Correlational Variations Between Emotional Biases And Financial Literacy in Investment Decision-Making

Abstract

Background: Both financial literacy and emotional biases determine investment decision by SACCO members. They do not operate in isolation but bear a concerted influence. In this paper we seek to explore synergies between financial literacy and emotional biases in investment decisions.

Objectives: To empirically explore synergies between financial literacy and emotional biases in investment decision-making by SACCO members.

Method: Perception based data was collected among 284 Imarisha SACCO members in Kericho County, Kenya between 28th to 31st July, 2025. The data was collected through self-filled questionnaire using KoboCollect. The data was checked for completeness, entered in excel, cleaned, coded and analyzed. First, the data was subjected to normality testing to ensure suitability for subsequent statistical analyses and generalization of findings. Second, correlation analysis was employed to examine the associations between: emotional biases and financial literacy; emotional biases and investment decisions; and financial literacy and investment decisions. All statistical procedures were conducted using R version 4.5.1, from which the results were obtained and systematically interpreted.

Results: The correlation analysis revealed a moderate positive association between emotional biases and financial literacy (r = 0.397). A stronger positive correlation was observed between emotional biases and investment decisions (r = 0.598), while financial literacy and investment decisions also demonstrated a strong positive relationship (r = 0.619).

Conclusions: The correlation analysis revealed that financial literacy and emotional biases have marginal variations individually in their influence on investment decisions