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THE LINKAGES BETWEEN FINANCIAL LITERACY AND ITS APPLICATION IN FINANCIAL DECISION-MAKING AMONG ACADEMICIANS IN INDONESIA
Corresponding Author(s) : Nevi Danila
Humanities & Social Sciences Reviews,
Vol. 7 No. 5 (2019): September
Abstract
Purpose of the study: Financial literacy has become one of the important policies of the Indonesia government. The improvement of financial literacy is crucial for a more stable financial system and reduces financial fragility. Our research is to examine levels of financial literacy, to identify determinants of financial literacy and to investigate whether knowledge is followed by financial practices.
Methodology: This study employs the survey method, which includes questionnaires sent to academicians in Indonesia. Multiple regression analysis (MRA)is used to empirically analyze the relationship between financial literacy and its application in financial decision-making.
Main findings: The respondents are financially literate with the same level of financial literacy. Socio-demographic characteristics influence significantly the financial literacy and the capability in cash flow management of the respondents. Further, there is a linkage between the knowledge of financial products (financial literacy) and its application in financial decision-making.
Application: It implies that the knowledge about the financial product is very important for creating a high financial literacy society. The Indonesia government needs to run more seriously one of the pillars in the National Strategy for Financial Inclusion through the Ministry of Education.
Novelty: Most of the previous studies focused on conventional products, while this study includes both conventional and Islamic financial products. Further, we also consider the application of Islamic (shari’ah) financial practices. We investigate the impact of financial literacy with socio-demographic characteristics on its application in financial decision-making.
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- Agrawal, G., & Khan, M. A. (2011). Impact of FDI on GDP: A Comparative Study of China and India. International Journal of Business and Management. https://doi.org/10.5539/ijbm.v6n10p71 DOI: https://doi.org/10.5539/ijbm.v6n10p71
- Alderman, J., Forsyth, J., & Walton, R. (2017). How Religious Beliefs Influence Financial Decision-Making. Graziadio Business Review, 20(3).
- Bernheim, B. D., & Garrett, D. M. (2003). The Effects of Financial Education in the Workplace: Evidence from a Survey of Households. Journal of Public Economics, 87(7–8), 1487–1519. https://doi.org/10.1016/S0047-2727(01)00184-0 DOI: https://doi.org/10.1016/S0047-2727(01)00184-0
- Bernheim, B. D., Garrett, D. M., & Maki, D. M. (2001). Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates. Journal of Public Economics, 80(3), 435–465. https://doi.org/10.1016/S0047-2727(00)00120-1 DOI: https://doi.org/10.1016/S0047-2727(00)00120-1
- Bhushan, P., & Medury, Y. (2013). Financial Literacy and Its Determinants. International Journal of Engineering, Business and Enterprise Applications, 4(2), 155–160. Retrieved from https://www.researchgate.net/publication/264355562
- Christelis, D., Jappelli, T., & Padula, M. (2010). Cognitive Abilities and Portfolio Choice. European Economic Review, 54(1), 18–38. https://doi.org/10.1016/j.euroecorev.2009.04.001 DOI: https://doi.org/10.1016/j.euroecorev.2009.04.001
- Developing Indonesian Financial Literacy Index. (2013). Retrieved from www.DEFINIT.Asia
- Fonseca, R., Mullen, K. J., Zamarro, G., & Zissimopoulos, J. (2012). What Explains the Gender Gap in Financial Literacy? The Role of Household Decision-Making. The Journal of Consumenr Affairs, 46(1), 90–106. https://doi.org/10.1111/j.1745-6606.2011.01221.x DOI: https://doi.org/10.1111/j.1745-6606.2011.01221.x
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- Hastings, J. S., & Tejeda-Ashton, L. (2008). Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico (No. 14538). Cambridge. https://doi.org/10.3386/w14538 DOI: https://doi.org/10.3386/w14538
- Hilgert, M. A., & Hogarth, J. M. (2003). Household Financial Management: The Connection between Knowledge and Behavior. Federal Reserve Bulletin, (July), 309–322. Retrieved from https://www.federalreserve.gov/pubs/bulletin/2003/0703lead.pdf
- Hinga, G. K. (2014). Relationship of Financial Literacy on Individual Savings of Employees of Postal Corporation of Kenya Based In Nairobi. University of Nairobi.
- Hung, A. A., Parker, A. M., Yoong, J. K., & Yoong, J. (2009). Defining and Measuring Financial Literacy (No. WR-708). Retrieved from http://ssrn.com/abstract=1498674. https://doi.org/10.2139/ssrn.1498674 DOI: https://doi.org/10.2139/ssrn.1498674
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- Lusardi, A., & Mitchell, O. S. (2009). How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness (No. 15350). Cambridge. https://doi.org/10.3386/w15350 DOI: https://doi.org/10.3386/w15350
- Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and retirement planning in the United States. Journal of Pension Economics and Finance, 10(4), 509–525. https://doi.org/10.1017/S147474721100045X DOI: https://doi.org/10.1017/S147474721100045X
- Lusardi, A., & Tufano, P. (2015). Debt Literacy, Financial Experiences, and Overindebtedness. Journal of Pension Economics and Finance, 14(04), 332–368. https://doi.org/10.3386/w14808 DOI: https://doi.org/10.3386/w14808
- Mandell, L., & Klein, L. S. (2009). The Impact of Financial Literacy Education on Subsequent Financial Behavior. Journal of Financial Counseling and Planning, 20(1), 15–24.
- Mandell, Lewis, & Klein, L. S. (2007). Motivation and financial literacy. Financial Services Review, 16(EUI ECO 2008/31), 105–116. Retrieved from http://cadmus.eui.eu/bitstream/handle/1814/9811/ECO_2008_31.pdf?sequence=1
- MasterCard. (2011). How Well Do Women Know Their Money: Financial Literacy across Asia/Pacific, Middle East and Africa. Retrieved from http://www.masterintelligence.com/content/intellig.
- Morris, T., & Koffi, V. (2015). The Link between Financial Literacy and Education of Canadian University Students. International Journal of Innovation and Research in Educational Sciences (Vol. 2).
- Murphy, J. L. (2013). Psychosocial Factors and Financial Literacy. Social Security Bulettin, 73(1), 73–81. Retrieved from http://ssrn.com/abstract=2217469
- OECD. (2006). Policy Brief the Importance of Financial Education. Paris. Retrieved from http://www.oecd.org/finance/financial-education/37087833.pdf
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- Rashidi, A. (2016). The Relationship between Religious Beliefs and Financial Literacy among the Graduate Students of Islamic Azad University Buin Zahra. J. Appl. Environ. Biol. Sci, 6(6), 140–149. Retrieved from www.textroad.com
- Schmidt, L., & Sevak, P. (2006). Gender, Marriage, and Asset Accumulation in the United States. Feminist Economics, 12(1–2), 39 – 166. https://doi.org/10.1080/13545700500508445 DOI: https://doi.org/10.1080/13545700500508445
- Stango, V., & Zinman, J. (2007). Fuzzy Math and Red Ink: When the Opportunity Cost of Consumption Is Not What It Seems.
- Tempo. (2017). Bank of Indonesia: Credit Card Businesses Shouldn’t Go All-Out. Retrieved July 26, 2019, from https://en.tempo.co/read/848459/bank-of-indonesia-credit-card-businesses-shouldnt-go-all-out
- Tóth, M., LanÄariÄ, D., & Savov, R. (2015). Impact of Education on the Financial Literacy: A Case of Slovakia. Business Trends, 5(2), 21–27. Retrieved from http://www.fek.zcu.cz/tvp/
- Van Rooij, M., Lusardi, A., & Michigan, R. A. (2007). Financial Literacy and Stock Market Participation (No. WP2007-162). Michigan. https://doi.org/10.2139/ssrn.1014994 DOI: https://doi.org/10.2139/ssrn.1014994
- Wachira, M. I., & Kihiu, E. N. (2012). Impact of Financial Literacy on Access to Financial Services in Kenya. International Journal of Business and Social Science, 3(19), 42–50.
- Xiao, J. J., Chen, C., & Sun, L. (2015). Age differences in consumer financial capability. International Journal of Consumer Studies, 39(4), 387–395. https://doi.org/10.1111/ijcs.12205 DOI: https://doi.org/10.1111/ijcs.12205
- Xu, L., & Zia, B. (2012). Financial Literacy Around the World: An Overview of the Evidence with Practical Suggestions for the Way Forward (No. 6107). Retrieved from http://ssrn.com/abstract=2094887. https://doi.org/10.1596/1813-9450-6107 DOI: https://doi.org/10.1596/1813-9450-6107
- Young, J. H. (2013). Financial Literacy: Age and Experience as the Determinants. WBRJ, 3(1), 36–46. Retrieved from https://www.researchgate.net/publication/322055282
References
Agrawal, G., & Khan, M. A. (2011). Impact of FDI on GDP: A Comparative Study of China and India. International Journal of Business and Management. https://doi.org/10.5539/ijbm.v6n10p71 DOI: https://doi.org/10.5539/ijbm.v6n10p71
Alderman, J., Forsyth, J., & Walton, R. (2017). How Religious Beliefs Influence Financial Decision-Making. Graziadio Business Review, 20(3).
Bernheim, B. D., & Garrett, D. M. (2003). The Effects of Financial Education in the Workplace: Evidence from a Survey of Households. Journal of Public Economics, 87(7–8), 1487–1519. https://doi.org/10.1016/S0047-2727(01)00184-0 DOI: https://doi.org/10.1016/S0047-2727(01)00184-0
Bernheim, B. D., Garrett, D. M., & Maki, D. M. (2001). Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates. Journal of Public Economics, 80(3), 435–465. https://doi.org/10.1016/S0047-2727(00)00120-1 DOI: https://doi.org/10.1016/S0047-2727(00)00120-1
Bhushan, P., & Medury, Y. (2013). Financial Literacy and Its Determinants. International Journal of Engineering, Business and Enterprise Applications, 4(2), 155–160. Retrieved from https://www.researchgate.net/publication/264355562
Christelis, D., Jappelli, T., & Padula, M. (2010). Cognitive Abilities and Portfolio Choice. European Economic Review, 54(1), 18–38. https://doi.org/10.1016/j.euroecorev.2009.04.001 DOI: https://doi.org/10.1016/j.euroecorev.2009.04.001
Developing Indonesian Financial Literacy Index. (2013). Retrieved from www.DEFINIT.Asia
Fonseca, R., Mullen, K. J., Zamarro, G., & Zissimopoulos, J. (2012). What Explains the Gender Gap in Financial Literacy? The Role of Household Decision-Making. The Journal of Consumenr Affairs, 46(1), 90–106. https://doi.org/10.1111/j.1745-6606.2011.01221.x DOI: https://doi.org/10.1111/j.1745-6606.2011.01221.x
Global Business Guide Indonesia. (2014). Overview of Indonesia’s Mutual Fund Industry. Retrieved July 26, 2019, from http://www.gbgindonesia.com/en/finance/article/2014/overview_of_indonesia_s_mutual_fund_industry.php
Hastings, J. S., & Tejeda-Ashton, L. (2008). Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico (No. 14538). Cambridge. https://doi.org/10.3386/w14538 DOI: https://doi.org/10.3386/w14538
Hilgert, M. A., & Hogarth, J. M. (2003). Household Financial Management: The Connection between Knowledge and Behavior. Federal Reserve Bulletin, (July), 309–322. Retrieved from https://www.federalreserve.gov/pubs/bulletin/2003/0703lead.pdf
Hinga, G. K. (2014). Relationship of Financial Literacy on Individual Savings of Employees of Postal Corporation of Kenya Based In Nairobi. University of Nairobi.
Hung, A. A., Parker, A. M., Yoong, J. K., & Yoong, J. (2009). Defining and Measuring Financial Literacy (No. WR-708). Retrieved from http://ssrn.com/abstract=1498674. https://doi.org/10.2139/ssrn.1498674 DOI: https://doi.org/10.2139/ssrn.1498674
Indonesia Investment. (2014, October). Government Issues Indonesian Retail Government Bonds (ORI). Retrieved from https://www.indonesia-investments.com/finance/financial-columns/government-issues-indonesian-retail-government-bonds-ori/item2486
Lusardi, A., & Mitchell, O. S. (2008). Planning and Financial Literacy: How Do Women Fare? Planning and Financial Literacy: How Do Women Fare? (No. 13750). Cambridge. https://doi.org/10.3386/w13750 DOI: https://doi.org/10.3386/w13750
Lusardi, A., & Mitchell, O. S. (2009). How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness (No. 15350). Cambridge. https://doi.org/10.3386/w15350 DOI: https://doi.org/10.3386/w15350
Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and retirement planning in the United States. Journal of Pension Economics and Finance, 10(4), 509–525. https://doi.org/10.1017/S147474721100045X DOI: https://doi.org/10.1017/S147474721100045X
Lusardi, A., & Tufano, P. (2015). Debt Literacy, Financial Experiences, and Overindebtedness. Journal of Pension Economics and Finance, 14(04), 332–368. https://doi.org/10.3386/w14808 DOI: https://doi.org/10.3386/w14808
Mandell, L., & Klein, L. S. (2009). The Impact of Financial Literacy Education on Subsequent Financial Behavior. Journal of Financial Counseling and Planning, 20(1), 15–24.
Mandell, Lewis, & Klein, L. S. (2007). Motivation and financial literacy. Financial Services Review, 16(EUI ECO 2008/31), 105–116. Retrieved from http://cadmus.eui.eu/bitstream/handle/1814/9811/ECO_2008_31.pdf?sequence=1
MasterCard. (2011). How Well Do Women Know Their Money: Financial Literacy across Asia/Pacific, Middle East and Africa. Retrieved from http://www.masterintelligence.com/content/intellig.
Morris, T., & Koffi, V. (2015). The Link between Financial Literacy and Education of Canadian University Students. International Journal of Innovation and Research in Educational Sciences (Vol. 2).
Murphy, J. L. (2013). Psychosocial Factors and Financial Literacy. Social Security Bulettin, 73(1), 73–81. Retrieved from http://ssrn.com/abstract=2217469
OECD. (2006). Policy Brief the Importance of Financial Education. Paris. Retrieved from http://www.oecd.org/finance/financial-education/37087833.pdf
OJK. (2017, July 31). OJK: Tren Investasi Reksa Dana Naik 15% dengan Jumlah Total 1,527 Produk. Otoritas Jasa Keuangan, p. 2. Retrieved from https://reksadana.ojk.go.id/Public/BeritaPublicDetail.aspx?id=20034
Rashidi, A. (2016). The Relationship between Religious Beliefs and Financial Literacy among the Graduate Students of Islamic Azad University Buin Zahra. J. Appl. Environ. Biol. Sci, 6(6), 140–149. Retrieved from www.textroad.com
Schmidt, L., & Sevak, P. (2006). Gender, Marriage, and Asset Accumulation in the United States. Feminist Economics, 12(1–2), 39 – 166. https://doi.org/10.1080/13545700500508445 DOI: https://doi.org/10.1080/13545700500508445
Stango, V., & Zinman, J. (2007). Fuzzy Math and Red Ink: When the Opportunity Cost of Consumption Is Not What It Seems.
Tempo. (2017). Bank of Indonesia: Credit Card Businesses Shouldn’t Go All-Out. Retrieved July 26, 2019, from https://en.tempo.co/read/848459/bank-of-indonesia-credit-card-businesses-shouldnt-go-all-out
Tóth, M., LanÄariÄ, D., & Savov, R. (2015). Impact of Education on the Financial Literacy: A Case of Slovakia. Business Trends, 5(2), 21–27. Retrieved from http://www.fek.zcu.cz/tvp/
Van Rooij, M., Lusardi, A., & Michigan, R. A. (2007). Financial Literacy and Stock Market Participation (No. WP2007-162). Michigan. https://doi.org/10.2139/ssrn.1014994 DOI: https://doi.org/10.2139/ssrn.1014994
Wachira, M. I., & Kihiu, E. N. (2012). Impact of Financial Literacy on Access to Financial Services in Kenya. International Journal of Business and Social Science, 3(19), 42–50.
Xiao, J. J., Chen, C., & Sun, L. (2015). Age differences in consumer financial capability. International Journal of Consumer Studies, 39(4), 387–395. https://doi.org/10.1111/ijcs.12205 DOI: https://doi.org/10.1111/ijcs.12205
Xu, L., & Zia, B. (2012). Financial Literacy Around the World: An Overview of the Evidence with Practical Suggestions for the Way Forward (No. 6107). Retrieved from http://ssrn.com/abstract=2094887. https://doi.org/10.1596/1813-9450-6107 DOI: https://doi.org/10.1596/1813-9450-6107
Young, J. H. (2013). Financial Literacy: Age and Experience as the Determinants. WBRJ, 3(1), 36–46. Retrieved from https://www.researchgate.net/publication/322055282