Impact of Financial Literacy on the Risk Tolerance Behavior of Females Working in the Unorganized Sector

Introduction

Financial literacy is the combination of financial skills, knowledge, attitude, awareness. It helps in the long-term financial planning, investment, asset building and wealth creation (Tamimi and Kalli, 2009) Lack of financial literacy leads to conditions of extreme poverty, debt defaulters, dependence on others for financial matters and inability to utilize funds. Risk is an important factor which needs to be concerned while making wise investment choices. It is therefore seen that the investor considers the relationship between the rate of return and risk level of the financial investment tools. The financial risk tolerance of individual investors influences their choice of financial products and services and the use of their wisdom in financial markets. By Financial risk tolerance we mean the maximum amount of uncertainty faced by the investors while making a sound financial decision. Individual financial risk tolerance gets impacted by the social, ethical, financial, cultural, physical factors.

Financial literacy is an important factor to assess financial risk tolerance. Financial literacy uses financial skills, knowledge and education so as to be financially viable and sound. Various new schemes of investment are available in the market for providing investment opportunities to the investor so that they can plan their future requirements and can also better utilize its savings by generating more returns. Financial literacy has always proved to be a significant factor for making sound financial decisions by the investors (NSFE, 2012). I. This study has been done to find out the financial literacy level of females working in the unorganized sector. Women working in the unorganized sector due to shortage and instability of money seriously affects retirement planning, saving and other crucial decisions. This study is conducted to explore the impact of financial literacy on the risk tolerance behavior of females. Many investors are only investing in secured investment tools to avoid loss and a situation of extreme debt and poverty.

A very small segment of investors invests in capital market instruments due to lack of financial literacy and risk intolerance. Financial literacy not only broadens the scope of investment choices and financial planning but also helps in the process of rotating money and diversification of funds. This study helps to explore the impact of financial literacy on risk tolerance behavior of females. Risk tolerance is an important indicator which helps in looking at the amount of surplus funds with the people, the preferred tool of investment and how well they are managing and diversifying funds.