The Influence of Financial Literacy and Risk Tolerance on Investment Decisions: Evidence from MSMEs

Abstract

Aims: to examine the effect of financial literacy, demographic factors, and risk tolerance on investment decision-making. This research is based on prospect theory, prospect theory has specifications, namely behavior-based economics which states that economic actors are not always rational. Study Design: The research I use is quantitative, which is a systematic study of parts and phenomena and the causality of their relationships. Place and Duration of Study: This study used a sample of 111 MSME players in the Banyumas and surrounding areas, with the duration of the study starting from March 2024 to August 2024. Methodology: This research is a quantitative study using a sampling technique, namely non-probability sampling (Accidental Sampling). Data analysis using Structural Equation Model-PLS with Smart-PLS 3.0 software. Results and Conclusion: prove that financial literacy and risk tolerance variables have a positive and significant effect on investment decisions. If previously demographic variables were the main variables, then in this study demographics became control variables. The demographic variables are the length of business, income, education level, and age of the business owner. The results of the analysis show that the two variables of length of business and income hurt investment decisions and the variables of education level and age of business owners have a positive effect. This shows that MSME players in the Banyumas area already have a fairly high level of financial insight so that they can make good financial (investment) decisions.