THE EFFECT OF FINANCIAL LITERACY AND INCOME ON INVESTMENT DECISIONS: THE MODERATING ROLES OF ISLAMIC FINANCIAL BEHAVIOR AND RISK MANAGEMENT

Abstract

This study aims to analyze the effects of Financial Literacy and Income on Investment Decisions, with Islamic Financial Behavior and Risk Management serving as moderating variables among university students in Ponorogo Regency. The study is motivated by the importance of improving the quality of investment decisions among the younger generation, which is influenced by financial knowledge, economic capacity, Islamic financial behavior, and risk management capabilities. A quantitative approach with a survey method was employed. The sampling technique used purposive sampling, involving 153 students from several universities in Ponorogo Regency. Data were analyzed using Partial Least Squares-Structural Equation Modeling (PLS-SEM) with SmartPLS version 4.1.1.8. The results show that Financial Literacy has a positive and significant effect on Investment Decisions, whereas Income has a significant negative effect. These findings indicate that improved financial knowledge can encourage better investment decisions, while higher income does not automatically lead to more positive investment decisions. Islamic Financial Behavior was found unable to moderate the relationships between Financial Literacy and Income and Investment Decisions. Similarly, Risk Management did not moderate either relationship. However, additional analysis indicates that Islamic Financial Behavior has no direct effect on Investment Decisions, whereas Risk Management has a positive and significant direct effect. This finding suggests that Risk Management is more appropriately understood as a factor that directly contributes to the quality of Investment Decisions rather than as a moderating variable. Theoretically, this study expands the understanding of students' investment decisions through the integration of Behavioral Finance Theory, Theory of Planned Behavior, and Stewardship Theory by incorporating Financial Literacy, Income, Islamic Financial Behavior, and Risk Management into a single model. The findings indicate that Financial Literacy and Risk Management play more substantial roles in shaping Investment Decisions than the moderating effects of Islamic Financial Behavior and Income. Practically, improving the quality of students' investment decisions should focus on enhancing knowledge of investment instruments and the ability to identify, measure, and manage risks. Therefore, universities, regulators, and financial institutions should strengthen investment education programs that integrate financial literacy, risk management, and responsible investment principles to enable students to make rational, measurable, sustainable, and ethically grounded investment decisions.