Digital Financial Literacy and Household Investment Behavior

International Journal of Financial Innovations & Risk Management (IJFIRM)
2025 – Volume 1 – Issue 1 – Pages 31–57

Authors:

Imran Hussain Shah 1, Shahid Khan 2, Sehat Khan 3,

    1. University of Lahore, Lahore, Pakistan

    2. University of Lahore, Lahore, Pakistan

    3. University of Lahore, Lahore, Pakistan

    Abstract

    This study offers an original behavioral-finance framework that explains how Digital Financial Literacy (DFL) influences Household Investment Behavior (HIB) through the combined effects of Financial Attitude (FAL) and Peer/Social Influence (MOD). Unlike previous research that examined only direct literacy–behavior relationships, this study integrates cognitive, affective, and social dimensions to capture the whole pathway of digital financial decision-making. Using data from 583 university students in Pakistan, the analysis applies both the PROCESS macro (Hayes, 2018) and Partial Least Squares Structural Equation Modeling (PLS-SEM) to validate the proposed mediation–moderation model. Results show that FAL fully mediates the relationship between DFL and HIB, confirming that financial attitudes are the psychological bridge between knowledge and action. Additionally, peer influence negatively moderates this relationship, indicating that excessive reliance on social cues can weaken independent financial reasoning. The model demonstrates good reliability and explanatory power (R² = 0.112; SRMR = 0.041). The findings extend the Theory of Planned Behavior and Social Cognitive Theory to digital contexts, highlighting the importance of behavioral and social mechanisms in shaping financial choices. The study provides actionable insights for educators and policymakers seeking to enhance digital financial engagement in emerging economies.

    Keywords

    Digital Financial Literacy; Household Investment Behavior; Financial Attitude; Peer Influence; Behavioral Finance; Emerging Economies

    JEL Code: D14, D91, G41, G53

    References

    1. Lyons, A. C., Kass-Hanna, J., & Menon, S. (2021). Digital financial literacy: A pathway to better financial behaviour? Journal of Behavioral and Experimental Finance, 30, 100470. https://doi.org/10.1016/j.jbef.2021.100470
    2. Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5–44. https://doi.org/10.1257/jel.52.1.5
    3. van Rooij, M., Lusardi, A., & Alessie, R. (2011). Financial literacy and stock market participation. Journal of Financial Economics, 101(2), 449–472. https://doi.org/10.1016/j.jfineco.2011.03.006
    4. Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and retirement planning in the United States. Journal of Pension Economics & Finance, 10(4), 509–525. https://doi.org/10.1017/S147474721100045X
    5. Klapper, L., & Lusardi, A. (2020). Financial literacy and the need for financial education: Evidence and implications. Swiss Journal of Economics and Statistics, 156(1), 1. https://doi.org/10.1186/s41937-020-00046-0
    6. Grohmann, A., Kouwenberg, R., & Menkhoff, L. (2015). Childhood roots of financial literacy. Journal of Economic Psychology, 51, 114–133. https://doi.org/10.1016/j.joep.2015.09.002
    7. Warmath, D., & Zimmerman, D. (2019). Financial literacy as more than knowledge: The development of a behavioural measure. Journal of Consumer Affairs, 53(3), 911–938. https://doi.org/10.1111/joca.12286
    8. Morgan, P. J., & Long, T. Q. (2020). Fintech and financial literacy in Asia. Journal of Asian Economics, 65, 101135. https://doi.org/10.1016/j.asieco.2019.101135
    9. Hasler, A., & Lusardi, A. (2017). The gender gap in financial literacy: A global perspective. Journal of Financial Economics, 50(S1), 130–151. https://doi.org/10.1016/j.jfineco.2017.11.001
    10. Bongini, P., Trivellato, P., & Zenga, M. (2022). Financial literacy and inequality: Evidence from Europe. Journal of Economic Behavior & Organization, 197, 235–256. https://doi.org/10.1016/j.jebo.2022.02.019
    11. Agarwal, S., & Mazumder, B. (2013). Cognitive abilities and household financial decision making. American Economic Journal: Microeconomics, 5(1), 193–207. https://doi.org/10.1257/mic.5.1.193
    12. Raut, R. D., & Kumar, R. (2020). Financial literacy, risk attitude, and investment decisions. Journal of Behavioral and Experimental Finance, 27, 100339. https://doi.org/10.1016/j.jbef.2020.100339
    13. Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investing. Quarterly Journal of Economics, 116(1), 261–292. https://doi.org/10.1162/003355301556400
    14. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292. https://doi.org/10.2307/1914185
    15. Campbell, J. Y. (2006). Household finance. Journal of Finance, 61(4), 1553–1604. https://doi.org/10.1111/j.1540-6261.2006.00883.x
    16. Haliassos, M., & Bertaut, C. C. (1995). Why do so few people hold stocks? Economic Journal, 105(432), 1110–1129. https://doi.org/10.2307/2235341
    17. D’Acunto, F., Prabhala, N., & Rossi, A. G. (2019). The promises and pitfalls of robo-advising. Review of Financial Studies, 32(5), 1983–2020. https://doi.org/10.1093/rfs/hhz049
    18. Cheng, P., Kirilenko, A., & Lo, A. W. (2021). Digital trading and investor behavior. Journal of Behavioral Finance, 22(4), 405–421. https://doi.org/10.1080/15427560.2020.1862981
    19. Yoong, J. (2011). Financial literacy and stock market participation. Review of Economics and Statistics, 93(2), 732–746. https://doi.org/10.1162/REST_a_00100
    20. Bucher-Koenen, T., & Ziegelmeyer, M. (2014). Financial Literacy and Portfolio Complexity among the Elderly. Journal of Consumer Affairs, 48(1), 113–138. https://doi.org/10.1111/joca.12037
    21. Statman, M. (2019). Finance for normal people: How investors and markets behave. Financial Analysts Journal, 75(2), 1–15. https://doi.org/10.1080/0015198X.2019.1569285
    22. Allen, F., Demirgüç-Kunt, A., Klapper, L., & Pería, M. S. M. (2016). The foundations of financial inclusion: Understanding ownership and use of formal accounts. Journal of Financial Intermediation, 27, 1–30. https://doi.org/10.1016/j.jfi.2015.12.003
    23. Awais, M., Laber, M. F., Rana, T. M., & Khan, S. U. (2021). Impact of financial literacy and investment experience on risk tolerance and investment decisions: Empirical evidence from Pakistan. Journal of Risk and Financial Management, 14(9), 457. https://doi.org/10.3390/jrfm14090457
    24. Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179–211. https://doi.org/10.1016/0749-5978(91)90020-T
    25. Xiao, J. J., & Porto, N. (2017). Financial literacy, financial behavior, and financial satisfaction. International Journal of Bank Marketing, 35(5), 805–823. https://doi.org/10.1108/IJBM-01-2016-0009
    26. Potrich, A. C., Vieira, K. M., & Kirch, G. (2018). How well do women do when it comes to financial literacy? International Journal of Consumer Studies, 42(5), 501–515. https://doi.org/10.1111/ijcs.12462
    27. Rai, K., Dua, S., & Yadav, M. (2019). Association of financial attitude, financial behavior, and financial knowledge. Qualitative Research in Financial Markets, 11(1), 76–94. https://doi.org/10.1108/QRFM-05-2017-0043
    28. Garg, N., & Singh, S. (2018). Financial literacy among youth. International Journal of Social Economics, 45(1), 173–186. https://doi.org/10.1108/IJSE-11-2016-0303
    29. Hoffmann, A. O., Post, T., & Pennings, J. M. (2015). How investor perceptions drive actual trading. Journal of Behavioral Finance, 16(1), 94–103. https://doi.org/10.1080/15427560.2015.1000332
    30. Akhtar, F., & Das, N. (2019). Financial literacy, behavioral biases, and investment decisions. Journal of Risk and Financial Management, 12(3), 121. https://doi.org/10.3390/jrfm12030121
    31. Khan, S. U., Awais, M., & Rana, T. M. (2021). Role of financial attitude in financial literacy and investment decisions. Asian Economic and Financial Review, 11(7), 545–560. https://doi.org/10.18488/journal.aefr.2021.117.545.560
    32. García, F. (2022). Digital literacy and online investment: The role of platform trust. Electronic Commerce Research, 22(3), 811–829. https://doi.org/10.1007/s10660-021-09522-z
    33. Chhillar, A., Mehta, P., & Gupta, S. (2025). Financial technology adoption and literacy among youth investors. Journal of Behavioral and Experimental Finance, 38, 101814. https://doi.org/10.1016/j.jbef.2025.101814
    34. Bandura, A. (1986). Social foundations of thought and action. Journal of Social and Behavioral Science, 1(1), 1–35. https://doi.org/10.1016/B978-0-12-109180-9.50003-8
    35. Brown, J., Ivković, Z., Smith, P., & Weisbenner, S. (2008). Neighbors matter: Causal community effects and stock market participation. Journal of Finance, 63(3), 1509–1531. https://doi.org/10.1111/j.1540-6261.2008.01370.x
    36. Hirshleifer, D., & Teoh, S. H. (2003). Herd behavior and cascading in capital markets. European Financial Management, 9(1), 25–66. https://doi.org/10.1111/1468-036X.00207
    37. Shiller, R. J. (2015). Irrational exuberance revisited. Journal of Economic Perspectives, 29(1), 3–28. https://doi.org/10.1257/jep.29.1.3
    38. Cookson, J., & Niessner, M. (2020). Why don’t we learn from social trading? Review of Financial Studies, 33(9), 4049–4093. https://doi.org/10.1093/rfs/hhaa025
    39. Raut, R. D. (2020). Social media influence and retail investor behavior. Journal of Behavioral and Experimental Finance, 28, 100402. https://doi.org/10.1016/j.jbef.2020.100402
    40. Ainin, S., Lim, C., & Wee, A. (2020). Factors influencing digital finance adoption. Asian Journal of Business Research, 10(1), 23–39. https://doi.org/10.14707/ajbr.200080
    41. Rahayu, R., & Day, J. (2022). Financial inclusion through fintech adoption. Journal of Economic Studies, 49(2), 259–277. https://doi.org/10.1108/JES-06-2021-0312
    42. Widjajanti, K., Utami, D., & Prasetyo, A. (2025). Peer influence, digital literacy, and investment participation. International Journal of Bank Marketing, 43(1), 77–96.  https://doi.org/10.1108/IJBM-12-2024-0562
    43. Lusardi, A., & Mitchell, O. S. (2011). Financial literacy and planning: Implications for retirement wellbeing. Journal of Economics and Finance, 35(4), 469–489. https://doi.org/10.1007/s12197-011-9178-8
    44. Calcagno, R., & Monticone, C. (2015). Financial literacy and the demand for financial advice. Journal of Banking & Finance, 50, 363–380. https://doi.org/10.1016/j.jbankfin.2014.03.013
    45. Le, T., Nguyen, H., & Pham, H. (2022). Digital financial literacy and fintech adoption in Vietnam. Journal of Asian Business and Economic Studies, 29(2), 101–120. https://doi.org/10.1108/JABES-11-2021-0143
    46. Sahi, S. K. (2013). Demographic and psychological determinants of investment decisions. Journal of Behavioral and Experimental Finance, 6(2), 68–77. https://doi.org/10.1016/j.jbef.2013.02.002
    47. Alao, W., & Adeyemo, K. (2023). A multi-dimensional scale of digital financial literacy. Journal of Behavioral and Experimental Finance, 39, 101893. https://doi.org/10.1016/j.jbef.2023.101893
    48. Ouma, S. A., Odongo, T. M., & Were, M. (2017). Mobile financial services and financial inclusion. Review of Development Finance, 7(1), 29–35. https://doi.org/10.1016/j.rdf.2017.01.001
    49. Schaner, S., & Morduch, J. (2020). Financial inclusion and the digital divide. World Development, 127, 104800. https://doi.org/10.1016/j.worlddev.2019.104800

    Powered by
    ►
    Necessary cookies enable essential site features like secure log-ins and consent preference adjustments. They do not store personal data.
    None
    ►
    Functional cookies support features like content sharing on social media, collecting feedback, and enabling third-party tools.
    None
    ►
    Analytical cookies track visitor interactions, providing insights on metrics like visitor count, bounce rate, and traffic sources.
    None
    ►
    Advertisement cookies deliver personalized ads based on your previous visits and analyze the effectiveness of ad campaigns.
    None
    Powered by