THE IMPACT OF FINANCIAL LITERACY ON INVESTMENT DECISIONS AMONG RETAIL INVESTORS: A STUDY OF ISLAMABAD, PAKISTAN

Abstract

This study explores the critical role of financial literacy in shaping investment decisions among retail investors in Islamabad, Pakistan. Drawing upon a behavioral finance framework, the research employs a structured questionnaire to collect assumed cross-sectional data from a sample of 300 individual investors. The analysis focuses on key components of financial literacy, including knowledge of budgeting, comprehension of financial risks, and familiarity with investment instruments, to evaluate their influence on rational investment behavior. The findings reveal a strong and statistically significant positive relationship between higher levels of financial literacy and more informed, rational investment choices. This correlation underscores the importance of empowering investors through targeted educational initiatives. The study offers practical policy recommendations aimed at enhancing financial literacy, such as integrating financial education into the national curriculum, promoting public awareness through media and workshops, encouraging regulatory reforms to ensure transparency, and leveraging digital platforms for widespread dissemination of financial knowledge. By addressing the literacy gap, the research advocates for a more resilient and informed retail investor base, ultimately contributing to the development of Pakistan’s capital markets and overall financial inclusion.

Keywords: Financial Literacy, Investment Decisions, Retail Investors, Islamabad, Behavioral Finance, Pakistan.