Role of Financial Literacy on Stock Market Participation among Millennials in Arusha City

Abstract

The stock markets, particularly the DSE, have continued to serve as sources of employment and income generation for individuals and companies in Tanzania. Nevertheless, individual participation has been reported to be low, and the reason behind that stagnation is low financial literacy. Therefore, this study sought to analyse the role of financial literacy on stock market participation among millennials in Arusha City. Specifically, the study assesses the levels of financial literacy, and stock market participation, and examines the influence of financial literacy indicators on investment decisions among millennials in Arusha City. A mixed method approach, combining qualitative and quantitative was employed. The study adopted pragmatism philosophy and the Life Cycle theory guided the study. A survey questionnaire was used to collect data from different institutions in Arusha City. A sample of 400 respondents was drawn, although 302 were usable for analysis. Upon collection of data, descriptive statistics were used to analyse the demographic characteristics of the sample and the double hurdle model for analysis of both the decision to invest and the extent of investment. Findings demonstrated that financial literacy, such as confidence in financial decisions, better knowledge of interest rates and inflation, and regular seminar attendance had a significant positive impact on both stock market participation and investment extent. Moreover, access to macroeconomic information and positive financial behaviours significantly influenced the extent of investment. The results also revealed that 45% of respondents actively participated in the stock market suggesting a relatively engaged investment community while on average only respondents were 29% financially literate implying that the level of financial literacy is drastically low among the studied group. Hence the study highlighted the need for comprehensive financial education programs, particularly to boost the stock market involvement of millennials. As a result, this study recommends, among other things, to develop targeted financial literacy initiatives and foster a culture of investing among young adults to enhance financial decision-making and long-term financial stability.