Measuring the financial capability of investors

Abstract

Purpose The purpose of this paper is to provide further understanding of the financial capability of mutual fund investors, and compare internet and branch office investors. It seeks to examine mutual fund investors' abilities and awareness of the terms and risks of mutual fund investments using a novel measurement instrument. Design/methodology/approach Ability measurement techniques adapted from educational and psychological studies were applied in the paper. Empirical survey data were collected in Finland. Findings There were differences between different types of investors in terms of financial knowledge. The channel used by the investors in making investments differentiated the more knowledgeable internet investors from the less knowledgeable branch office investors. Research limitations/implications The subjects of the study are the clients of a mutual fund company. Future research could concentrate on examining the consequences of financial knowledge. One interesting question is how the consumers understand their personal financial capability and its role in their lives. Practical implications The measures and indicators of financial capability are important evaluative instruments for banks and financial corporations as well as for the authorities involved in evaluating investors' financial behaviour. Originality/value The ability measurement technique adapted from education and psychological research proved to be applicable in the field of financial capability measurement.

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