Abstract :
Financial literacy has ever increasing importance in our day. Whether people are financially
knowledgeable, helps greatly in making rational investment decisions. Numerous studies
have been undertaken to explore, investigate and measure financial literacy in several
developed countries. However, very few of them have been conducted in the Arab World and
Gulf Countries. Therefore, the purpose of this study is to measure the level of financial
literacy of the Bahraini individual investors. In addition to, examine the relationship between
financial literacy and investment decisions in the Kingdom of Bahrain. The study draws on
228 questionnaire surveys of investors in Bahrain. In order to measure the level of financial
literacy of the Bahraini investors, the approach of Lusardi and Mitchell (2006) was utilized
in this research effort. The data were analyzed using Pearson Correlation, t-teat and Chisquare
test.
The results reveal that the financial literacy level of the Bahraini investors is
found to be low (38.6%) and far from the needed level. When we analyzed the level of
financial literacy based on the demographic variables, we found that women are generally
less financially literate than are men; respondents of age 41-50 are more knowledgeable than
all other age groups, and financial literacy is highly correlated with education. Moreover,
participants in high financial literacy group (HFLG) have higher awareness level for all
financial products except for certificate of deposit and post office savings. Further,
participants in low financial literacy group (LFLG) mainly prefer to invest in traditional and
safe financial products and do not invest much in complex financial products which are
comparatively more risky and can give higher return.
