Factors that Influence the Financial Literacy amon

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ScienceDirect

Available online at www.sciencedirect.com

Procedia Computer Science 172 (2020) 480–487

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the 9th World Engineering Education Forum 2019.

10.1016/j.procs.2020.05.161

10.1016/j.procs.2020.05.161 1877-0509

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) Peer-review under responsibility of the scientific committee of the 9th World Engineering Education Forum 2019.

ScienceDirect

www.elsevier.com/locate/procedia

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/).Selection and peer-review under responsibility of the scientific committee of WEEF 2019

9

^th

World Engineering Education Forum, WEEF 2019

Factors that Influence the Financial Literacy among Engineering Students

BinoyThomas

^a

, P. Subhashree

^b1

aResearch Scholar, Business School, Vellore Institute of Technology, Vellore 632014, India

bProfessor, Business School, Vellore Institute of Technology, Vellore 632014, India

Abstract

Engineers of tomorrow have to be job-providers rather than job-seekers. In this context, financial literacy has vital importance among the engineering students of today as the proper training on financial literacy would instil the financial confidence which would empower themto explore the unlimited prospectus in entrepreneurship endeavours. This paper focuses identifying and assessing the various determinant factors of financial literacy among the engineering students. By data collected from 253 students, the study has found that financial knowledge, financial attitude, family influence, and peer-group pressure influenced the level of financial literacy among the engineering undergraduate students. The findings suggest that long term deliberate attempts are essential for improving the financial literacy among the engineering students.

This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/).

Keywords:Financial literacy; Engineering students; Entrepreneurship; Family influence; peer-group pressure

1. Introduction

Entrepreneurship is the backbone of all emerging and developing economies. Entrepreneurship generates enormous employment opportunities and stimulates economic growth [1], [2]. The entrepreneurial spirit impacts not only the individual endeavours at micro level, but also the whole economic affairs at macro level. Entrepreneurship is defined as the process of building up a new business or ventures by exploring opportunities for improvement, identifying and mobilising required resources, and implementing actions to maximise those opportunities [3], [4].

1

* Corresponding author. Tel.: 0-875-541-0112 E-mail address:suba.n.raja@gmail.com

ScienceDirect

9

^th

World Engineering Education Forum, WEEF 2019

Factors that Influence the Financial Literacy among Engineering Students

BinoyThomas

^a

, P. Subhashree

^b1

Abstract

1. Introduction

1

2 Binoy Thomas & P. Subhashree / Procedia Computer Science 00 (2019) 000–000

Engineers of tomorrow have to be job-providers (entrepreneurs) rather than job-seekers. Enormous opportunities are waiting for young entrepreneurs. As far as our country India is concerned, more than 50% of its population is below the age of 25 and more than 65% is below the age of 35. This huge youth population is simultaneously a challenge and opportunity for economic development of the country. The governmental organisations or the formal sector would not be able to cater the employment opportunities for all. If the youth are empowered with entrepreneurial skills for undertaking innovative endeavours, they will never be unemployed; moreover the future of Indian economy is brighter indeed.

In this context, financial literacy has vital importance among the engineering students of today. Proper training on financial literacy would instil the financial confidence among the students and subsequently empower themselves to explore the unlimited prospectus in entrepreneurship endeavours. As the procurement, distribution and utilisation of financial resources is of crucial importance in the functioning of any innovative engineering projects, the future entrepreneurs need to be financially literate [5]. Greater financial literacy empowers the individuals to deal with unpredicted macroeconomic and income shocks [6]. Lower financial literacy leads the students to incorrect financial decisions and limits their ability to make informed financial decisions [7]. Moreover, the money management habits acquired during the college days would continue to influence them whole throughout the life in managing one‟s own personal finance and the corporate finance for entrepreneurial ventures.

Today, most of the engineering students may be using bank accounts and digital financial services. But majority lack knowledge even on the basic financial concepts such as interest rate, credit score, inflation, budgeting, compound interest, loan default, etc. The level of financial literacy and money management skills among the engineering college students is very low, especially in the developing economies. Youth are generally vulnerable in their financial decision making and transactions [8]. In order to face the challenges of the highly competitive market, comprehensive training in financial literacy is to be provided for youth during their college days itself [9]. Financial literacy among the engineering students shall be made one of the major priorities among the educationalists and the educational policy makers.

1.1. Research Gap

Financial literacy provides a favourable atmosphere for encouraging entrepreneurial attitude among the engineering students; but what are the factors that promotes explains the financial literacy among them? There are very few studies which explain the factors that influence the level of financial literacy among the engineering students. The present study attempts to fill this gap in the existing literature. More indepth studies are required to explore the factors that impact the financial literacy among the young entrepreneurs [10].

In this context, the present aims to explore and measure the factors the level of financial literacy among the engineering students. The research question of the study is: What are the determinants of financial literacy among engineering undergraduate students? The objective of this paper is to measure the various factors (financial education, family influence, peer group influence, trust in the financial institutions, financial attitude) that influence the financial literacy level among the engineering undergraduate students. The findings of the study would concentrate on moulding strategies for improving financial literacy level sufficient enough to start entrepreneurial endeavours among them.

2. Entrepreneurship and Financial Literacy

Financial literacy and entrepreneurship (self-employment) are positively correlated [11], and that the entrepreneurial endeavours can be developed by enhancing the financial literacy level. Financial literacy promotes the entrepreneurship culture and entrepreneurial activities [12]. In the other way, poor financial literacy weakens entrepreneurial activities [13] and new venture initiatives [14]. The confidence in one‟s personal finances and knowledge in corporate finance will provide a supportive atmosphere for entrepreneurs [14]. That is why financial literacy is called as a foundation stone for entrepreneurship [15].

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Binoy Thomas et al. / Procedia Computer Science 172 (2020) 480–487 481

ScienceDirect

9

^th

World Engineering Education Forum, WEEF 2019

Factors that Influence the Financial Literacy among Engineering Students

BinoyThomas

^a

, P. Subhashree

^b1

Abstract

1. Introduction

1

ScienceDirect

9

^th

World Engineering Education Forum, WEEF 2019

Factors that Influence the Financial Literacy among Engineering Students

BinoyThomas

^a

, P. Subhashree

^b1

Abstract

1. Introduction

1

Engineers of tomorrow have to be job-providers (entrepreneurs) rather than job-seekers. Enormous opportunities are waiting for young entrepreneurs. As far as our country India is concerned, more than 50% of its population is below the age of 25 and more than 65% is below the age of 35. This huge youth population is simultaneously a challenge and opportunity for economic development of the country. The governmental organisations or the formal sector would not be able to cater the employment opportunities for all. If the youth are empowered with entrepreneurial skills for undertaking innovative endeavours, they will never be unemployed; moreover the future of Indian economy is brighter indeed.

In this context, financial literacy has vital importance among the engineering students of today. Proper training on financial literacy would instil the financial confidence among the students and subsequently empower themselves to explore the unlimited prospectus in entrepreneurship endeavours. As the procurement, distribution and utilisation of financial resources is of crucial importance in the functioning of any innovative engineering projects, the future entrepreneurs need to be financially literate [5]. Greater financial literacy empowers the individuals to deal with unpredicted macroeconomic and income shocks [6]. Lower financial literacy leads the students to incorrect financial decisions and limits their ability to make informed financial decisions [7]. Moreover, the money management habits acquired during the college days would continue to influence them whole throughout the life in managing one‟s own personal finance and the corporate finance for entrepreneurial ventures.

Today, most of the engineering students may be using bank accounts and digital financial services. But majority lack knowledge even on the basic financial concepts such as interest rate, credit score, inflation, budgeting, compound interest, loan default, etc. The level of financial literacy and money management skills among the engineering college students is very low, especially in the developing economies. Youth are generally vulnerable in their financial decision making and transactions [8]. In order to face the challenges of the highly competitive market, comprehensive training in financial literacy is to be provided for youth during their college days itself [9]. Financial literacy among the engineering students shall be made one of the major priorities among the educationalists and the educational policy makers.

1.1. Research Gap

Financial literacy provides a favourable atmosphere for encouraging entrepreneurial attitude among the engineering students; but what are the factors that promotes explains the financial literacy among them? There are very few studies which explain the factors that influence the level of financial literacy among the engineering students. The present study attempts to fill this gap in the existing literature. More indepth studies are required to explore the factors that impact the financial literacy among the young entrepreneurs [10].

In this context, the present aims to explore and measure the factors the level of financial literacy among the engineering students. The research question of the study is: What are the determinants of financial literacy among engineering undergraduate students? The objective of this paper is to measure the various factors (financial education, family influence, peer group influence, trust in the financial institutions, financial attitude) that influence the financial literacy level among the engineering undergraduate students. The findings of the study would concentrate on moulding strategies for improving financial literacy level sufficient enough to start entrepreneurial endeavours among them.

2. Entrepreneurship and Financial Literacy

Financial literacy and entrepreneurship (self-employment) are positively correlated [11], and that the entrepreneurial endeavours can be developed by enhancing the financial literacy level. Financial literacy promotes the entrepreneurship culture and entrepreneurial activities [12]. In the other way, poor financial literacy weakens entrepreneurial activities [13] and new venture initiatives [14]. The confidence in one‟s personal finances and knowledge in corporate finance will provide a supportive atmosphere for entrepreneurs [14]. That is why financial literacy is called as a foundation stone for entrepreneurship [15].

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482 Binoy Thomas & P. Subhashree/ Procedia Computer Science 00 (2019) 000–000 Binoy Thomas et al. / Procedia Computer Science 172 (2020) 480–487 3 Financial literacy is found to make the entrepreneurs more effective [10]. The higher financial literacy leads to better probability in continuing the entrepreneurship endeavours [16]. A strong association is found between the financial literacy and the success of entrepreneurs [17]. Those who hold better financially knowledge is more probable to be successful entrepreneurs than those who have lesser financial knowledge. If entrepreneurs are financially illiterate, they will be lacking in financial management skills which subsequently result in possible failure of the new ventures and SMEs [14], [18]. Higher financial literacy among the entrepreneurs resulted in the expansions of their business performance and gross sales [19]. In short, financial literacy is one of the most crucial managerial competencies in the creation and development of entrepreneurship endeavours.

Among the youth, financial literacy is found to meaningfully contribute towards the entrepreneurship skills [10]; its absence curtails the probability for entrepreneurial activity [13]. Financial literacy is one of the entrepreneurship competencies and is related entrepreneurial intention among students [20]. Some researchers [10] emphasise the importance of carrying out further research into the impact of financial literacy on youth entrepreneurs.

3. Review of Literature

Financial literacy is defined as having the knowledge, skills and confidence to manage one personal finance and enterprise finance. Financial literacy is defined as one‟s knowledge in financial concepts and ability to make informed financial decisions [21] - [23]. Researchers [24], [25] point out two dimensions of financial literacy, i.e. (i) acquiring financial knowledge and skills, (ii) modification in financial behaviour. It is an on-going process throughout the entire life span of an individual [26]. Financial literacy influences the quality of financial decisions at the individual level as well as the society level [27].

Researchers have identified various factors that influence the level of financial literacy (FL) among the individuals;

the constructs taken for this study are financial knowledge (FK), financial attitude (FA), family influence (FI), and peer-group pressure (PP). The proposed Model is as shown in Figure 01.

Fig. 1. Proposed Model of Factors Influencing the Level of Financial Literacy

Researchers [28], [29] have recognised the role of financial socialisation in deciding the financial literacy level. The major socialisation agents are family, peer group, school, and media. Each of these socialisation agents will influence the individual to the extent of their exposure to these agents during their childhood to early adulthood.

Both formal and informal settings provide opportunities for improving financial literacy [30]: (i) Formal learning opportunity (school education), (ii) Informal learning opportunities (interactions with family members, and friends).

The direct exposure and use of financial services such as bank accounts will help to acquire the financial literacy of the students [15], [31]. Considering various factors such as setting up a financial goal, commitment to the goal, discussing financial matters with family and peers, independent hands-on experience in financial transactions will positively influence the effectiveness of financial education programs [32]. Financial literacy and financial behaviour are positively related; but the direction of their causal relationship is unclear [24], [33]. Financial literacy influences financial behaviour, and financial behaviour influences financial literacy [34].

3.1 Financial Knowledge

Eventhough the terms „financial knowledge‟ and „financial literacy‟ are often used interchangeably by media and researchers, they are not synonymous. Researchers [35] distinguish these terms as: financial knowledge refers to the theoretical understanding of financial concepts; financial literacy has two dimensions such as theory (understanding financial concepts) and application (use of finance related information).

Financial knowledge has a significant influence on financial literacy [8], [36]. The level of financial literacy among those are aged between 18 and 24 is linked to level of their financial education [37]. Teaching the basic concepts in finance at the school level and college level helps the students to improve their ability to involve in financial decision making [38] and enhance the financial literacy level [23], [39]. Financial knowledge facilitates and enriches the level of financial literacy [33], [40], [41]. Those who lack financial literacy shy away from financial transactions since they lack knowledge about the financial products and services [42]. Based on these evidences, we suggest:

H1: Financial knowledge is positively related to and predicts financial literacy.

Financial attitude refers to the mental or psychological judgment of an individual in financial matters. The attitude of an individual towards money will affect one‟s financial literacy level. If one values acquiring money and is determined to achieve materialistic (financial) goals, the individual will strive to achieve higher financial literacy.

Individuals who view money only for the gratification of immediate wants are less probable to undertake efforts to improve financial literacy level. Therefore, individuals who possess higher financial goals and positive attitude towards money will be more disposed to achieve better financial literacy [43]. There is a positive relationship between financial attitude and financial literacy [36]. Negative financial attitude results in defective financial literacy and financial behaviour [44]. Among the college students, financial attitude predicts financial literacy [45].

Based on these arguments, we propose:

H2: Financial attitude is positively related and predicts financial literacy.

3.3 Family Influence

Family influence positively affects the financial literacy [46]. Parents influence the financial literacy level of their childrenand young adults [47] - [50]. Pocket money given by parents to their children is found to be an effective tool for teaching good financial habits to their children through informal means [51]. The financial lessons from one‟s parents provide better financial confidence for the individuals [52]. Financial literacy of students was associated with the discussion of parents - children on money matters [31]. At least in some cases, the older siblings influence the younger ones in the financial matters [50].

In the context of home, purposive financial trainings may be very rare; but more financial learning comes from indirect family communications [53]. Financial educators and family life educators also have recognised the crucial role of parents in enhancing the financial literacy level of their children [54]. Social Learning Theory justifies the discussion on the role of parents in deciding the financial literacy level of their children. Based on these arguments, we propose:

H3: Family influence is positively related and predicts financial literacy.

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Financial literacy is found to make the entrepreneurs more effective [10]. The higher financial literacy leads to better probability in continuing the entrepreneurship endeavours [16]. A strong association is found between the financial literacy and the success of entrepreneurs [17]. Those who hold better financially knowledge is more probable to be successful entrepreneurs than those who have lesser financial knowledge. If entrepreneurs are financially illiterate, they will be lacking in financial management skills which subsequently result in possible failure of the new ventures and SMEs [14], [18]. Higher financial literacy among the entrepreneurs resulted in the expansions of their business performance and gross sales [19]. In short, financial literacy is one of the most crucial managerial competencies in the creation and development of entrepreneurship endeavours.