The Impact of Behavioral Finance Factors and the Mediating Effect of Investment Behavior on Individual’s Financial Well-being: Empirical Evidence from Pakistan

Abstract

Individual financial well-being is recognized as a major concern for the general welfare and social welfare of society. In this context, it is very important to understand how people can ensure good financial well-being. This article aims to explore the effects of financial literacy, risk tolerance, and risk perception on the financial well-being of individuals, with an emphasis on behavioral investment interventions. Quantitative research methods are used to measure the factors that affect financial well-being. A questionnaire was developed on Google Forms to collect data from people who have bank accounts. The sample of 318 Pakistanis supports the proposed hypothesis. Structural equation modeling (SEM) was used to evaluate the results. The results show that risk tolerance, risk perception and financial literacy influence people's investment behavior and ultimately their financial well-being. Individual financial behavior needs to be improved. In this context, there is an urgent need for financial education programs in the education system and centers of employment, behavioral development and financial literacy.
 Future research on this topic could benefit from collecting longitudinal data which could provide more relevant information for Pakistanis seeking to achieve better financial well-being. All measures used are reported separately and individually, measuring the risk that respondents will misinterpret questions and even interpret their behavior.

Influence of Digital Financial Literacy on Financial Well-Being Through Spending, Saving, and Investment Behavior in Indonesia

“…This way causes individuals to experience high FWB, where one may fully pay their commitments and feel confident in their financial future and enjoy life in a good financial situation. In addition, Ali & Hussain (2021) in their survey of 318 individuals in Pakistan, investment behavior was a mediating variable that strengthened the relationship between financial literacy and FWB, and financial literacy and investment behavior were positively associated with FWB. Irmani et al (2020) note that in East Java, Indonesia, the association between financial literacy and household financial status is influenced by financial behavior, proxies of purchasing, saving, and intermediate investment.…”

“…Adding a mediating variable that can strengthen the positive relationship between DFL and FWB is necessary. Ali & Hussain (2021) found that investment behavior makes the relationship between financial literacy and FWB positively significant in Pakistan. In addition, Ghazali et al (2022) also observed that positive saving, spending, and investment behavior correlates positively with financial knowledge and FWB in Malaysia.…”

“…Ghazali et al (2022) observed that financial knowledge and FWB have a significant relationship indirectly mediated by financial behavior among Malaysian adults aged 19 to 29. Ali & Hussain (2021) observed that the financial literacy of 318 Pakistanis has a positive relationship with FWB with the influence of mediation investment behavior in which one with high financial literacy makes their choices way better than others and will appreciate way better FWB. In Indonesia, Rahayu et al (2022) found that the high DFL of the people of West Sumatra, Indonesia, with good income and education, provides a direct, significant, and positive relationship to FWB.…”

Mediating Role of Risk Perception Between Behavioral Biases and Investor’s Investment Decisions

“…A closer look at the literature reveals several gaps and shortcomings. The studies conducted in Pakistan focused on behavioral biases and investment decision making of investors (Ali et al, 2021; Anum, 2017; Asab et al, 2014; Aurengzeb, 2022; Ayub, 2018; Badshah et al, 2014; Farooq & Sajid, 2015; Ishfaq, 2015; Khan et al, 2018, 2021; Mahmood et al, 2020; Mumtaz & Ahmad, 2020; Parveen et al, 2021; Quddoos et al, 2020; Rasheed et al, 2018; Raza, 2014; Rehan et al, 2021; Zafar & Siddiqui, 2020). This study contributes to explore the investment behavior in blue-chip stocks with mediating role of risk perception.…”

Impact of Financial Inclusion on Financial Well-Being: Moderating Effect of Orientation towards Finance

“…The conception of financial inclusion is fundamental when it comes to the progress and enhancement of the financial capability of the female (Arnold and Venkatesan. 2021), which then leads positively influence the concerns of an individual to focus on improving their monetary well-being and financial satisfaction (Ali et al, 2021). Therefore, this practical aspect is opening new pathways to examine the controlling part of the financial abilities and skills to improve an individual's monetary wellness.…”