Financial Literacy and Stock Market

Participation- A Case of Pakistan

Moiz Ahmed
08-0106

Introduction
Financial literacy refers to the

knowledge and understanding of

financial concepts, resulting in the
ability to make informed, confident and
effective decision regarding money.
Financial products are now increasingly
difficult to access for people unfamiliar
with financial and economic concepts.

Problem
The knowledge of the financial market

environment is an important factor in

influencing the stock market
participation of individual and
institutional investors.
Financial literacy attracts newer
investors and also influences existing
investors to participate more is an
important issue.

Objective
To measure the level of relationship

between people who are financially

knowledgeable have understanding of
basic concepts of finance and are
familiar with the characteristics of
financial markets and stock market
participation

Purpose of the Study and Scope

The purpose of this research is to find out whether

people are aware of financial markets and

investigate the level of involvement in stock
markets.
Scope:

Focuses only on the residents of Karachi.

The financial literacy is represented by certain
variables.
The market participation is considered to mean
only buying and selling of stock in the spot market.

Variables
Independent Variables:

Basic Financial literacy

Advance financial literacy
Dependent Variables:

Stock Market Participation

Hypothesis
H1= There is a relationship between the

understanding of basic concepts of finance

and the level of stock market participation.
H2= There is a relationship between the
knowledge of Financial markets and level of
stock market participation.

Population and Sample Size

POPULATION

The number of depositary account holders in

Karachi. According to the latest figures by the
State Bank of Pakistan there are 28.741 million
account holders in Pakistan. While in Karachi there
are around 1.3 to 1.5 million account holders.
SAMPLE AND SAMPLING METHOD
The sample size of 200 has been taken. Sampling
method is convenience Sampling and the reason
for using this sampling method is that it would
provide me data from all demographics which I
want to study.

Analysis and Findings

Participation in Stock Exchange
Valid

Cumulative
Valid Percent
Percent
69.0
69.0

Yes

Frequency
138

Percent
69.0

No

62

31.0

31.0

Total

200

100.0

100.0

100.0

138 respondents that is 69% participated while the remaining

62 respondents that is 31% do not participate in the stock
market.

Demographics
Occupation

Frequency
Valid

Percent

Cumulative
Valid Percent
Percent

Student

66

33.0

33.0

33.0

Teacher

1.0

1.0

34.0

Banker

52

26.0

26.0

60.0

Businessman

74

37.0

37.0

97.0

3.0

3.0

100.0

200

100.0

100.0

Others
Total

Gender

Frequency
Valid

Male
Female
Total

Percent

Cumulative
Valid Percent
Percent

143

71.5

71.5

71.5

57

28.5

28.5

100.0

200

100.0

100.0

1.5% of the respondents were male, while 28.5% of the respondents were female

Age
Frequen
cy
Percent

Valid
Percent

Cumulativ
e Percent

Valid 15 - 25

70

35.0

35.0

35.0

26 - 35

15

7.5

7.5

42.5

36 - 45

53

26.5

26.5

69.0

46 - 55

58

29.0

29.0

98.0

56 - 65

2.0

2.0

100.0

200

100.0

100.0

Total

Monthly Income

Valid

Zero
10,000 - 20,000
20,000 - 40,000
40,000 - 60,000
60,000 -80,000
Above 80,000
Total

Frequency
52
12
11
12
39
74
200

Percent
Valid Percent
26.0
26.0
6.0
6.0
5.5
5.5
6.0
6.0
19.5
19.5
37.0
37.0
100.0

100.0

Cumulative
Percent
26.0
32.0
37.5
43.5
63.0
100.0

Differences in stock buying pattern across

different age groups
Age
15 - 25 26 - 35 36 - 45 46 - 55 56 - 65
Level of
Participation

Total

Very
Frequent
Frequent

Total

20

24

52

33

32

69

Sometimes

15

Rarely

Never

50

56

70

15

53

58

200

Majority of the share holding pattern is concentrated between age

36 55, that is 98% of respondents belonging to this age group
participate in the stock market.
While in the age bracket (15 25) mostly comprising of students
dont invest in stock market.

Differences in stock buying pattern across

different occupations

Student Teacher
Level of
Participation

Total

Very
Frequent
Frequent
Sometime
s
Rarely
Never

Occupation
Businessm
Banker
an
Others

Total

14

38

52

34

31

69

15

4
52
66

0
2
2

0
0
52

2
2
74

2
0
6

8
56
200

Bankers and businessmen showed the highest percentage of stock

ownership i.e. 100% and 97.3%.
The lowest percentage of participation is found to be among
students i.e. 78.8% because they do not have money to invest.

Differences in stock buying pattern across

different income levels
Differences in stock buying pattern across different income levels

Monthly Income
Zero
Level of
Participation

Very
Frequent
Frequent
Sometim
es
Rarely
Never

Total

10,000 - 20,000 - 40,000 - 60,000 20,000 40,000 60,000 80,000

Above
80,000

Total

12

38

52

27

31

69

15

2
43
52

4
6
12

2
4
11

0
2
12

0
0
39

0
1
74

8
56
200

Almost 100% respondents participate in the stock market that have

monthly a income above Rs. 60,000.
Chances of holding stocks increase with income and this can be proven
from the above table because respondents who have zero income never
participate in the stock market i.e. 82.7%.

Differences in stock buying pattern Based on the

level of understanding of financial environment

Understanding of financial Environment

Very Neutr
Moderatel Very Do Not Refus
Low al High y High
High
know
al Total
Level of
Participation

Total

Very
Frequent
Frequent
Sometim
es
Rarely
Never

16

24

10

52

23

30

69

15

0
3
3

2
18
36

6
14
64

0
16
73

0
0
19

0
3
3

0
2
2

8
56
200

100% respondents who have very high understanding of financial

environment participate in the stock market. 74% of the respondents are
with moderately high financial environment knowledge who participate
in the stock market.

68.75% of the respondents who have high understanding of the

financial environment participate in the stock market.

Financial Literacy and Stock Market

Participation
Basic Financial
Literacy
Incorrec
Correct t
Participation in
Yes
Stock Market

74.96% 46.50%

No

25.04% 53.50%

Total

100.00 100.00
%
%

Basic Financial literacy

80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

BASIC FINANCIAL LITERACY

74% respondents who participate answered correctly.
25% respondents who dont participate answered correctly.

Participation in
Stock Market Yes
Participation in
Stock Market No

Advance
Financial
Literacy
Incorre
Correct ct
Participation in Yes
Stock Market
No
Total

71.86% 55.97%
28.14% 44.03%
100.00 100.00
%
%

Advance Financial Literacy

80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

ADVANCE FINANCIAL LITERACY

71.86% respondents who participate answered correctly.
55.97% respondents who dont participate answered correctly.

Participation
in Stock
Market Yes
Participation
in Stock
Market No

Hypothesis Testing
Correlations

Correlations

Participati

Participatio basicliterac
n Pattern
Participation
pattern

basicliteracy

Pearson Correlation

on Pattern advance

y
1

Sig. (2-tailed)

.570

200

Pearson Correlation

.570

.000
200

advance

Pearson Correlation
Sig. (2-tailed)

200

Pattern
Sig. (2-tailed)

200

Pearson Correlation

.000

Sig. (2-tailed)

Participation

.039
.001

200

200

.039

.001
200

H1= There is a relationship between the understanding of basic

concepts of finance and the level of stock market participation.
H2= There is a relationship between the knowledge of Financial
markets and level of stock market participation.

200

Relationship between the knowledge Financial

Environment and stock market participation.
Correlations

Level of
Participation

finenviron
finenviron

Pearson
Correlation
Sig. (2-tailed)
N

Level of Participation

Pearson
Correlation
Sig. (2-tailed)
N

.306
.000

200

199

.306

.000
199

199

The P value is 0.000 which is less than 0.05 significance

level so it represents that the results are statistically
significant. The value 0.306 shows that there is a positive
but a weak correlation between the two variables.

Conclusion
People usually prefer to buy gold or real estate rather investing

in some kind of securities. But if they are investing in securities

they go for much safer ones i.e. government saving certificates
etc.
Since people have limited financial resources they prefer to
save it for future.
Differences in stock buying pattern across different
demographic variables also showed significant results.
The results of correlation between the independent variable
with the dependent variable are positive which shows all the
variables have a positive relationship with stock market
participation which means people do participate in stock market
because of the financial knowledge.
Descriptive results also show that people who participate in
stock market have more levels of financial literacy and the
understanding of financial environment.

Recommendations
Financial literacy stimulates the demand side making

people aware of what they can and should demand. As

shown in the research that financial literacy is
important determinant of stock ownership and stock
market participation is important for many reasons
such as it facilitates asset accumulation and
consumption smoothing.
More financial literacy programs by the government.
Further research could be done to investigate the effect
of other uncontrollable variables such as political
instability and its effect on financial environment, law
and order situation in the country and its effect on
financial environment.
Presence of market players and corporate investors

Thank You