Behavioral Finance and Parental Decision-Making in Children’s Investment

Abstract

This study explores how parents in Coimbatore make financial decisions for their children’s future, focusing on the influence of behavioral finance—such as emotions, habits, and personal experiences—along with financial literacy, income, risk tolerance, and use of digital tools. Based on responses from 250 parents through a structured questionnaire, the data was analyzed using percentage analysis, ANOVA, t-test, and correlation. The findings show that most parents prefer safe, traditional investments like post-office savings, fixed deposits, and real estate, while fewer choose mutual funds or stocks due to risk concerns. Parents with higher income and better financial knowledge were more likely to set clear goals, diversify their investments, and use financial apps. Younger parents especially showed greater comfort with digital tools in managing their finances. The study emphasizes the need for improved financial awareness and education to help parents make informed, future-focused investment decisions for their children’s financial security.

Introduction

Financial decision-making is not always rational. Behavioral finance reveals how cognitive biases, emotions, financial literacy, and risk tolerance affect real-world investment choices. A critical context for this is parental investment for children’s futures, where decisions on education, healthcare, and long-term wealth are often shaped by a mix of knowledge, income, goals, and technology use.

2. Purpose of the Study

The research investigates how parental financial literacy, behavioral biases, goal-setting, and tech adoption influence investment decisions made for children. The study emphasizes how better understanding of these factors can lead to improved planning, education, and financial outcomes for future generations.

3. Problem Statement

There is a lack of clarity about how parents’ financial knowledge affects their children’s investment choices. Many parents make suboptimal decisions due to limited financial education, influencing children’s long-term financial well-being.

4. Objectives

• To analyze the demographic profile of respondents.

• To measure the impact of parental financial literacy on children's investment decisions.

• To examine the influence of parental goals on investment behavior.

• To assess the role of technology in shaping investment decisions and risk attitudes.

5. Scope

Focused on parents in Coimbatore, this study explores how they plan and invest for their children's future using tools like PPF, SSY, mutual funds, and insurance plans. It also evaluates the influence of financial literacy, personal experiences, and digital tools on decision-making and risk management.

6. Limitations

• Study is restricted to Coimbatore city.

• Based on a sample size of 250 respondents, selected through convenience sampling.

7. Methodology

• Research Design: Descriptive

• Data Sources:

  • Primary: Structured questionnaire

  • Secondary: Books, journals, published/unpublished reports

• Sampling: Convenience-based

• Tools Used: Percentage analysis, rank analysis, T-Test, ANOVA, and correlation analysis

8. Key Literature Review Findings

• Financial discussion at home improves children’s saving habits (Sharma & Kapoor, 2023).

• Short-term spending is often prioritized over long-term investing (Malhotra & Verma, 2023).

• Financial education programs increase equity investment rates among parents (Rao & Patil, 2022).

• Southern states lead in child equity fund investments due to higher literacy (Iyengar & Shah, 2021).

• Tax benefit awareness is low—only 19% use deductions and most are unaware of SSY's EEE benefits (Khanna & Agarwal, 2020).

9. Analysis and Key Findings

• Investment Decision Makers (from primary data):

  • 36% decisions made by fathers

  • 26.4% by mothers

  • 25.6% jointly by both parents

  • 12% by other family members
    → Inference: Fathers are the dominant decision-makers in most households.

Conclusion

This study explores parental investment behavior in Coimbatore, revealing a strong preference for traditional, low-risk options like post-office schemes and real estate, driven by cultural norms and behavioral biases. Despite access to financial advisors and social media, many parents lack comprehensive financial literacy, and their children have minimal financial awareness, highlighting a gap in intergenerational education. Investment decisions are more influenced by income levels than demographics, suggesting that economic capacity and systemic shortcomings in financial education shape behavior. The findings underscore the need for targeted financial literacy programs to address risk perception, promote diversification, and encourage informed, future-focused investment strategies.

References

[1] Sharma, R., & Kapoor, N. (2023). Children with parents who discuss money management tend to develop better savings habits. Schools lack structured financial education programs. [2] Malhotra, A., & Verma, P. (2023). 55% of parents prioritize current expenses (e.g., tutoring) over long-term investments despite understanding compounding benefits. [3] Rao, S., & Patil, K. (2022). Parents whose children underwent RBI’s financial literacy programs were 31% more likely to invest in equities. [4] Iyengar, R., & Shah, V. (2021). Southern states show 2.4x higher enrollment in child equity funds compared to Northern states (Karnataka 38% vs. Uttar Pradesh 16%). [5] Khanna, T., & Agarwal, S. (2020). Only 19% of parents utilized tax deductions for child plans; 63% unaware of SSY’s EEE status.

Copyright

Copyright © 2025 Dr. S. Dharchana , Mr. R. Sethu Madhavan . This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.