Determining interlinkages between the measures of financial literacy: An MCDM approach

• Published date: 01 May 2021
• Author: Pramahender, Himanshu,Vinay Kandpal
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2287

PRACTITIONER PAPER

Determining interlinkages between the measures of financial

literacy: An MCDM approach

Pramahender

1

| Himanshu

2

| Vinay Kandpal

3

1

Department of Commerce, KM Govt College,

Narwana, Haryana, India

2

Department of Commerce, Government PG

College, Datia, Madhya Pradesh, India

3

School of Business, University of Petroleum

and Energy Studies, Dehradun, India

Correspondence

Vinay Kandpal, School of Business, University

of Petroleum and Energy Studies, Knowledge

Acres, Dehradun, Uttarakhand, India.

Email: vinayaimca@gmail.com

The purpose behind this research work is to recognise the measures of financial liter-

acy, examine their relative importance and develop causal linkages among them. The

study has employed the method of DEMATEL to achieve the objective. For this

study, the interviews were conducted with experts from India between March and

May of the year 2019. Three main measures and nine sub-measures were identified.

The results of the research work pointed out that financial knowledge gets the top

priority. Among sub-measures, financial education, financial experience, financial

behaviour and financial awareness are on the top in the priority list. On the basis of

R–C values, the measures have been classified into groups based on cause and effect

relationships.

1|INTRODUCTION

Financial markets have become dynamic and technological innova-

tions are growing at a faster pace. It is a common thing that new prod-

ucts and services are continuously coming into the market and has led

to complications for understanding the financial products and con-

cepts available. Even though there is a rise in income, the savings and

investment are comparatively low in developing economies such as

India. Financial literacy has become the need of the hour and just as

essential to people as fundamental education. This area has recently

acquired considerable significance and the studies are being carried

out all over the world to gauge the rate of literacy in finance. A study

by (Allen, Demirguc-Kunt, Klapper, Soledad Martinez Peria, &

Peria, 2012) revealed that “the unbanked are disproportionately con-

centrated in the developing world - only a third of South Asians, a

quarter of Sub-Saharan Africans, and less than a fifth of Middle-

Easterners and North Africans have an account at a formal financial

institution.”

Terms like Financial Literacy, Financial Education are more often

than not jumbled up in the sphere of academic literature and used

interchangeably. There is not any standard definition related to finan-

cial literacy and hence scholars have defined financial literacy as a

constituent of human competency if used in financial activities, then it

would enhance the financial soundness of an individual (Kozina &

Ponikvar, 2015). Others defined it as the potential of an individual to

comprehend the financial information and apply personal financial skill

in their life (Ibrahim, Harun, & Isa, 2009). An additional dimension of

application of literacy equips an individual to make use of his/her

decision-making adept and with confidence regarding financial mat-

ters. Financial literacy is basically an outcome aimed at refining human

capital of a person and the tool required for it is financial education

(Huston, 2010).

In today's financial landscape, which is increasingly, being com-

plex, financial literacy is considered as a basic skill for the consumers.

This is the main reason behind numerous efforts of governments

across the world to find out practical approaches to ameliorate the

financial literacy rates for them. Moreover, many of them are creating

a national strategy aimed at providing financial education to render

opportunities for learning to a person throughout his/her life.

Remund (2010) explained “financial literacy as a measure of the

degree to which one understands key financial concepts and pos-

sesses the ability and confidence to manage personal finances through

appropriate short-term decision-making and sound, long-range finan-

cial planning, while mindful of life events and changing economic con-

ditions.”The OECD (2005) mentioned financial education as

“Financial education is the process by which financial consumers/

investors improve their understanding of financial products and con-

cepts; and through information, instruction and/or objective advice

develop the skills and confidence to become more aware of financial

risks and opportunities, to make informed choices, to know where to

go for help, and to take other effective actions to improve their finan-

cial well-being and protection.”The Reserve Bank of India (RBI) has

Received: 27 April 2020 Revised: 12 June 2020 Accepted: 12 July 2020

DOI: 10.1002/pa.2287

J Public Affairs. 2021;21:e2287. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of8

https://doi.org/10.1002/pa.2287