Abstract:
With the rising focus on financial literacy initiatives around the world and the need that
especially speaks out from the developing world, the following research is an exploration
of the level of financial literacy from a population sample from Pakistan.
This research is aimed at exploring the level of financial literacy in Pakistan and the
correlation between financial literacy and participation in financial markets within the
country. The research was a survey based, descriptive study that used a questionnaire
which asked the respondents about bank account ownership, budgeting, orientation
towards money management, saving behavior, finding income-expense gaps, investments
and financial literacy questions based on numeracy skills, interest rate compounding and
understanding of inflation, thus gathering data from Pakistani citizens aged 18 years and
above.
The survey shows that budgeting is a part of practice by a majority of families; however
informal saving and borrowing channels, both are pursued more than the formal channels.
Participation in financial markets is limited to depositing in bank accounts, whereas
investing in financial products is not very common. Voluntary or self-triggered
investment behavior is very low, most of the financial products are purchased along with
the purchase of a car, house loan or as suggested by friends and family. Only 11% could
score full on interest compounding questions and 57% could answer correct
understanding of inflation. The strongest correlation for financial literacy was found with
the level of education and secondly family income. Positive correlation was found
between participation in financial market and financial literacy. Financial literacy has a
weak correlation with bank account ownership. The report highlights the use of financial
products is more aimed towards the future betterment of the family. There is a low risk
taking behavior among Pakistanis. Thus financial literacy initiatives need to be tailored at
college levels to induce positive investment perspectives and interest among citizens
along with enhancing financial inclusion.
