THE INFLUENCE OF FINANCIAL LITERACY LEVEL TO STOCK MARKET PARTICIPATION AND FINANCIAL BEHAVIOR AMONG MILLENNIALS IN INDONESIA

• Main Author: Pranoto, Shirley
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/35606
• Institution: Institut Teknologi Bandung

World Bank performed a survey on financial literacy in 2015 and found that there are only 32% of adults in Indonesia who are financial literate. It is a warning sign for us to focus on improving financial literacy and find the most effective way to do it. Regardless that only 32% of adults who are financial literate, the number of Single Investor Identification (SID) showed an increase of 20.06% in 2018. Half of the investors are millennials as reported by The Indonesia Central Securities Depository (KSEI). Considering those facts, it sounds promising that our millennials are financial literate and financially able to include themselves in stock market. However, based on study performed by Rumah123.com and Karir.com in 2016, that only 17% of millennials is believed to be able to buy a house and it is at the cheapest price around Rp 300 million Rupiahs by 2021. It is quite confusing to digest the facts about millennials and their financials that the author decides to evaluate the financial literacy level among millennials in Indonesia. This research is discovering the level of basic and advance financial literacy and how it influences the millennials’ willingness to participate in stock market as well as how overconfidence they are and their risk averse level. To assess the direction of causality, the author uses questions measuring basic financial knowledge and advance financial knowledge (which relate to stock market). The author finds that, the understanding of inflation and interest rate compounding are the lowest two scores in the basic financial literacy question pool, however, it outperforms the lowest two scores in the advance financial literacy question pool which are the ones testing the knowledge of bonds and how it relates with the interest rate. Logit regression analysis is used to analyze the relationship between variables (the demographic factors and each financial literacy level: basic and advance). The weighted percentage analysis is also used to more accurately portray a response in relation to the population of respondents, which is spread throughout Indonesia. This research used mainly primary data in the form of survey result performed using JAKPAT, a survey application which has 281,244+ mobile respondents across Indonesia. Some secondary data such as from World Bank and KSEI are used for background and comparison purposes. In conclusion, for basic and advance financial literacy level topics, millennials with higher education level and profession related to economy are the ones who have high basic financial literacy level. However, when the respondent are getting older and/or married, the basic financial literacy level tends to decrease. When the questions are advanced, the education level is also statistically significant but needs to be combined with the monthly spending amount. If they have more money available to spend, they tend to have a higher advance financial literacy level. However, when respondents are female and/or older and/or having children, the advance financial literacy level tends to decrease. Then, the relationship between financial literacy level and the stock market participation topic is when millennials have a higher basic and/or advance financial literacy level, they tend to participate on stock market. Millennials who are overconfidence or learning more on economics or tends to participate on stock market as well. However, we noted that when the risk averse level increases, the respondent tends NOT to participate on stock market, which it is a common understanding on stock market environment.