Influence of Financial Literacy on Retail Investment Decision-making in Ghana

Influence of Financial Literacy on Retail Investment Decision-making in Ghana | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Influence of Financial Literacy on Retail Investment Decision-making in Ghana Morris Ayaa Mensah, Emmanuel B. Amponsah, Luther Adjei Ntim This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6997734/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Despite increasing access to financial markets, many Ghanaian retail investors continue to make suboptimal investment decisions—often due to limited financial literacy. This study examines the influence of financial literacy, operationalized through financial knowledge, behavior, and attitude, on investment decision-making among retail investors in Ghana. Grounded in the Theory of Planned Behavior and Behavioral Finance Theory, the study employs a quantitative approach using Partial Least Squares Structural Equation Modeling (PLS-SEM) on data from 406 respondents in Accra. Findings indicate a significant and positive relationship between all three financial literacy components and investment decision-making. The results confirm that financial literacy enhances rational investment behavior and mitigates decision biases, thereby reinforcing the applicability of TPB and behavioral finance in emerging economies. The study recommends the implementation of targeted financial education programs to strengthen investor decision-making capacity and financial resilience. Financial literacy financial knowledge financial attitude financial behavior Figures Figure 1 Figure 2 1.0 Introduction Recent developments in the financial sector have transformed the investment landscape, opening up access and facilitating ownership of large shares in the stock market. Retail investors are able to manage portfolios, participate, and conduct transactions through the stock market and online trading platforms. However, retail investors are faced with suboptimal investment decisions that impact their financial well-being (Balakina et al., 2022; Dutta & Kaur, 2023; Thorp et al., 2023). Retail investment decision-making involves individuals engaging in trading securities through relatively small transactions (Rahman & Gan, 2020). These individual investors often react emotionally to market news or short-term trends, leading them to buy high and sell low. Consequently, they tend to underperform compared to those who adopt a more systematic, long-term investment strategy. Further, investors who fall prey to investment scams promising great returns with minimal risk lose a significant portion of their overall portfolio value (Dulisse et al., 2024). Evidence from recent studies shows that suboptimal investment decision-making results in substantial losses for many retail investors (Gorzon et al., 2024; Havakhor et al., 2024; Larni-Fooeik et al., 2024; Suresh, 2024). Bagama (2024) and Saharan et al. (2024) maintain that these suboptimal investment decisions are often driven by low financial literacy. Consequently, these behaviors become evident in the trading patterns of retail investors during market volatility. For instance, in 2008, retail investors panicked when share prices dropped and hastily sold their investments, leading to significant losses. This issue was highlighted in a study by the Financial Industry Regulatory Authority (FINRA, 2018), revealing that many investors lacked the expertise to make sound decisions during critical moments (McCamy, 2021). According to Cao et al. (2021), ordinary investors make unsound investment choices by disregarding fundamental factors like industry trends, corporate financials, and economic conditions in favor of relying excessively on technical analysis. Additionally, similar to global trends, numerous individual investors in Africa grapple with sound investment decisions. In Ghana, the majority of retail investors have experienced financial setbacks due to poor investment decisions involving fraudulent schemes (Mohammed, 2021). These investors were unaware of the risks associated with different investment options, leading to unfavorable investment selections and financial losses (Nkukpornu et al., 2020). On the other hand, the level of financial literacy influences the decisions of retail investors. Generally, an individual's competence in understanding and evaluating credible information is vital for decision-making. Financial literacy is identified as an essential building block that helps individuals evaluate various financial offerings and make suitable, informed choices regarding investments (Rodrigues et al., 2019). Important changes since the publication of the OECD/INFE (2020) International Survey on Adult Financial Literacy emphasize the ongoing need to improve financial literacy to improve individual and household well-being (OECD, 2020). A foundational understanding of financial principles and proficiency in applying numerical skills in financial scenarios enable individuals to approach investment issues with greater assurance and respond effectively to developments that could impact their investment choices. The concept is measured in terms of financial knowledge, financial behavior, and attitude (Dewi et al., 2020b; OECD, 2020). According to S&P Global FinLit (2023), African countries have the worst global financial literacy scores worldwide, resulting in struggles with sound investment decisions. The financial literacy level in Ghana remains low, with rates of 38 percent, 44 percent, and 51 percent in the northern, central, and southern parts respectively. Eighty percent (80%) of Ghanaians lack a fundamental understanding of the intricacies of investment (Matey et al., 2021). The inadequate levels of financial literacy have resulted in individuals making less-than-ideal investment choices and becoming victims of fraudulent investment schemes. While prior studies in Ghana have established links between financial literacy and investment outcomes, few have explored this relationship through a theoretical lens. This study contributes to the literature by grounding the analysis in the Theory of Planned Behavior and Behavioral Finance Theory, offering a dual perspective that combines rational decision-making and behavioral bias. Unlike previous research, this study operationalizes financial attitude and behavior as dimensions impacted by intentionality and cognitive bias, which are important to TPB and behavioral finance, respectively. Thus, our dual-theory framework enables us to go beyond regional contextualization and provide a theoretically informed, behaviorally nuanced account of retail investment decisions in Ghana. To our knowledge, this is one of the first empirical implementations in the Ghanaian setting to combine these frameworks in a structured SEM-PLS model. In doing so, we contextualize financial literacy within Ghana’s investment environment, thereby extending existing models to a developing economy context. 1.1 Research Hypothesis To address the research gap, the study sought to test the null hypothesis below: Ho 1 : Financial knowledge, financial behavior and financial attitude do not predict investment decision-making. 2.0 Literature Review 2.1 Investment Decision-making Schwenk (1984) asserts that decision-making is a human cognitive process that leads to a course of action among alternatives. Various scholars have widely defined investment decision-making from different perspectives. For example, according to Júnior et al. (2023), investment decision-making involves investors committing funds to several options to earn the highest possible returns. Agrawal and Hockerts (2021) maintain that it is the process of analyzing investment alternatives with the solid intent to bring measurable social and financial benefits. This definition has been widely adopted in current studies (e.g., Agrawal & Jespersen, 2023; Cohen, 2022; Dorfleitner et al., 2023). Schoenmaker and Schramade (2019) hold that investment decision-making involves the capacity to achieve the best returns. Meanwhile, Fender et al. (2019) expand this perspective by emphasizing the importance of estimating the long-term risk of various assets to make optimal decisions. Similarly, Raut (2020) suggests that investment decision-making follows a rational process. It consistently applies decision rules to various investment situations, taking advantage of the empirically determined quantitative relationship between market forces and security performance (Grim & Berkowitz, 2020; In et al., 2019). However, Quaicoe and Eleke-Aboagye (2021) observe that in Ghana, behavioral factors often override rational models. This perspective aligns with Raut's (2020) argument that investment decisions are not always logical, as psychological and contextual influences also play a role. 2.2 Financial Literacy The concept having been identified globally as a key life skill in the 21 st century, is vital for individual empowerment and promoting the financial well-being of individuals and societies. Significant developments have occurred since the publication of the OECD/INFE (2020) International Survey of Adult Financial Literacy, highlighting the continued importance of enhancing financial literacy to enhance individual and household well-being (OECD, 2023). Recognizing the current levels of financial literacy and requirements is essential for the effective development of financial literacy strategies and initiatives (OECD, 2023). The importance of financial literacy, skills, and knowledge has been consistently emphasized during economic crises. For instance, Nguyen et al. (2021) argue that a lack of knowledge, proficiency, and literacy in economics and finance at both individual and societal levels has significantly impacted the development, escalation, and prolongation of financial crises. However, studies exploring the concept of financial literacy are diverse. Lusardi (2019) focuses on financial knowledge, while OECD (2020) includes skills, attitudes, and behaviors necessary for sound financial decisions. Hamid and Loke (2021) broaden this scope to include managing personal finances, understanding budgets, savings, investments, and debts, emphasizing that the concept involves comprehending the potential risks and benefits associated with decision-making. Ouachani et al. (2021) emphasize the importance of possessing the requisite knowledge and expertise to make informed decisions regarding financial products. Additionally, Harahap et al. (2022) argue that establishing and maintaining a financial plan for the future is a key aspect of financial literacy. Global studies on financial literacy highlight the persistent issue, drawing parallels to historical challenges (Kovács & Terták, 2019). In developing countries like Ghana, financial literacy has a profound impact. A recent study suggests that providing women with financial education can significantly enhance their capacity to accumulate productive assets, thereby bridging the gender asset gap. Koomson et al. (2023) advocate for financial literacy training as an effective policy tool to achieve this objective in Ghana and other developing nations. Additionally, Tsumasi et al. (2022) recommend the formation of community committees by policymakers or non-governmental organizations (NGOs) comprising a diverse range of professionals such as bankers and government officials. These committees can play a vital role in imparting financial skills to rural communities, enhancing their financial capabilities and inclusivity. This study adopts the OECD (2020) measures of financial literacy, which include knowledge, attitude, behavior, skills and awareness. Specifically, this study focuses on examining three dimensions of financial literacy: financial knowledge, financial attitude, and financial behavior. 2.2.1 Financial Knowledge and Investment Decision-Making Junaeni (2020) investigated the determinants of investors' decision-making in the capital market and found that financial knowledge as a predictor of financial literacy has a significant positive relationship with investment decisions. These findings are replicated by current research (Chhatoi & Mohanty, 2023; Din et al., 2021; Koskelainen et al., 2023), indicating that financial literacy has a considerable positive effect on the behavior of individual investment decisions, i.e., the greater a person's financial knowledge, the better their investment decisions. Meanwhile, knowledge can be used as a determining factor for investment decisions, where investment knowledge is required before a person decides to invest. Similarly, Cude et al. (2019) investigated the financial knowledge of investors on the Tehran Stock Exchange in Iran. The results indicate that most Iranians did not perform well on basic or advanced financial knowledge questions compared to other populations. However, those with higher education and income tended to have better financial knowledge, suggesting that financial education programs may be particularly beneficial for those with lower socio-economic status. Additionally, the study found that individuals with experience investing in the stock market tended to have higher levels of financial knowledge, highlighting the importance of practical experience in improving financial literacy. The results further prove that respondents knew specific information about investing but needed help understanding basic personal financial concepts such as compound interest and the time value of money. Raut (2020), on the other hand, examined the importance of financial literacy in investment decision-making finding out that financial literacy does not only assist investors in developing a stable mindset for investment decision-making but also gives them the confidence to make rational and well-reasoned judgments. For example, if investors have a greater understanding of financial terms and stock market behavior, as well as greater access to information and assistance, they will be motivated differently and rely more on equity fundamentals than social influences, leading to more informed investment decisions and potentially higher returns. In Ghana, Oteng (2019) investigated the relationship between financial literacy and investment decision-making. The study revealed that traders lacked investment knowledge, with many respondents requiring assistance in understanding the concept of liquidity. This finding is supported by other recent studies (Matey et al., 2021; Kuffour & Adu, 2019; Sarpong-Kumankoma et al. 2023; Koomson et al., 2023). Additional insights suggest that the criteria influencing personal financial needs include risk minimization, anticipation of losses from local investments, facilitation of loan accessibility, expectation of dividends, diversification objectives, and consideration of family members’ opinions. 2.2.2 Financial Behavior and Investment Decision-making Bellofatto et al. (2018) examined the correlation between retail investors' behavior and investment decision-making. The study found that subjective financial literacy plays a crucial role in explaining the variations in retail investors' behavior when making investment choices. It was observed that individual investors who perceive themselves as highly literate tend to trade in a wider range of stocks while holding less diversified stock portfolios. These investors do not exhibit a higher inclination towards riskier portfolios in terms of volatility. Moreover, their increased participation in investment funds helps them maintain more diversified portfolios. Consequently, investors with higher reported levels of financial literacy tend to hold portfolios with a lower modified Herfindahl-Hirschman Index (HHI) (De Winne & Petkeviciute, 2021). In another study, Dewi et al. (2020a) measured the level of financial literacy and its predictors in the Indonesian academic community regarding investment decisions hypothesizing a significant relationship between financial behavior and investment decision-making. The findings indicate that behavior plays a significant role in the investment decisions of the Indonesian academic community. Moreover, the research suggests that academic lecturers should enhance their perceived knowledge, skills, and awareness of money management and investment decision-making. Blankespoor et al. (2019) investigated the frictions that hinder investors' use of accounting information, particularly the costs of monitoring and acquiring accounting disclosures. The study utilized an archival setting where individuals were presented with automated media articles reporting current earnings news and past stock returns, despite having readily available earnings information. The study reveals that individual investors tend to heavily rely on non-accounting information, such as news and social media, when making investment decisions. It underscores the importance of financial education and the necessity for investors to consider multiple sources of information before making investment decisions. It is evident financial behavior, as a predictor of financial literacy, has a significant impact on investment decisions in many circumstances, ranging from retail investors to academic groups. Furthermore, the use of non-accounting information emphasizes the importance of comprehensive financial education in assisting investors in making more educated decisions. 2.2.2 Financial Attitude and Investment Decision-making Amonhaemanon and Vora-Sitta (2020) investigated whether financial attitude links financial literacy to investment decisions. Considering financial attitude and investment decisions across generations, it was found that Gen Y had the highest average score in financial literacy and investment decisions, higher than those of Gen X and Gen B. The impact of financial literacy on investment decisions through financial attitude revealed that the impact on Gen B was higher than those of Gen X and Gen Y, concluding that with the right financial attitude, people of all generations would be equipped with sound investment decisions. These results have been supported by current research (Harjanto et al., 2022; Shi et al., 2019; Xu et al., 2020). Additionally, Rai et al. (2019) explored the antecedents of financial literacy and their significance in working women's investment decisions. The study indicated a strong correlation between the financial attitude of working women and their levels of investment decision-making. As a result, a positive and significant association exists between working women's financial attitudes and investment decision-making. The study emphasized that financial education is not the sole factor to consider when analyzing financial literacy, as financial attitude also plays a significant and positive role in women's financial literacy concerning investment decision-making. Furthermore, Niazi and Malik (2019) delved into the moderating role of financial literacy between financial attitude and investment decisions. The results showed that financial attitude has a significant positive correlation with investment decisions, while financial literacy significantly moderates the relationship between financial attitude and investment decisions. The study suggests that Pakistani investors, who are risk-averse, tend to diversify investments to avoid money market instruments. The study recommended that investors focus on increasing awareness about financial products regardless of their environment or living standards, with decision-makers needing to mitigate risks through innovative financial products. 3.0 Theoretical Fraework 2.3 Theoretical Foundations. Behavioral Finance Theory (Kahneman & Tversky, 1979) provides an alternative to classic economic models, arguing that humans do not always act rationally due to cognitive limits and emotional factors. Retail investors, particularly in developing nations like Ghana, frequently exhibit biases such as overconfidence, anchoring, and loss aversion. These behavioral patterns call into question the notion of rationality in investing decision-making, implying that financial literacy should be understood as a behavioral and psychological phenomenon rather than just a technical competency. To better understand how financial literacy influences investment behavior, this study also employs the Theory of Planned Behavior (TPB) (Ajzen, 1991). TPB contends that an individual's behavior is primarily determined by intentions, which are influenced by three factors: attitude toward the conduct, subjective norms, and perceived behavioral control. When applied to the context of financial decision-making, TPB suggests that a retail investor's intention to invest (and actual investment behavior) can be influenced by their financial attitude (e.g., beliefs about saving or risk), perceived control over financial decisions (which may reflect knowledge or confidence), and the influence of social expectations. While TPB implies some rational planning, it also recognizes that behavior is influenced by internal attitudes and external influences, providing a more realistic perspective for understanding Ghana's retail investors. Although this study does not directly test behavioral biases or TPB components, the inclusion of behavioral tendencies in the conceptual framework demonstrates recognition of their possible relevance. This conceptual integration serves to contextualize the study's central argument: that improving financial literacy entails not only increasing information, but also addressing behavioral patterns that may impede prudent investing decisions. Thus, the combination of Behavioral Finance Theory and the Theory of Planned Behavior provides a more comprehensive understanding of how financial literacy influences investment decision-making, especially in settings where financial education, socio-cultural influences, and psychological biases interact. 3.0 Conceptual Framework This conceptual framework illustrates the influence of financial literacy components, namely financial knowledge, financial attitude, and financial behavior on investment decision-making. It also includes behavioral biases (e.g., overconfidence, loss aversion, anchoring) as a conceptual factor that may influence investment decisions, though not empirically tested in the model. The arrows indicate direct influences from the financial literacy components to investment decision-making, grounded theoretically in Behavioral Finance Theory and the Theory of Planned Behavior. 4.0 Methods This study sought to examine the effect of financial literacy (in terms of financial knowledge, financial behavior and financial attitude) on investment decision-making in Ghana. These dimensions were analyzed through reliability testing, path analysis, and hypothesis testing. 4.1 Measurement The elements of the independent variable—financial knowledge, financial behavior and financial attitude—were adapted from the Organization for Economic Cooperation and Development (2020) and Widyastuti et al. (2020). Both the OECD and Widyastuti et al. sources comprised a 26-item scale. These scales were modified to measure financial knowledge, financial behavior and financial attitude. The selection of these scales was relevant because they were specifically designed to assess financial knowledge, financial attitude, and financial behavior. Moreover, in adapting this scale, the study considered the OECD financial literacy assessment framework, the domains and components covered, the types of items used, and the scoring mechanisms. Furthermore, the scale elements relevant to the investor population were considered, and modifications were made as appropriate to better serve our purpose. 4.2 Survey Administration and Sample In this study, a self-completion survey was used to gather data from the participants. The survey questions were grouped into variable categories, ensuring that the questions within each category were coherent and unambiguous. This approach helped to prevent respondents from filling out the survey randomly or making mental leaps. The survey employed a 6-point Likert scale, ranging from "strongly agree" to "strongly disagree." This adaptation aimed to provide a comprehensive set of response choices, covering various levels of agreement and disagreement without a neutral midpoint. This range of options allowed for more nuanced responses compared to a four-point Likert scale, enabling respondents to express their opinions more precisely. The instrument consisted of closed-ended questions, which helped standardize the data collection process and facilitated the comparison and analysis of participants' responses. The study's population comprised 10,887 retail investors in selected collective investment schemes, including mutual funds and trusts in Accra, Ghana (SEC, 2021). Both the stratified sampling and simple random sampling techniques were used to select retail investors for the survey. The stratified random sampling technique enabled us to categorize retail investors according to the type of collective investment scheme in which they invest, i.e., equity mutual funds and trust funds. Furthermore, individual investors from each stratum were selected using simple random sampling. This sampling technique offered each retail investor an equal opportunity to partake in the study. To answer the questionnaire, a sample of 482 male and female respondents were determined by means of Krejcie and Morgan (1970) table. However, only 406 copies of the questionnaire were returned, representing 84% of the usable response rate. Meanwhile, while the response rate of 84% is considered high and suggests robust data collection, the possibility of non-response bias cannot be entirely ruled out. Non-response bias occurs when the characteristics of respondents differ systematically from those of non-respondents, potentially skewing the results. To mitigate this concern, the sampling techniques employed (stratified and simple random sampling) ensured that respondents were selected in a manner representative of the population of retail investors in the selected collective investment schemes. No significant discrepancies were observed, indicating that the sample is likely reflective of the broader population. 5.0 Results and Discussion 5.1 Reliability analysis Reliability analysis on the constructs was carried out to ensure the internal consistency within the instrument. We used Cronbach’s alpha coefficient to assess the internal consistency of the instrument's items. The rule of thumb is that, a Cronbach’s alpha value of 0.70 and above is acceptable for establishing internal reliability and consistency (Nunnally & Bernstein, 1994). Regarding financial literacy, the Cronbach’s alpha coefficients for the constructs were financial knowledge (0.861), financial attitude (0.793), and financial behavior (0.803). Three items measuring financial knowledge (2, 5, and 6) and financial behavior (1, 9, and 10), respectively, were removed as each had a Cronbach’s alpha coefficient less than 0.7. Two items measuring financial attitude (4 and 5) were removed as their Cronbach’s alpha coefficients were less than 0.70. The remaining items were retained based on both their Cronbach’s alpha values (≥ 0.70) and their ability to represent the key dimensions of each construct. Specifically, the final items were selected for their strong relevance to the underlying concepts of financial knowledge, attitude, and behavior. The retained items for financial knowledge focused on assessing respondents’ awareness of essential financial concepts, while those for financial attitude and behavior were consistent with theoretical definitions and validated measures in the literature. Table 5.1 below displays the reliability test results. Table 1: Summary of Reliability Test Results Construct Number of items Cronbach’s Alpha Financial knowledge 5 0.861 Financial Attitude 5 0.793 Financial Behavior 5 0.803 Source: Field data (2025) In contrast, to assess the suitability of the variables for factor analysis, both the Kaiser-Meyer-Olkin (KMO) and Bartlett’s tests were employed. Generally, an overall KMO of 0.6 and above is considered acceptable for factor analysis (Kaiser, 1974). The values of the KMO and Bartlett’s test results showed that all the variables were appropriate for factor analysis. The results for the variables KMO and Bartlett’s tests are presented in Table 5.2 below. Table 2: Summary of KMO and Bartlett’s Test Results Variables KMO value Bartlett’s test Financial knowledge 0.750 χ² (15) = 335, p < 0.001 Financial attitude 0.683 χ² (21) = 216, p < 0.001 Financial behavior 0.632 χ² (21) = 428, p < 0.001 Source: Field data (2025) 5.2 Path Analysis Path analysis using Partial Least Squares - Structural Equation Modeling (PLS-SEM) via Smart PLS 4.1.0.5 was employed to determine the effect of financial literacy’s sub-variables (financial knowledge, financial behavior, and financial attitude) on investment decision-making. This technique was chosen to examine the relationships between multiple latent variables and how they collectively influence the dependent variable. Model Assumptions : PLS-SEM does not require strict distributional assumptions, making it suitable for smaller samples and non-normally distributed data, which fits the characteristics of our dataset. Additionally, the method handles multicollinearity issues by constructing latent variables from observed indicators. Variable Measurement : Latent variables—financial knowledge, financial behavior, financial attitude, and investment decision-making—were measured using the adapted scales. Each latent construct was measured by at least four observed indicators, following best practices for SEM. Validation Techniques : The reliability and validity of the model were assessed using composite reliability (CR) and average variance extracted (AVE) . CR values above 0.70 indicated good internal consistency, while AVE values above 0.50 confirmed convergent validity. Furthermore, discriminant validity was established by comparing the AVE of each construct to the squared correlations between constructs, ensuring that each construct was distinct from others. Effect of financial knowledge, financial behaviour and financial attitude on investment decision-making Table 5.3: Summary of Path Analysis for the Effects of Financial Literacy (sub-variables) on Investment Decision-making in Ghana N Model Original sample (O) T statistics (|O/STDEV|) P values R 2 Adj. R 2 f 2 Q 2 Financial Attitude -> Investment Decision-Making 0.149 3.238 0 Financial Behaviour -> Investment Decision-Making 0.398 8.16 0 406 Financial Knowledge -> Investment Decision-Making 0.282 5.004 0 0.444 0.44 0.11 0.417 Source: Authors’ compilation (2025) Table 5.3 reveals the results of the path analysis which examined the effect financial literacy dimensions (financial knowledge, financial attitude and financial behaviour) have on investment decision-making of retail investors in Ghana. The results showed that financial knowledge (β = 0.282, t = 5.004, p < 0.05), financial behaviour (β = 0.398, t = 8.16, p < 0.05) and financial attitude (β = 0.149, t = 3.238, p < 0.05) all have positive and significant effect on investment decision-making in Ghana. The results of the analysis revealed that all three dimensions of financial literacy predict investment decision-making. This implies that financial knowledge, financial behavior and financial attitude are essential factors in assessing an individual's level of financial literacy when making investment decisions. Further, by incorporating these elements into investment decision-making processes, retail investors will enhance their ability to make informed and strategic decisions, ultimately contributing to the overall success of their investment portfolio. The correlation coefficient of R = 0.666 shows that a moderately strong positive relationship exists between the sub-variables of financial literacy and investment decision-making. The coefficient of multiple determination, Adjusted R 2 of 0.44, indicates that financial literacy explains about 44 percent of the changes in investment decision-making in Ghana while the remaining 56 percent could be attributed to other factors not included in the model. Potential factors contributing to this unexplained variance may include macroeconomic conditions, such as inflation rates, exchange rate stability, and general economic performance, which influence investor confidence and decision-making. Additionally, access to technology, including digital platforms for financial education and investment, may play a significant role. Also, the aggregated effect size, ( f 2 ) = 0.11, reveals a small effect size implying that each individual dimension of financial literacy (knowledge, behavior, and attitude) has a relatively limited impact when analyzed in isolation. According to Cohen (1988) effect sizes with values that are > 0.35, > 0.15, and > 0.02 could be considered as strong, moderate, and weak, respectively. While the f 2 value suggests that financial literacy components individually have a weak effect, their combined predictive power is more substantial, as indicated by the adjusted R 2 = 044. In terms of practical significance, the small effect size suggests that financial literacy components may exert greater influence when considered holistically rather than in isolation. This suggests that programs aimed at improving investment decision-making should adopt an integrated approach, addressing financial knowledge, behavior, and attitude simultaneously. Stone-Gleisser Q 2 values of 0.02, 0.15, and 0.35 represent small, medium, and large predictive relevance (Chin, 1998) and Q 2 above zero confirms that the structural model specified is relevant and significant. The Q 2 value of 0.417 therefore, shows that the model has a medium predictive relevance. The medium predictive relevance found in this study aligns with findings in similar research exploring financial literacy and investment decision-making. For example, a study by Bustani (2024) reported a value of 0.425, indicating that their model had moderate predictive relevance in explaining investment decisions among individual investors. The predictive and prescriptive multiple regression models are thus expressed as: ID = α 0 + 0.149FA + 0.398FB + 0.282FK + ε i ……………. Eqn.1 (Predictive Model) ID = α0 + 0.149FA + 0.398FB + 0.282FK + εi ………….. Eqn. 2 (Prescriptive Model) Where: ID = Investment decision-making FK = Financial knowledge PT = Financial attitude SS = Financial behavior The results of the predictive model and the prescriptive are equal indicating that when financial knowledge, financial attitude and financial behavior seeking are improved by one unit, investment decision-making would positively increase by 0.282, 0.149, and 0.398 respectively. This implies that a higher financial knowledge, financial attitude and financial behavior will lead to a rise or improvement in investment decision-making among retail investors in Ghana. 5.3 Hypothesis Testing Restatement of null hypothesis 1: Financial knowledge, financial behavior and financial attitude do not predict investment decision-making Given that the p-values for financial knowledge, financial attitude, and financial behavior are less than 0.05, we reject the null hypothesis. This means that financial knowledge, financial behavior, and financial attitude significantly influence investment decision-making. These findings align with the studies by Chhatoi and Mohanty (2023) and Junaeni (2020). This finding has significant policy implications for Ghana’s financial sector. First, it underscores the need to widen and deepen financial literacy programs to equip retail investors with the knowledge and skills to navigate complex financial markets. Policymakers and financial institutions should consider introducing targeted financial education programs that address specific gaps in financial knowledge, behavior and attitude especially for the underserved; women, youth and rural investors. Existing programs like the Securities and Exchange Commission’s (SEC) financial literacy campaigns can include modules on practical investment skills like evaluating investment opportunities and risk management. Educational institutions can also partner with financial institutions to introduce financial literacy in the school curriculum so that personal finance is taught from an early age. Further, this study contributes to theory in two significant ways. First, it confirms the Theory of Planned Behavior in financial contexts by demonstrating that financial knowledge, attitude, and behavior have a significant impact on investment decision-making among Ghanaian retail investors. This data lends support to the TPB premise that behavioral intentions, influenced by knowledge and attitude, predict actual behavior. Additionally, the findings are consistent with principles from behavioral finance theory. The dependence on heuristics and behavioral patterns observed among investors implies that cognitive biases are still prevalent, particularly in circumstances where formal financial education is minimal. These findings underline the importance of an integrated behavioral model that incorporates both cognitive skills and psychological dispositions, particularly in emerging markets. 6.0 Conclusion and Recommendations This study highlights the importance of financial literacy in investment decision-making among retail investors in Ghana. The finding indicates that the dimensions of financial literacy, financial knowledge, financial behavior, and financial attitude, have a positive and significant effect on investment decision-making. Specifically, retail investors with a higher degree of financial literacy are better equipped to make informed and strategic investment choices, enhancing their potential for financial success. The study confirms that financial knowledge allows investors to understand and evaluate investment opportunities more effectively, leading to better decision-making outcomes. Additionally, financial behavior, including regular savings and budgeting, contributes to more sound investment decisions. Furthermore, the level of financial attitude is associated with the level of financial literacy and access to finance. The results showed that financial attitude matters in financial literacy and, hence, access to finance. Individuals of small-scale investments have a moderate financial literacy in terms of their financial attitude to risk. Regarding financial behavior, retail investors in Ghana portray higher financial literacy in terms of saving, borrowing, budgeting, and spending. There is basic knowledge of key financial terms and a favorable inclination towards sound financial practice. However, the study acknowledges that socio-demographic variables such as age, gender, and education levels are likely to influence financial literacy and, by extension, investment decision-making. These factors could mediate or moderate the relationship between financial literacy and investment decisions. Further, this study lends empirical support for financial behavior, including the Theory of Planned behavior and the Behavioral Finance Theory. By contextualizing financial literacy in Ghanaian retail investing, these theories' external validity is extended to a developing country setting. The findings highlight the significance of incorporating psychological and socio-demographic aspects into future models of investment behavior. This dual-theory approach provides a more complete understanding of how literacy manifests in practice, paving the door for more nuanced financial education and policy initiatives. It is recommended that to gain a better understanding of complex investment products and strategies, retail investors should seek ongoing education on financial principles and investment strategies. Financial institutions and educational organizations should provide regular workshops and seminars aimed at improving financial literacy. Community and opinion leaders are encouraged to organize fora and invite financial experts as resource persons to build members’ capacity in this endeavor. The study has potential limitations. First, the lack of a detailed examination of socio-demographic variables such as age, gender, and education levels may influence the relationship between financial literacy and investment decision-making. Future research could address this gap by incorporating these variables to provide a more comprehensive analysis of the factors that affect financial literacy and investment decision-making. Secondly, while this study empirically examined the effect of financial knowledge, behavior, and attitude on investment decision-making, it did not empirically test for the potential impacts of behavioral biases such as overconfidence, loss aversion, or herd behavior. These biases, which are important to Behavioral Finance Theory, could modify or mitigate the relationship between financial literacy and investment decision-making. As a result, future research should include these psychological elements to gain a better understanding of why financially knowledgeable individuals may still make poor investment decisions. This could provide more comprehensive models of investor behavior, particularly in developing markets such as Ghana, where informal financial practices and market instability are common. Finally, although the Theory of Planned Behavior (TPB) underpins the study’s conceptual model, key constructs such as subjective norms and perceived behavioral control were not included in the empirical analysis. This decision was made to maintain a focused scope and reflect practical considerations in measuring constructs directly linked to financial literacy. Nonetheless, their exclusion represents a theoretical limitation. Future research could integrate these components to better capture the full behavioral and psychosocial influences on investment decision-making. Declarations This study was conducted in accordance with ethical guidelines and received approval from the valley View University Review Board with reference number : VVU-IRB/AP/004/25 Author Contribution M.M wrote the main manuscriptE.A proofread the manuscriptL.N proofread the manuscript References Agrawal, A., & Hockerts, K. (2021). Impact investing: A review and research agenda. Journal of Small Business & Entrepreneurship , 33 (2), 153-181. https://doi.org/10.1080/08276331.2018.1551457 Agrawal, A., & Jespersen, K. (2023). How do impact investors evaluate an investee social enterprise? A framework of impact investing process. Journal of entrepreneurship in emerging economies. https://doi.org/10.1108/JEEE-04-2022-0129 Amonhaemanon, D., & Vora-Sitta, P. (2020). 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Past behaviour, financial literacy and investment decision-making process of individual investors. International African journal of emerging markets https://doi.org/10.1108/IJOEM-07-2018-0379 Rodrigues, L. F., Oliveira, A., Rodrigues, H., & Costa, C. J. (2019). Assessing consumer literacy on financial complex products. Journal of Behavioral and Experimental Finance , 22 , 93-104. S&P Global FinLit. (2022). Financial Literacy around the world. https://gflec.org/initiatives/sp-global-finlit-survey/ Saharan, A., Pandey, K. K., & Rao, T. J. (2024). Assessment of antecedents of financial literacy among young adults: Hybrid BWM and ISM approach. International Journal of Social Economics , 51 (4), 530-554. Sarpong-Kumankoma, E., Ab-Bakar, S., & Akplehey, F. N. (2023). Gender and financial literacy in Ghana. African Journal of Economic and Management Studies , 14 (4), 569-582. Schoenmaker, D., & Schramade, W. (2019). Investing for long-term value creation. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6997734","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":479616002,"identity":"ec5083c0-b205-4e98-8fe5-6b55dfbcef3f","order_by":0,"name":"Morris Ayaa Mensah","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABA0lEQVRIiWNgGAWjYLCCBAjFxvihQkIOxDrwgFgtzBJnbIzBWhKItIyNgbctLbEByRCsQLe999mHB3+2yZnzH372QILtcPr8sMMPgbbYyek2YNdidua48YzEttvGljPSzA0KeA7nbrydZgDUkmxsdgCHlhtpzAyJDbcTN9xgMJOQkABqmZ0A0nIgcRs+LQl/btdvOH/8mwSPweF0w9npH4jQwnYbaHKOmQRPQlqCvHQOAVvOHAM6rO224YYbOWXSEgdsDDdI5xQcSDDA45fjbcyMP/7cljc4f3yb5Md/EvLys9M3f/hQYSeHSwsmMACrNCBWOQjIN5CiehSMglEwCkYCAABCW2Yakg/+2QAAAABJRU5ErkJggg==","orcid":"","institution":"North-West University","correspondingAuthor":true,"prefix":"","firstName":"Morris","middleName":"Ayaa","lastName":"Mensah","suffix":""},{"id":479616003,"identity":"6d78dc60-a045-4796-bb86-f5e740c12f35","order_by":1,"name":"Emmanuel B. Amponsah","email":"","orcid":"","institution":"Valley View University","correspondingAuthor":false,"prefix":"","firstName":"Emmanuel","middleName":"B.","lastName":"Amponsah","suffix":""},{"id":479616004,"identity":"047e5f16-6ec2-4dcb-a91e-95f3c6f47330","order_by":2,"name":"Luther Adjei Ntim","email":"","orcid":"","institution":"Valley View University","correspondingAuthor":false,"prefix":"","firstName":"Luther","middleName":"Adjei","lastName":"Ntim","suffix":""}],"badges":[],"createdAt":"2025-06-28 12:23:11","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6997734/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6997734/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":85915573,"identity":"b72f6090-9267-4f2c-9a0a-96825bc521e9","added_by":"auto","created_at":"2025-07-03 06:52:59","extension":"png","order_by":1,"title":"Figure 1","display":"","copyAsset":false,"role":"figure","size":408276,"visible":true,"origin":"","legend":"\u003cp\u003e\u003cem\u003e\u003cstrong\u003eFig 3.1 \u003c/strong\u003e\u003c/em\u003e\u003cem\u003eInfluence of financial literacy on investment decision-making\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eAuthors’ compilation\u003c/em\u003e\u003c/p\u003e","description":"","filename":"1.png","url":"https://assets-eu.researchsquare.com/files/rs-6997734/v1/834e69f088e609637a8b22a0.png"},{"id":85915569,"identity":"427fb982-95c4-4a09-88bc-e8041119041b","added_by":"auto","created_at":"2025-07-03 06:52:59","extension":"png","order_by":2,"title":"Figure 2","display":"","copyAsset":false,"role":"figure","size":109175,"visible":true,"origin":"","legend":"\u003cp\u003e\u003cstrong\u003eFigure 1: Path\u003c/strong\u003e\u003cem\u003e\u003cstrong\u003e Analysis showing the effect of financial knowledge, financial behaviour and\u003c/strong\u003e\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e\u003cstrong\u003efinancial attitude on investment decision-making\u003c/strong\u003e\u003c/em\u003e\u003c/p\u003e","description":"","filename":"2.png","url":"https://assets-eu.researchsquare.com/files/rs-6997734/v1/27b9e15ed1a6b0b8946a649b.png"},{"id":87894381,"identity":"bfb32762-5f20-4b7c-9e06-c8d15cff4802","added_by":"auto","created_at":"2025-07-30 07:17:11","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":1279820,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6997734/v1/bff8e7bd-1b1d-4035-aff8-1864d097bd92.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Influence of Financial Literacy on Retail Investment Decision-making in Ghana","fulltext":[{"header":"1.0 Introduction","content":"\u003cp\u003eRecent developments in the financial sector have transformed the investment landscape, opening up access and facilitating ownership of large shares in the stock market. Retail investors are able to manage portfolios, participate, and conduct transactions through the stock market and online trading platforms. However, retail investors are faced with suboptimal investment decisions that impact their financial well-being (Balakina et al., 2022; Dutta \u0026amp; Kaur, 2023; Thorp et al., 2023).\u003c/p\u003e\n\u003cp\u003eRetail investment decision-making involves individuals engaging in trading securities through relatively small transactions (Rahman \u0026amp; Gan, 2020). These individual investors often react emotionally to market news or short-term trends, leading them to buy high and sell low. Consequently, they tend to underperform compared to those who adopt a more systematic, long-term investment strategy. Further, investors who fall prey to investment scams promising great returns with minimal risk lose a significant portion of their overall portfolio value (Dulisse et al., 2024).\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eEvidence from recent studies shows that suboptimal investment decision-making results in substantial losses for many retail investors (Gorzon et al., 2024; Havakhor et al., 2024; Larni-Fooeik et al., 2024; Suresh, 2024). Bagama (2024) and Saharan et al. (2024) maintain that these suboptimal investment decisions are often driven by low financial literacy. Consequently, these behaviors become evident in the trading patterns of retail investors during market volatility. For instance, in 2008, retail investors panicked when share prices dropped and hastily sold their investments, leading to significant losses. This issue was highlighted in a study by the Financial Industry Regulatory Authority (FINRA, 2018), revealing that many investors lacked the expertise to make sound decisions during critical moments (McCamy, 2021).\u0026nbsp;\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eAccording to Cao et al. (2021), ordinary investors make unsound investment choices by disregarding fundamental factors like industry trends, corporate financials, and economic conditions in favor of relying excessively on technical analysis. Additionally, similar to global trends, numerous individual investors in Africa grapple with sound investment decisions. In Ghana, the majority of retail investors have experienced financial setbacks due to poor investment decisions involving fraudulent schemes (Mohammed, 2021). These investors were unaware of the risks associated with different investment options, leading to unfavorable investment selections and financial losses (Nkukpornu et al., 2020). On the other hand, the level of financial literacy influences the decisions of retail investors. Generally, an individual\u0026apos;s competence in understanding and evaluating credible information is vital for decision-making.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eFinancial literacy is identified as an essential building block that helps individuals evaluate various financial offerings and make suitable, informed choices regarding investments (Rodrigues et al., 2019). Important changes since the publication of the OECD/INFE (2020) International Survey on Adult Financial Literacy emphasize the ongoing need to improve financial literacy to improve individual and household well-being (OECD, 2020). A foundational understanding of financial principles and proficiency in applying numerical skills in financial scenarios enable individuals to approach investment issues with greater assurance and respond effectively to developments that could impact their investment choices. The concept is measured in terms of financial knowledge, financial behavior, and attitude (Dewi et al., 2020b; OECD, 2020).\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eAccording to S\u0026amp;P Global FinLit (2023), African countries have the worst global financial literacy scores worldwide, resulting in struggles with sound investment decisions. The financial literacy level in Ghana remains low, with rates of 38 percent, 44 percent, and 51 percent in the northern, central, and southern parts respectively. Eighty percent (80%) of Ghanaians lack a fundamental understanding of the intricacies of investment (Matey et al., 2021). The inadequate levels of financial literacy have resulted in individuals making less-than-ideal investment choices and becoming victims of fraudulent investment schemes.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eWhile prior studies in Ghana have established links between financial literacy and investment outcomes, few have explored this relationship through a theoretical lens. This study contributes to the literature by grounding the analysis in the Theory of Planned Behavior and Behavioral Finance Theory, offering a dual perspective that combines rational decision-making and behavioral bias. Unlike previous research, this study operationalizes financial attitude and behavior as dimensions impacted by intentionality and cognitive bias, which are important to TPB and behavioral finance, respectively. Thus, our dual-theory framework enables us to go beyond regional contextualization and provide a theoretically informed, behaviorally nuanced account of retail investment decisions in Ghana. To our knowledge, this is one of the first empirical implementations in the Ghanaian setting to combine these frameworks in a structured SEM-PLS model. In doing so, we contextualize financial literacy within Ghana\u0026rsquo;s investment environment, thereby extending existing models to a developing economy context.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e1.1\u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp; \u0026nbsp;\u0026nbsp;Research Hypothesis\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eTo address the research gap, the study sought to test the null hypothesis below:\u003c/p\u003e\n\u003col\u003e\n \u003cli\u003eHo\u003csub\u003e1\u003c/sub\u003e: Financial knowledge, financial behavior and financial attitude do not predict investment decision-making.\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"2.0 Literature Review","content":"\u003cp\u003e\u003cstrong\u003e2.1 Investment Decision-making\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eSchwenk (1984) asserts that decision-making is a human cognitive process that leads to a course of action among alternatives. Various scholars have widely defined investment decision-making from different perspectives. For example, according to J\u0026uacute;nior et al. (2023), investment decision-making involves investors committing funds to several options to earn the highest possible returns. Agrawal and Hockerts (2021) maintain that it is the process of analyzing investment alternatives with the solid intent to bring measurable social and financial benefits. This definition has been widely adopted in current studies (e.g., Agrawal \u0026amp; Jespersen, 2023; Cohen, 2022; Dorfleitner et al., 2023). \u003c/p\u003e\n\u003cp\u003eSchoenmaker and Schramade (2019) hold that investment decision-making involves the capacity to achieve the best returns. Meanwhile, Fender et al. (2019) expand this perspective by emphasizing the importance of estimating the long-term risk of various assets to make optimal decisions. Similarly, Raut (2020) suggests that investment decision-making follows a rational process. It consistently applies decision rules to various investment situations, taking advantage of the empirically determined quantitative relationship between market forces and security performance (Grim \u0026amp; Berkowitz, 2020; In et al., 2019). However, Quaicoe and Eleke-Aboagye (2021) observe that in Ghana, behavioral factors often override rational models. This perspective aligns with Raut\u0026apos;s (2020) argument that investment decisions are not always logical, as psychological and contextual influences also play a role.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e2.2 Financial Literacy\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe concept having been identified globally as a key life skill in the 21\u003csup\u003est\u003c/sup\u003e century, is vital for individual empowerment and promoting the financial well-being of individuals and societies. Significant developments have occurred since the publication of the OECD/INFE (2020) International Survey of Adult Financial Literacy, highlighting the continued importance of enhancing financial literacy to enhance individual and household well-being (OECD, 2023). Recognizing the current levels of financial literacy and requirements is essential for the effective development of financial literacy strategies and initiatives (OECD, 2023).\u003c/p\u003e\n\u003cp\u003eThe importance of financial literacy, skills, and knowledge has been consistently emphasized during economic crises. For instance, Nguyen et al. (2021) argue that a lack of knowledge, proficiency, and literacy in economics and finance at both individual and societal levels has significantly impacted the development, escalation, and prolongation of financial crises. However, studies exploring the concept of financial literacy are diverse. \u003c/p\u003e\n\u003cp\u003eLusardi (2019) focuses on financial knowledge, while OECD (2020) includes skills, attitudes, and behaviors necessary for sound financial decisions. Hamid and Loke (2021) broaden this scope to include managing personal finances, understanding budgets, savings, investments, and debts, emphasizing that the concept involves comprehending the potential risks and benefits associated with decision-making. Ouachani et al. (2021) emphasize the importance of possessing the requisite knowledge and expertise to make informed decisions regarding financial products. Additionally, Harahap et al. (2022) argue that establishing and maintaining a financial plan for the future is a key aspect of financial literacy. Global studies on financial literacy highlight the persistent issue, drawing parallels to historical challenges (Kov\u0026aacute;cs \u0026amp; Tert\u0026aacute;k, 2019).\u003c/p\u003e\n\u003cp\u003eIn developing countries like Ghana, financial literacy has a profound impact. A recent study suggests that providing women with financial education can significantly enhance their capacity to accumulate productive assets, thereby bridging the gender asset gap. Koomson et al. (2023) advocate for financial literacy training as an effective policy tool to achieve this objective in Ghana and other developing nations. Additionally, Tsumasi et al. (2022) recommend the formation of community committees by policymakers or non-governmental organizations (NGOs) comprising a diverse range of professionals such as bankers and government officials. These committees can play a vital role in imparting financial skills to rural communities, enhancing their financial capabilities and inclusivity. \u003c/p\u003e\n\u003cp\u003eThis study adopts the OECD (2020) measures of financial literacy, which include knowledge, attitude, behavior, skills and awareness. Specifically, this study focuses on examining three dimensions of financial literacy: financial knowledge, financial attitude, and financial behavior.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e2.2.1 Financial Knowledge and Investment Decision-Making \u003c/em\u003e\u003c/p\u003e\n\u003cp\u003eJunaeni (2020) investigated the determinants of investors\u0026apos; decision-making in the capital market and found that financial knowledge as a predictor of financial literacy has a significant positive relationship with investment decisions. These findings are replicated by current research (Chhatoi \u0026amp; Mohanty, 2023; Din et al., 2021; Koskelainen et al., 2023), indicating that financial literacy has a considerable positive effect on the behavior of individual investment decisions, i.e., the greater a person\u0026apos;s financial knowledge, the better their investment decisions. Meanwhile, knowledge can be used as a determining factor for investment decisions, where investment knowledge is required before a person decides to invest. Similarly, Cude et al. (2019) investigated the financial knowledge of investors on the Tehran Stock Exchange in Iran. The results indicate that most Iranians did not perform well on basic or advanced financial knowledge questions compared to other populations. However, those with higher education and income tended to have better financial knowledge, suggesting that financial education programs may be particularly beneficial for those with lower socio-economic status. Additionally, the study found that individuals with experience investing in the stock market tended to have higher levels of financial knowledge, highlighting the importance of practical experience in improving financial literacy. The results further prove that respondents knew specific information about investing but needed help understanding basic personal financial concepts such as compound interest and the time value of money.\u003c/p\u003e\n\u003cp\u003eRaut (2020), on the other hand, examined the importance of financial literacy in investment decision-making finding out that financial literacy does not only assist investors in developing a stable mindset for investment decision-making but also gives them the confidence to make rational and well-reasoned judgments. For example, if investors have a greater understanding of financial terms and stock market behavior, as well as greater access to information and assistance, they will be motivated differently and rely more on equity fundamentals than social influences, leading to more informed investment decisions and potentially higher returns.\u003c/p\u003e\n\u003cp\u003eIn Ghana, Oteng (2019) investigated the relationship between financial literacy and investment decision-making. The study revealed that traders lacked investment knowledge, with many respondents requiring assistance in understanding the concept of liquidity. This finding is supported by other recent studies (Matey et al., 2021; Kuffour \u0026amp; Adu, 2019; Sarpong-Kumankoma et al. 2023; Koomson et al., 2023). Additional insights suggest that the criteria influencing personal financial needs include risk minimization, anticipation of losses from local investments, facilitation of loan accessibility, expectation of dividends, diversification objectives, and consideration of family members\u0026rsquo; opinions. \u003c/p\u003e\n\u003cp\u003e\u003cem\u003e2.2.2 Financial Behavior and Investment Decision-making\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003eBellofatto et al. (2018) examined the correlation between retail investors\u0026apos; behavior and investment decision-making. The study found that subjective financial literacy plays a crucial role in explaining the variations in retail investors\u0026apos; behavior when making investment choices. It was observed that individual investors who perceive themselves as highly literate tend to trade in a wider range of stocks while holding less diversified stock portfolios. These investors do not exhibit a higher inclination towards riskier portfolios in terms of volatility. Moreover, their increased participation in investment funds helps them maintain more diversified portfolios. Consequently, investors with higher reported levels of financial literacy tend to hold portfolios with a lower modified Herfindahl-Hirschman Index (HHI) (De Winne \u0026amp; Petkeviciute, 2021).\u003c/p\u003e\n\u003cp\u003eIn another study, Dewi et al. (2020a) measured the level of financial literacy and its predictors in the Indonesian academic community regarding investment decisions hypothesizing a significant relationship between financial behavior and investment decision-making. The findings indicate that behavior plays a significant role in the investment decisions of the Indonesian academic community. Moreover, the research suggests that academic lecturers should enhance their perceived knowledge, skills, and awareness of money management and investment decision-making. \u003c/p\u003e\n\u003cp\u003eBlankespoor et al. (2019) investigated the frictions that hinder investors\u0026apos; use of accounting information, particularly the costs of monitoring and acquiring accounting disclosures. The study utilized an archival setting where individuals were presented with automated media articles reporting current earnings news and past stock returns, despite having readily available earnings information. The study reveals that individual investors tend to heavily rely on non-accounting information, such as news and social media, when making investment decisions. It underscores the importance of financial education and the necessity for investors to consider multiple sources of information before making investment decisions. \u003c/p\u003e\n\u003cp\u003eIt is evident financial behavior, as a predictor of financial literacy, has a significant impact on investment decisions in many circumstances, ranging from retail investors to academic groups. Furthermore, the use of non-accounting information emphasizes the importance of comprehensive financial education in assisting investors in making more educated decisions.\u003c/p\u003e\n\u003cp\u003e\u003cem\u003e2.2.2 Financial Attitude and Investment Decision-making \u003c/em\u003e\u003c/p\u003e\n\u003cp\u003eAmonhaemanon and Vora-Sitta (2020) investigated whether financial attitude links financial literacy to investment decisions. Considering financial attitude and investment decisions across generations, it was found that Gen Y had the highest average score in financial literacy and investment decisions, higher than those of Gen X and Gen B. The impact of financial literacy on investment decisions through financial attitude revealed that the impact on Gen B was higher than those of Gen X and Gen Y, concluding that with the right financial attitude, people of all generations would be equipped with sound investment decisions. These results have been supported by current research (Harjanto et al., 2022; Shi et al., 2019; Xu et al., 2020). Additionally, Rai et al. (2019) explored the antecedents of financial literacy and their significance in working women\u0026apos;s investment decisions. The study indicated a strong correlation between the financial attitude of working women and their levels of investment decision-making. As a result, a positive and significant association exists between working women\u0026apos;s financial attitudes and investment decision-making. The study emphasized that financial education is not the sole factor to consider when analyzing financial literacy, as financial attitude also plays a significant and positive role in women\u0026apos;s financial literacy concerning investment decision-making. \u003c/p\u003e\n\u003cp\u003eFurthermore, Niazi and Malik (2019) delved into the moderating role of financial literacy between financial attitude and investment decisions. The results showed that financial attitude has a significant positive correlation with investment decisions, while financial literacy significantly moderates the relationship between financial attitude and investment decisions. The study suggests that Pakistani investors, who are risk-averse, tend to diversify investments to avoid money market instruments. The study recommended that investors focus on increasing awareness about financial products regardless of their environment or living standards, with decision-makers needing to mitigate risks through innovative financial products.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e3.0 Theoretical Fraework\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e2.3 Theoretical Foundations.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eBehavioral Finance Theory (Kahneman \u0026amp; Tversky, 1979) provides an alternative to classic economic models, arguing that humans do not always act rationally due to cognitive limits and emotional factors. Retail investors, particularly in developing nations like Ghana, frequently exhibit biases such as overconfidence, anchoring, and loss aversion. These behavioral patterns call into question the notion of rationality in investing decision-making, implying that financial literacy should be understood as a behavioral and psychological phenomenon rather than just a technical competency. To better understand how financial literacy influences investment behavior, this study also employs the Theory of Planned Behavior (TPB) (Ajzen, 1991). TPB contends that an individual\u0026apos;s behavior is primarily determined by intentions, which are influenced by three factors: attitude toward the conduct, subjective norms, and perceived behavioral control. When applied to the context of financial decision-making, TPB suggests that a retail investor\u0026apos;s intention to invest (and actual investment behavior) can be influenced by their financial attitude (e.g., beliefs about saving or risk), perceived control over financial decisions (which may reflect knowledge or confidence), and the influence of social expectations. While TPB implies some rational planning, it also recognizes that behavior is influenced by internal attitudes and external influences, providing a more realistic perspective for understanding Ghana\u0026apos;s retail investors. Although this study does not directly test behavioral biases or TPB components, the inclusion of behavioral tendencies in the conceptual framework demonstrates recognition of their possible relevance. This conceptual integration serves to contextualize the study\u0026apos;s central argument: that improving financial literacy entails not only increasing information, but also addressing behavioral patterns that may impede prudent investing decisions. Thus, the combination of Behavioral Finance Theory and the Theory of Planned Behavior provides a more comprehensive understanding of how financial literacy influences investment decision-making, especially in settings where financial education, socio-cultural influences, and psychological biases interact.\u003c/p\u003e"},{"header":"3.0 Conceptual Framework","content":"\u003cp\u003eThis conceptual framework illustrates the influence of financial literacy components, namely financial knowledge, financial attitude, and financial behavior on investment decision-making. It also includes behavioral biases (e.g., overconfidence, loss aversion, anchoring) as a conceptual factor that may influence investment decisions, though not empirically tested in the model. The arrows indicate direct influences from the financial literacy components to investment decision-making, grounded theoretically in Behavioral Finance Theory and the Theory of Planned Behavior.\u003c/p\u003e"},{"header":"4.0 Methods","content":"\u003cp\u003eThis study sought to examine the effect of financial literacy (in terms of financial knowledge, financial behavior and financial attitude) on investment decision-making in Ghana. \u0026nbsp;These dimensions were analyzed through reliability testing, path analysis, and hypothesis testing.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e4.1 Measurement\u003c/strong\u003e\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe elements of the independent variable\u0026mdash;financial knowledge, financial behavior and financial attitude\u0026mdash;were adapted from the Organization for Economic Cooperation and Development (2020) and Widyastuti et al. (2020). Both the OECD and Widyastuti et al. sources comprised a 26-item scale. These scales were modified to measure financial knowledge, financial behavior and financial attitude. The selection of these scales was relevant because they were specifically designed to assess financial knowledge, financial attitude, and financial behavior. Moreover, in adapting this scale, the study considered the OECD financial literacy assessment framework, the domains and components covered, the types of items used, and the scoring mechanisms. Furthermore, the scale elements relevant to the investor population were considered, and modifications were made as appropriate to better serve our purpose.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e4.2 Survey Administration and Sample\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eIn this study, a self-completion survey was used to gather data from the participants. The survey questions were grouped into variable categories, ensuring that the questions within each category were coherent and unambiguous. This approach helped to prevent respondents from filling out the survey randomly or making mental leaps. The survey employed a 6-point Likert scale, ranging from \u0026quot;strongly agree\u0026quot; to \u0026quot;strongly disagree.\u0026quot; This adaptation aimed to provide a comprehensive set of response choices, covering various levels of agreement and disagreement without a neutral midpoint. This range of options allowed for more nuanced responses compared to a four-point Likert scale, enabling respondents to express their opinions more precisely. The instrument consisted of closed-ended questions, which helped standardize the data collection process and facilitated the comparison and analysis of participants\u0026apos; responses.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe study\u0026apos;s population comprised 10,887 retail investors in selected collective investment schemes, including mutual funds and trusts in Accra, Ghana (SEC, 2021). Both the stratified sampling and simple random sampling techniques were used to select retail investors for the survey. The stratified random sampling technique enabled us to categorize retail investors according to the type of collective investment scheme in which they invest, i.e., equity mutual funds and trust funds. Furthermore, individual investors from each stratum were selected using simple random sampling. This sampling technique offered each retail investor an equal opportunity to partake in the study. \u0026nbsp;To answer the questionnaire, a sample of 482 male and female respondents were determined by means of Krejcie and Morgan (1970) table. \u0026nbsp;However, only 406 copies of the questionnaire were returned, representing 84% of the usable response rate. Meanwhile, while the response rate of 84% is considered high and suggests robust data collection, the possibility of non-response bias cannot be entirely ruled out. Non-response bias occurs when the characteristics of respondents differ systematically from those of non-respondents, potentially skewing the results. To mitigate this concern, the sampling techniques employed (stratified and simple random sampling) ensured that respondents were selected in a manner representative of the population of retail investors in the selected collective investment schemes. No significant discrepancies were observed, indicating that the sample is likely reflective of the broader population.\u0026nbsp;\u003c/p\u003e"},{"header":"5.0 Results and Discussion","content":"\u003cp\u003e\u003cstrong\u003e5.1 Reliability analysis\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eReliability analysis on the constructs was carried out to ensure the internal consistency within the instrument. We used Cronbach\u0026rsquo;s alpha coefficient to assess the internal consistency of the instrument\u0026apos;s items. The rule of thumb is that, a Cronbach\u0026rsquo;s alpha value of 0.70 and above is acceptable for establishing internal reliability and consistency (Nunnally \u0026amp; Bernstein, 1994). Regarding financial literacy, the Cronbach\u0026rsquo;s alpha coefficients for the constructs were financial knowledge (0.861), financial attitude (0.793), and financial behavior (0.803). Three items measuring financial knowledge (2, 5, and 6) and financial behavior (1, 9, and 10), respectively, were removed as each had a Cronbach\u0026rsquo;s alpha coefficient less than 0.7. Two items measuring financial attitude (4 and 5) were removed as their Cronbach\u0026rsquo;s alpha coefficients were less than 0.70. The remaining items were retained based on both their Cronbach\u0026rsquo;s alpha values (\u0026ge; 0.70) and their ability to represent the key dimensions of each construct. Specifically, the final items were selected for their strong relevance to the underlying concepts of financial knowledge, attitude, and behavior. The retained items for financial knowledge focused on assessing respondents\u0026rsquo; awareness of essential financial concepts, while those for financial attitude and behavior were consistent with theoretical definitions and validated measures in the literature. Table 5.1 below displays the reliability test results.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTable 1: Summary of Reliability Test Results\u003c/strong\u003e\u003c/p\u003e\n\u003ctable border=\"1\" cellspacing=\"0\" cellpadding=\"0\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eConstruct\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eNumber of items\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eCronbach\u0026rsquo;s Alpha\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial knowledge\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e5\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.861\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial Attitude\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e5\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.793\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial Behavior\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e5\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.803\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003e\u003cem\u003eSource: Field data (2025)\u003c/em\u003e\u003c/p\u003e\n\u003cp id=\"_Toc162429685\"\u003eIn contrast, to assess the suitability of the variables for factor analysis, both the Kaiser-Meyer-Olkin (KMO) and Bartlett\u0026rsquo;s tests were employed. Generally, an overall KMO of 0.6 and above is considered acceptable for factor analysis (Kaiser, 1974). The values of the KMO and Bartlett\u0026rsquo;s test results showed that all the variables were appropriate for factor analysis. The results for the variables KMO and Bartlett\u0026rsquo;s tests are presented in Table 5.2 below.\u003c/p\u003e\n\u003cp\u003e\u003cspan id=\"_Toc168801612\"\u003eTable 2: Summary of KMO and Bartlett\u0026rsquo;s Test\u003c/span\u003e Results\u003c/p\u003e\n\u003ctable border=\"1\" cellspacing=\"0\" cellpadding=\"0\" width=\"579\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eVariables\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eKMO value\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u003cstrong\u003eBartlett\u0026rsquo;s test\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial knowledge\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.750\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u0026chi;\u0026sup2; (15) = 335, p \u0026lt; 0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial attitude\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.683\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u0026chi;\u0026sup2; (21) = 216, p \u0026lt; 0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003eFinancial behavior\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e0.632\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 33.3333%;\"\u003e\n \u003cp\u003e\u0026chi;\u0026sup2; (21) = 428, p \u0026lt; 0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003e\u003cem\u003eSource: Field data (2025)\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e5.2\u003c/strong\u003e\u0026nbsp; \u003cstrong\u003ePath Analysis\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003ePath analysis using Partial Least Squares - Structural Equation Modeling (PLS-SEM) via Smart PLS 4.1.0.5 was employed to determine the effect of financial literacy\u0026rsquo;s sub-variables (financial knowledge, financial behavior, and financial attitude) on investment decision-making. This technique was chosen to examine the relationships between multiple latent variables and how they collectively influence the dependent variable.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eModel Assumptions\u003c/strong\u003e: PLS-SEM does not require strict distributional assumptions, making it suitable for smaller samples and non-normally distributed data, which fits the characteristics of our dataset. Additionally, the method handles multicollinearity issues by constructing latent variables from observed indicators.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eVariable Measurement\u003c/strong\u003e: Latent variables\u0026mdash;financial knowledge, financial behavior, financial attitude, and investment decision-making\u0026mdash;were measured using the adapted scales. Each latent construct was measured by at least four observed indicators, following best practices for SEM.\u003c/p\u003e\n\u003cp\u003e\u0026nbsp;\u003cstrong\u003eValidation Techniques\u003c/strong\u003e: The reliability and validity of the model were assessed using \u003cstrong\u003ecomposite reliability (CR)\u003c/strong\u003e\u003cstrong\u003e\u0026nbsp;\u003c/strong\u003eand\u003cstrong\u003e\u0026nbsp;\u003cstrong\u003eaverage variance extracted (AVE)\u003c/strong\u003e.\u003c/strong\u003e CR values above 0.70 indicated good internal consistency, while AVE values above 0.50 confirmed convergent validity. Furthermore, \u003cstrong\u003ediscriminant validity\u003c/strong\u003e was established by comparing the AVE of each construct to the squared correlations between constructs, ensuring that each construct was distinct from others.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eEffect of financial knowledge, financial behaviour and financial attitude on investment decision-making\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTable 5.3: Summary of Path Analysis for the Effects of Financial Literacy (sub-variables) on Investment Decision-making in Ghana\u003c/strong\u003e\u003c/p\u003e\n\u003ctable border=\"0\" cellspacing=\"0\" cellpadding=\"0\" width=\"603\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 38px;\"\u003e\n \u003cp\u003eN\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 124px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eModel\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 72px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eOriginal sample (O)\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 102px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eT statistics (|O/STDEV|)\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 57px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eP values\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003eR\u003c/em\u003e\u003c/strong\u003e\u003cstrong\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eAdj. \u003cem\u003eR\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003ef\u0026nbsp;\u003c/em\u003e\u003c/strong\u003e\u003cstrong\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 58px;\"\u003e\n \u003cp\u003e\u003cstrong\u003e\u003cem\u003eQ\u003c/em\u003e\u003c/strong\u003e\u003cstrong\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 38px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 124px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eFinancial Attitude -\u0026gt; Investment Decision-Making\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 72px;\"\u003e\n \u003cp\u003e0.149\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 102px;\"\u003e\n \u003cp\u003e3.238\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 57px;\"\u003e\n \u003cp\u003e0\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 58px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 38px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 124px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eFinancial Behaviour -\u0026gt; Investment Decision-Making\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 72px;\"\u003e\n \u003cp\u003e0.398\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 102px;\"\u003e\n \u003cp\u003e8.16\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 57px;\"\u003e\n \u003cp\u003e0\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 58px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 38px;\"\u003e\n \u003cp\u003e406\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 124px;\"\u003e\n \u003cp\u003e\u003cstrong\u003eFinancial Knowledge -\u0026gt; Investment Decision-Making\u003c/strong\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 72px;\"\u003e\n \u003cp\u003e0.282\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 102px;\"\u003e\n \u003cp\u003e5.004\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 57px;\"\u003e\n \u003cp\u003e0\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e0.444\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e0.44\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 50px;\"\u003e\n \u003cp\u003e0.11\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 58px;\"\u003e\n \u003cp\u003e0.417\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003e\u003cem\u003eSource: Authors\u0026rsquo; compilation (2025)\u003c/em\u003e\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eTable 5.3 reveals the results of the path analysis which examined the effect financial literacy dimensions (financial knowledge, financial attitude and financial behaviour) have on investment decision-making of retail investors in Ghana. The results showed that financial knowledge (\u0026beta; = 0.282, \u003cem\u003et\u003c/em\u003e = 5.004,\u003cem\u003e\u0026nbsp;p\u003c/em\u003e \u0026lt; 0.05), financial behaviour (\u0026beta; = 0.398, \u003cem\u003et\u003c/em\u003e = 8.16, \u003cem\u003ep\u003c/em\u003e \u0026lt; 0.05) and financial attitude (\u0026beta; = 0.149, \u003cem\u003et\u003c/em\u003e = 3.238,\u003cem\u003e\u0026nbsp;p\u003c/em\u003e \u0026lt; 0.05) all have positive and significant effect on investment decision-making in Ghana.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe results of the analysis revealed that all three dimensions of financial literacy predict investment decision-making. This implies that financial knowledge, financial behavior and financial attitude are essential factors in assessing an individual\u0026apos;s level of financial literacy when making investment decisions. Further, by incorporating these elements into investment decision-making processes, retail investors will enhance their ability to make informed and strategic decisions, ultimately contributing to the overall success of their investment portfolio.\u003c/p\u003e\n\u003cp\u003eThe correlation coefficient of \u003cem\u003eR\u003c/em\u003e = 0.666 shows that a moderately strong positive relationship exists between the sub-variables of financial literacy and investment decision-making. The coefficient of multiple determination, Adjusted \u003cem\u003eR\u003csup\u003e2\u003c/sup\u003e\u0026nbsp;\u003c/em\u003eof 0.44, indicates that financial literacy explains about 44 percent of the changes in investment decision-making in Ghana while the remaining 56 percent could be attributed to other factors not included in the model. Potential factors contributing to this unexplained variance may include macroeconomic conditions, such as inflation rates, exchange rate stability, and general economic performance, which influence investor confidence and decision-making. Additionally, access to technology, including digital platforms for financial education and investment, may play a significant role.\u003c/p\u003e\n\u003cp\u003eAlso, the aggregated effect size, (\u003cem\u003ef\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e) = 0.11, reveals a small effect size implying that each individual dimension of financial literacy (knowledge, behavior, and attitude) has a relatively limited impact when analyzed in isolation. According to Cohen (1988) effect sizes with values that are \u0026gt; 0.35, \u0026gt; 0.15, and \u0026gt; 0.02 could be considered as strong, moderate, and weak, respectively. While the \u003cem\u003ef\u003csup\u003e2\u003c/sup\u003e\u003c/em\u003e value suggests that financial literacy components individually have a weak effect, their combined predictive power is more substantial, as indicated by the adjusted \u003cem\u003eR\u003csup\u003e2\u003c/sup\u003e\u003c/em\u003e = 044. In terms of practical significance, the small effect size suggests that financial literacy components may exert greater influence when considered holistically rather than in isolation. This suggests that programs aimed at improving investment decision-making should adopt an integrated approach, addressing financial knowledge, behavior, and attitude simultaneously.\u003c/p\u003e\n\u003cp\u003e\u0026nbsp;Stone-Gleisser \u003cem\u003eQ\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e values of 0.02, 0.15, and 0.35 represent small, medium, and large predictive relevance (Chin, 1998) and \u003cem\u003eQ\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e above zero confirms that the structural model specified is relevant and significant. The \u003cem\u003eQ\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e value of 0.417 therefore, shows that the model has a medium predictive relevance. The medium predictive relevance found in this study aligns with findings in similar research exploring financial literacy and investment decision-making. For example, a study by Bustani (2024) reported a value of 0.425, indicating that their model had moderate predictive relevance in explaining investment decisions among individual investors.\u003c/p\u003e\n\u003cp\u003eThe predictive and prescriptive multiple regression models are thus expressed as: \u0026nbsp;\u003c/p\u003e\n\u003cp\u003eID = \u0026alpha;\u003csub\u003e0\u003c/sub\u003e + 0.149FA + 0.398FB + 0.282FK + \u0026epsilon;\u003csub\u003ei\u003c/sub\u003e \u0026hellip;\u0026hellip;\u0026hellip;\u0026hellip;\u0026hellip;. \u003cem\u003eEqn.1 (Predictive Model)\u003c/em\u003e\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eID = \u0026alpha;0 + 0.149FA + 0.398FB + 0.282FK + \u0026epsilon;i \u0026hellip;\u0026hellip;\u0026hellip;\u0026hellip;.. \u003cem\u003eEqn. 2 (Prescriptive Model)\u003c/em\u003e\u003cstrong\u003e\u0026nbsp;\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eWhere:\u003c/p\u003e\n\u003cp\u003eID = Investment decision-making\u003c/p\u003e\n\u003cp\u003eFK = Financial knowledge\u003c/p\u003e\n\u003cp\u003ePT = Financial attitude\u003c/p\u003e\n\u003cp\u003eSS = Financial behavior\u003c/p\u003e\n\u003cp\u003eThe results of the predictive model and the prescriptive are equal indicating that when financial knowledge, financial attitude and financial behavior seeking are improved by one unit, investment decision-making would positively increase by 0.282, 0.149, and 0.398 respectively. This implies that a higher financial knowledge, financial attitude and financial behavior will lead to a rise or improvement in investment decision-making among retail investors in Ghana.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e5.3 Hypothesis Testing\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eRestatement of null hypothesis 1:\u003c/p\u003e\n\u003cp\u003e\u003cem\u003eFinancial knowledge, financial behavior and financial attitude do not predict investment decision-making\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003e\u0026nbsp;Given that the p-values for financial knowledge, financial attitude, and financial behavior are less than 0.05, we reject the null hypothesis. This means that financial knowledge, financial behavior, and financial attitude significantly influence investment decision-making. These findings align with the studies by Chhatoi and Mohanty (2023) and Junaeni (2020).\u003c/p\u003e\n\u003cp\u003eThis finding has significant policy implications for Ghana\u0026rsquo;s financial sector. First, it underscores the need to widen and deepen financial literacy programs to equip retail investors with the knowledge and skills to navigate complex financial markets. Policymakers and financial institutions should consider introducing targeted financial education programs that address specific gaps in financial knowledge, behavior and attitude especially for the underserved; women, youth and rural investors. Existing programs like the Securities and Exchange Commission\u0026rsquo;s (SEC) financial literacy campaigns can include modules on practical investment skills like evaluating investment opportunities and risk management. Educational institutions can also partner with financial institutions to introduce financial literacy in the school curriculum so that personal finance is taught from an early age.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eFurther, this study contributes to theory in two significant ways. \u0026nbsp;First, it confirms the Theory of Planned Behavior in financial contexts by demonstrating that financial knowledge, attitude, and behavior have a significant impact on investment decision-making among Ghanaian retail investors. \u0026nbsp;This data lends support to the TPB premise that behavioral intentions, influenced by knowledge and attitude, predict actual behavior. Additionally, the findings are consistent with principles from behavioral finance theory. \u0026nbsp;The dependence on heuristics and behavioral patterns observed among investors implies that cognitive biases are still prevalent, particularly in circumstances where formal financial education is minimal. \u0026nbsp;These findings underline the importance of an integrated behavioral model that incorporates both cognitive skills and psychological dispositions, particularly in emerging markets.\u003c/p\u003e"},{"header":"6.0 Conclusion and Recommendations","content":"\u003cp\u003eThis study highlights the importance of financial literacy in investment decision-making among retail investors in Ghana. The finding indicates that the dimensions of financial literacy, financial knowledge, financial behavior, and financial attitude, have a positive and significant effect on investment decision-making. Specifically, retail investors with a higher degree of financial literacy are better equipped to make informed and strategic investment choices, enhancing their potential for financial success.\u003c/p\u003e\n\u003cp\u003eThe study confirms that financial knowledge allows investors to understand and evaluate investment opportunities more effectively, leading to better decision-making outcomes. Additionally, financial behavior, including regular savings and budgeting, contributes to more sound investment decisions. Furthermore, the level of financial attitude is associated with the level of financial literacy and access to finance. The results showed that financial attitude matters in financial literacy and, hence, access to finance. Individuals of small-scale investments have a moderate financial literacy in terms of their financial attitude to risk. Regarding financial behavior, retail investors in Ghana portray higher financial literacy in terms of saving, borrowing, budgeting, and spending. There is basic knowledge of key financial terms and a favorable inclination towards sound financial practice. However, the study acknowledges that socio-demographic variables such as age, gender, and education levels are likely to influence financial literacy and, by extension, investment decision-making. These factors could mediate or moderate the relationship between financial literacy and investment decisions.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eFurther, this study lends empirical support for financial behavior, including the Theory of Planned behavior and the Behavioral Finance Theory. By contextualizing financial literacy in Ghanaian retail investing, these theories\u0026apos; external validity is extended to a developing country setting. The findings highlight the significance of incorporating psychological and socio-demographic aspects into future models of investment behavior. This dual-theory approach provides a more complete understanding of how literacy manifests in practice, paving the door for more nuanced financial education and policy initiatives.\u003c/p\u003e\n\u003cp\u003eIt is recommended that to gain a better understanding of complex investment products and strategies, retail investors should seek ongoing education on financial principles and investment strategies. Financial institutions and educational organizations should provide regular workshops and seminars aimed at improving financial literacy. Community and opinion leaders are encouraged to organize fora and invite financial experts as resource persons to build members\u0026rsquo; capacity in this endeavor. \u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe study has potential limitations. First, the lack of a detailed examination of socio-demographic variables such as age, gender, and education levels may influence the relationship between financial literacy and investment decision-making. Future research could address this gap by incorporating these variables to provide a more comprehensive analysis of the factors that affect financial literacy and investment decision-making.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eSecondly, while this study empirically examined the effect of financial knowledge, behavior, and attitude on investment decision-making, it did not empirically test for the potential impacts of behavioral biases such as overconfidence, loss aversion, or herd behavior. These biases, which are important to Behavioral Finance Theory, could modify or mitigate the relationship between financial literacy and investment decision-making. As a result, future research should include these psychological elements to gain a better understanding of why financially knowledgeable individuals may still make poor investment decisions. This could provide more comprehensive models of investor behavior, particularly in developing markets such as Ghana, where informal financial practices and market instability are common.\u003c/p\u003e\n\u003cp\u003eFinally, although the Theory of Planned Behavior (TPB) underpins the study\u0026rsquo;s conceptual model, key constructs such as subjective norms and perceived behavioral control were not included in the empirical analysis. This decision was made to maintain a focused scope and reflect practical considerations in measuring constructs directly linked to financial literacy. Nonetheless, their exclusion represents a theoretical limitation. Future research could integrate these components to better capture the full behavioral and psychosocial influences on investment decision-making.\u003c/p\u003e"},{"header":"Declarations","content":"\u003cp\u003e\u003cspan\u003eThis study was conducted in accordance with ethical guidelines and received approval from the valley View University Review Board with reference number : VVU-IRB/AP/004/25\u003c/span\u003e\u003c/p\u003e\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eM.M wrote the main manuscriptE.A proofread the manuscriptL.N proofread the manuscript\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n\u003cli\u003eAgrawal, A., \u0026amp; Hockerts, K. (2021). Impact investing: A review and research agenda. \u003cem\u003eJournal of Small Business \u0026amp; Entrepreneurship\u003c/em\u003e, \u003cem\u003e33\u003c/em\u003e(2), 153-181. https://doi.org/10.1080/08276331.2018.1551457\u003c/li\u003e\n\u003cli\u003eAgrawal, A., \u0026amp; Jespersen, K. (2023). 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Financial literacy and formal credit accessibility: Evidence from informal businesses in China. \u003cem\u003eFinance Research Letters\u003c/em\u003e, 36, 101327. https://doi.org/10.1016/j.frl.2019.101327.\u003c/li\u003e\n\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Financial literacy, financial knowledge, financial attitude, financial behavior","lastPublishedDoi":"10.21203/rs.3.rs-6997734/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6997734/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eDespite increasing access to financial markets, many Ghanaian retail investors continue to make suboptimal investment decisions\u0026mdash;often due to limited financial literacy. This study examines the influence of financial literacy, operationalized through financial knowledge, behavior, and attitude, on investment decision-making among retail investors in Ghana. Grounded in the Theory of Planned Behavior and Behavioral Finance Theory, the study employs a quantitative approach using Partial Least Squares Structural Equation Modeling (PLS-SEM) on data from 406 respondents in Accra. Findings indicate a significant and positive relationship between all three financial literacy components and investment decision-making. The results confirm that financial literacy enhances rational investment behavior and mitigates decision biases, thereby reinforcing the applicability of TPB and behavioral finance in emerging economies. The study recommends the implementation of targeted financial education programs to strengthen investor decision-making capacity and financial resilience.\u003c/p\u003e","manuscriptTitle":"Influence of Financial Literacy on Retail Investment Decision-making in Ghana","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-07-03 06:52:54","doi":"10.21203/rs.3.rs-6997734/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"adead6a9-35d2-4249-9e1c-e4affc1d7ab1","owner":[],"postedDate":"July 3rd, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2025-07-30T07:09:01+00:00","versionOfRecord":[],"versionCreatedAt":"2025-07-03 06:52:54","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6997734","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6997734","identity":"rs-6997734","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}