These results are aligned with the various past researches conducted by Arora (2016), Calamato (2010), Haque and Zulfiqar (2015), Huston (2010) and McCormick (2009). The results also indicate that Indian youngsters have a low level of financial knowledge. Therefore, it can be concluded that financial attitude and financial behaviour have a significant effect on financial literacy other than financial knowledge. Significant associations have been found between the financial behaviour and financial literacy and financial attitude and financial literacy of the Indian population. This makes the acceptance of H₁ and H₂ of the study.

Financial knowledge is assessed as an important variable in the majority of the studies conducted by Xiao and Porto (2019), Gautam and Jain (2019), Britt-Lutter and Heckman (2019), Koh et al. (2018) and Tenney et al. (2018). But on the contrary, the present study opined that Indian youngsters have less level of financial knowledge. Further, financial knowledge has no association with financial literacy. The results are aligned with the studies undertaken by Agarwalla et al. (2018), Hung et al. (2009), Rai et al. (2019). They demonstrated that youngsters make the highest mistakes and have a lower level of financial knowledge resulting in lower cognitive ability. This article contributes to the body of existing literature by providing details about the level of financial literacy of Indian youngsters.

The study provides interesting facts regarding the role of demographics on the relationship between financial literacy and its components. The results highlight that males are more concerned about financial knowledge and financial behaviour. In comparison to males, females have a more positive attitude towards financial behaviour. Respondents belonging to the age group of 26–30 years have better financial knowledge as compared to respondents of age 18–19 years and 20–25 years. On an utter surprise, respondents who have income more than 800 thousand and below 2 years have more financial knowledge as compared to respondents earning 200–400 thousand, 400–600 thousand and 600–800 thousand.

In nutshell, we can say that fewer studies explored and discussed the important antecedents of financial literacy, particularly in a country like India where the majority of the population is young. Therefore, this study fills the gap in the existing literature by addressing and focusing on these issues. The study suggested more awareness programs should be developed which educate and make youngsters aware of the aspects of financial planning. Furthermore, more focus should be given to the female youngster to develop a strong financial knowledge base which helps them to manage financial planning. The study also highlighted the financial knowledge level, financial attitude and financial behaviour of various age groups of youngsters ranging from an undergraduate level to doctorate level and income level can be managed properly. Therefore, the results of the present study are useful for the government of India in making the policies for economic growth and social welfare for different individuals by examining their awareness level. The study also provides insights to banking and financial institutions to plan their promotional campaigns for new investment products that will attract the youngsters and appropriate for their financial needs.

Implications

Implications for Financial Education Programs

The study provides understanding regarding the youngsters’ awareness of the financial literacy levels by examining the data collected by the means of the survey. The findings highlighted the need for improvement of the financial literacy levels among Indian youngsters. There is a necessity to educate the girls and women segment about financial products and future financial planning so that they earn the investment benefits. There is a need for the introduction of financial literacy programs for various age and income groups. It is important to mention that the Indian population has a significant difference in financial literacy for the various demographic profiles. These differences appear in terms of age, gender, income; education should be taken into account for improving financial literacy.

The youth who are ready for employment or already employed and soon will be facing decisions about loans, credit cards, saving’s plans so they need to understand the financial markets and products. Therefore, better financial literacy provides benefits by providing insights about the financial knowledge and financial attitude for the better planning of their future. The study also provides the importance of financial literacy variables such as financial attitude, financial behaviour and financial knowledge. Thus, there is a strong need for improving these constructs which affect the financial literacy level of the youngsters. The findings of the study are important for improving the government financial awareness programs so that effective education can be given at the school’s level and college level which makes the youth more responsible and aware of future benefits.

Managerial Implications

The study provides important insights into the financial institutions and banking firms so that they can project their products according to the financial literacy level of the population. Before, targeting the products it is important to know the financial knowledge level, financial attitude and financial behaviour of the individuals of that specific area. By examining the demographic variables and respondents’ financial awareness level, financial products can be easily targeted to individuals. The managers can first spread the information about the financial products by designing the promotional advertisement campaigns and then motivate the individuals to invest in them.

Limitations and Future Research

The present study is not free from limitations. First, the study considered only the state of Uttar Pradesh and ignored the rest of the states. The culture, location, geographical, income level, education and so on can be different in those areas. Therefore, results cannot be generalized. Second, the sample selected for the study is very small. Third, the study had not included three components of financial literacy and ignored the other parameters such as cultural issues, family orientation, family upbringing, environmental factors and so on. All these factors could be investigated in future studies. Fourth, the study has not investigated the investment products purchased by the people. Therefore, a future study can be based on the respondents who had purchased different financial products. The study has only considered the country; future research can be done by comparing the financial literacy level for the case of developed and developing countries. The future can also be done which stressed innovative ways how to increase the financial literacy program effectiveness.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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