THE ROLE OF FINANCIAL LITERACY IN PERSONAL INVESTMENT DECISIONS: EVIDENCE FROM SMES IN PESHAWAR, PAKISTAN

Abstract

Financial literacy is fundamental for effective financial management and fostering economic growth, yet its specific impact on personal investment decisions in SMEs in district Peshawar has been insufficiently studied. This research surveyed 200 individual investors using a structured questionnaire, with data analyzed through descriptive statistics, correlation, and regression techniques in SPSS 28 version. The findings revealed significant positive relationships between investment decisions and all dimensions of financial literacy such as knowledge, skills, attitude, and awareness with these factors collectively explaining 51.4% of the variation in investment behavior. Notably, financial attitude emerged as the strongest predictor of investment decisions. Diagnostic tests confirmed the reliability and validity of the model, indicating no issues with multicollinearity, heteroscedasticity, or autocorrelation. These results emphasize the vital role of improving financial literacy, particularly fostering a positive financial attitude, to enhance investment decision-making. The study advocates for focused financial education programs and ongoing training initiatives to better equip investors in Peshawar for informed, confident, and sustainable investment choices