Financial Literacy and Investment Decisions among Young Adults

Abstract

Financial literacy is the ability to understand and use financial knowledge, skills and attitudes for managing money and making sound investment choices. For young adults, who are at the beginning of their earning life and have a long investment horizon, this ability is particularly valuable. India has the largest young population in the world, and the number of first-time investors has increased sharply in recent years because of easy digital account opening, mobile trading applications and systematic investment plans. However, surveys show that the level of financial literacy of Indians remains low in comparison with many other countries. This paper studies the relationship between financial literacy and the investment decisions of young adults on the basis of secondary data drawn from national and international surveys, regulatory and industry statistics, and published research. Three comparison tables are used: financial literacy rates of selected countries, growth of demat accounts in India, and a comparison of the growth of demat accounts with the growth of monthly SIP contributions. The analysis shows that India lags behind the global average in financial literacy, that participation in the securities market has expanded rapidly, and that access to investment accounts has often grown faster than regular and planned investing. Earlier studies confirm that higher financial literacy is associated with greater market participation, better planning and more diversified portfolios, whereas low literacy and behavioural biases lead to mistakes. The paper concludes that financial education should be strengthened in colleges and online platforms so that the rise in participation is converted into informed and disciplined investment.