EXTENT OF FINANCIAL LITERACY IN PAKISTAN A SAMPLE STUDY FROM URBAN PAKISTAN A PERSPECTIVE ON DETERMINANTS AND IMPLICATIONS OF FINANCIAL KNOWLEDGE & BEHAVIOR

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.