An Investigation into the Personal Financial Literacy of Cryptocurrency Users. PDF

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An investigation into the Personal Financial Literacy of Cryptocurrency users. Submitted in partial fulfilment of the requirements for the degree of BACHELOR OF COMMERCE HONOURS In Information Systems (FACULTY OF COMMERCE) RHODES UNIVERSITY by ALYSSA SHAWNTAY WILLIAMS 2019 Department: Information Sy...

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An Investigation into the Personal Financial Literacy of Cryptocurrency Users. Edward de la Rey, ALYSSA SHAWNTAY WILLIAMS Rhodes University, Information Systems Department

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An investigation into the Personal Financial Literacy of Cryptocurrency users. Submitted in partial fulfilment of the requirements for the degree of BACHELOR OF COMMERCE HONOURS In Information Systems (FACULTY OF COMMERCE)

RHODES UNIVERSITY by

ALYSSA SHAWNTAY WILLIAMS 2019

Department: Information Systems Address: Rhodes University, P.O Box 94, Grahamstown, 6140 Email: [email protected] Telephone: 073 493 5444 Supervisor: Ed de la Rey Department: Information Systems Address: Rhodes University, P.O Box 94, Grahamstown, 6140 Email: [email protected] Telephone: 046 603 8375

An investigation into the Personal Financial Literacy of Cryptocurrency users. by ALYSSA SHAWNTAY WILLIAMS SUPERVISOR:

MR ED DE LA REY

DEPARTMENT:

DEPARTMENT OF INFORMATION SYSTEMS

FACULTY:

FACULTY OF COMMERCE, RHODES UNIVERSITY

DEGREE:

BACHELOR OF COMMERCE HONOURS

ABSTRACT The purpose of the study is to determine the level of financial literacy among cryptocurrency users. In this study, a survey instrument that included 36 items that measure constructs such as general financial knowledge, financial behaviour, and financial attitudes was administered to 32 cryptocurrency users. The data was collected by means of convenience sampling and results were analysed using descriptive statistics. It was found that all individual knowledge variables had a positive impact on the financial knowledge construct. The same was observed for all individual attitude and all individual behaviour variables which were observed to have a positive impact on the financial attitude construct and financial behavior construct respectively. KEY WORDS: Personal Financial Literacy, Financial Education, Cryptocurrency, Crypto Users Digital Money, Blockchain, Financial Knowledge, Financial Behaviour, Financial Attitude

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ACKNOWLEDGEMENTS Firstly, I would like to give thanks to GOD, for being the source of my strength, light in this walk and giver of my ability. I would also like to thank the following people without whom this voyage would not have been successfully completed: My supervisor, Mr Ed De La Rey for the way in which he supported me throughout my Honours year. His patience and determination got me to the end. Dr Tinashe Ndoro for his guidance with the statistical analyses. Thank you to my Information Systems Honours classmates, especially my group members who always strived for excellence: Mr Msimelelo, Mr James Higgs, Ms Priyal Karson, Ms Rufaro Kanganga, and Ms Nikitha Patel. The Rhodes University Biotechnology Innovation Centre’s academic and administrative staff, especially Prof Janice Limson and Dr Ronen Fogel for always pushing me to take every opportunity that came my way. Prof, you have really made me feel valued and appreciated, not to mention I look up to you so much. Ron, thank you for teaching me the most random-awesome information about science and the world in general. Biosensors Lab, it has been absolutely amazing. I would like to thank all my friends who encouraged me to always keep pushing forward. A specific mention to my cheer team, Ms Lesleigh Titus, Mr Nicholas Dettmer, and Ms Primrose Shakwane. A special mention to my siblings, Ms Shannon Bianca Williams and Ms Loryn Michelle Williams, for their unwavering efforts to always root me on and for making me such a proud Big sister. Dr Setshaba David Khanye, for the inspiration, willingness to hear every idea and being by my side every step of the way. Finally, to a woman like no other, Rashica Williams, for inspiring me to be a strong, independent, selfless woman.

~Abundantly Blessed, Favoured and Protected~ Page 3 of 74

DECLARATION I Alyssa Shawntay Williams, hereby, on this 21st day of October 2019, declare that: 

The work in this thesis is my own work.



All sources used or referred to have been documented and recognised.



This thesis has not previously been submitted in full or partial fulfilment of the requirements for a qualification.



I am fully aware of Rhodes University’s policy on plagiarism and I have taken every precaution to comply with the regulation.



Ethics clearance Review Reference number for this research project is 2019-0742-828

____________________ Alyssa Shawntay Williams

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TABLE OF CONTENTS List of Tables .............................................................................................................................. 7 List of Figures ............................................................................................................................ 7 Chapter One: Research Overview .............................................................................................. 8 1.1

Introduction .............................................................................................. 8

1.2

Goals of the Research ............................................................................ 10

1.3

Methods, Procedures, Techniques and Ethical Consideration ............... 11

Chapter Two: Financial Literacy.............................................................................................. 12 2.1

Introduction ............................................................................................ 12

2.2

Definition of Financial Literacy ............................................................ 12

2.3

Importance of Financial Literacy ........................................................... 13

2.4

Financial Literacy Studies ..................................................................... 15

2.5

Summary ................................................................................................ 17

Chapter Three: Cryptocurrency ................................................................................................ 18 3.1

Introduction ............................................................................................ 18

3.2

Blockchain ............................................................................................. 19

3.3

Cryptocurrency ...................................................................................... 19

3.4

Evolution/Emergence of Cryptocurrency .............................................. 20

3.5

Role of Cryptocurrency in Financial Markets ....................................... 22

3.6

Risks of Cryptocurrency on Global Financial Markets ......................... 24

3.7

Importance of Financial Literacy among Cryptocurrency Users ........... 26

3.8

Summary ................................................................................................ 27

Chapter Four: Methodology ..................................................................................................... 29 4.1

Introduction ............................................................................................ 29

4.2

Research Paradigm ................................................................................ 29

4.3

Research Design .................................................................................... 29

4.4

Data Gathering ....................................................................................... 29 Page 5 of 74

4.5

Population and Sample Size .................................................................. 30

4.6

Data Analyses ........................................................................................ 30

4.7

Reliability and Validity .......................................................................... 31

4.8

Ethical Considerations ........................................................................... 31

4.9

Summary ................................................................................................ 32

Chapter Five: Data Analysis and Results ................................................................................. 33 5.1

Introduction ............................................................................................ 33

5.2

Demographics ........................................................................................ 33

5.3

User Data ............................................................................................... 36

5.4

Construct 1: Financial Knowledge and Understanding ......................... 40

5.5

Construct 2: Financial Behaviour .......................................................... 43

5.6

Construct 3: Attitude Towards Financial Matters.................................. 47

5.7

Reliability............................................................................................... 50

5.8

Summary ................................................................................................ 50

Chapter six: Discussion and Conclusion .................................................................................. 51 6.1

Introduction ............................................................................................ 51

6.2

Discussion .............................................................................................. 51

6.3

Conclusion ............................................................................................. 53

6.4

Limitations and Future Work ................................................................. 53

References ................................................................................................................................ 55 Appendix A: Financial Literacy Questionnaire ....................................................................... 60 Appendix B: Question Matrix .................................................................................................. 68 Appendix C: Public Notice ...................................................................................................... 70 Appendix D: Individual Participation Notice........................................................................... 71 Appendix E: Informed Consent Notice .................................................................................... 72 Appendix F: Knowledge Construct Dataset ............................................................................. 73 Appendix G: Turnitin Report ................................................................................................... 74 Page 6 of 74

LIST OF TABLES Table 1: Fiat Currency vs Cryptocurrency ............................................................................... 21 Table 2: Knowledge Construct Score Percentages .................................................................. 41 Table 3: Number of Correct Answers per Question ................................................................. 42 Table 4: Financial Behaviour Descriptive Analysis ................................................................. 47 Table 5: Financial Attitude Descriptive Analysis .................................................................... 49 Table 6: Reliability Statistics for Instrument ........................................................................... 50 LIST OF FIGURES Figure 1: Gender of Participants .............................................................................................. 33 Figure 2: Age of Participants ................................................................................................... 34 Figure 3: Nationality of Participants ........................................................................................ 35 Figure 4: Highest Qualification obtained by Participants ........................................................ 35 Figure 5: How many users Purchase Cryptocurrencies ........................................................... 36 Figure 6: How many users utilise Cryptocurrencies to Purchase Goods and Services ............ 36 Figure 7: How many users Mine Cryptocurrencies ................................................................. 37 Figure 8: How many users Trade Cryptocurrencies................................................................. 37 Figure 9: Which platform participants use to trade .................................................................. 38 Figure 10: Cryptocurrencies used to trade ............................................................................... 39 Figure 11: Places where participants learned where to manage their money .......................... 40 Figure 12: Credit card ownership ............................................................................................. 43 Figure 13: Use of a debit card .................................................................................................. 44 Figure 14: Owning a car ........................................................................................................... 45 Figure 15: Behaviour relating to spending habit ...................................................................... 46 Figure 16: Spending habits compared to those who raised the participant .............................. 48

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CHAPTER ONE: RESEARCH OVERVIEW 1.1

INTRODUCTION

The terms financial literacy, financial knowledge, financial education, and financial proficiency are utilised reciprocally, both in scholastic writing and in the mainstream media (Stolper and Walter, 2017; Huston, 2010). By the most essential definition, financial literacy alludes to the learning as well as comprehension of the significance of money and the utilisation of money. It responds to the inquiry; why spend on this rather than that (Norman, 2010). One's capacity to comprehend finances addresses the arrangement of abilities and learning that empowers an individual to choose educated and viable choices all through their execution of their funds (Rasoaisi and Kalebe, 2015). Rasoaisi and Kalebe (2015) mention that financial literacy is one of the mainstays of the monetary prosperity of society, both at a small scale and full-scale level. A monetarily ignorant society can represent a few issues in the economy. In this way, an absence of financial literacy has been referred to by various investigations as a noteworthy explanation behind; exorbitant obtaining and high obligation; low support in the formal budgetary market and securities exchange; and poor and deficient making arrangements for retirement (Lusardi and Tufano, 2015; Rasoaisi and Kalebe, 2015; Cole, Thomas and Bila, 2008). Basically, this shows how dangerous money related ignorance is for the prosperity of people, family units and the whole economy. There exist a few advantages joined to a monetarily proficient country. Typically, the microeconomic advantages to people stretch out to delivering macroeconomic advantages for the economy and the budgetary framework. From a family perspective, money related capabilities and/or proficiency empowers individuals to augment and better manage their income and in this manner better oversee life occasions like training, sickness, work misfortune, or retirement (Rasoaisi and Kalebe, 2015). Likewise, a financially literate network can all the more likely survey the money related approaches of their individual governments and activities of the budgetary framework (Pearson, Stoop and Kelly-Louw, 2017). Moreover, the money related division of an economy with financially knowledgeable citizens can be successful and develop at a quickened rate, thus, add to the accomplishment of financial development (Pearson, Stoop and Kelly-Louw, 2017).

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Financial literacy is therefore important for citizens, especially people who are earning, borrowing and spending, in other words, participating in economic activities. According to Claeys, Demertzis and Efstathiou (2018), “money is a social establishment that fills in as a unit of record, a mode of trade and a store of significant worth”. With the development of decentralised ledger technology (DLT), digital currencies speak to another type of money. This type of money is privately issued, advanced and it empowers distributed exchanges. In essence, it enables peer-to-peer transactions (Claeys, Demertzis and Efstathiou, 2018). Cryptocurrencies are a global phenomenon that could possibly replace fiat currencies (governmentally regulated money) in the near future. Since the world is progressing towards a cashless society, cryptocurrencies continue to gain momentum (Goyal, 2018). The way that a few people, these days, execute through electronic money keeps on asserting proposals that digital forms of money could be the monetary standards of things to come (Goyal, 2018). Be that as it may, it will take some time before they discover their way into the mainstream flow of usage, given the solid resistance from controllers or regulators around the globe (Goyal, 2018). While there are numerous focal points of digital forms of money over fiat money, it appears that cryptographic forms of money are not yet developed enough to supplant the present standard installment technique (Goyal, 2018). Financial institutions and governments are getting wise to the proliferation of cryptocurrencies, with some, like Sweden and Russia, already well on their way to developing their own national altcoins. They seek to take advantage of the efficient enforcement of interest, ease of taxation and cost savings that digital currency offers, without the security issues, money laundering facilities and lack of central oversight (Claeys, Demertzis and Efstathiou, 2018). Evaluating the degree of financial literacy of cryptocurrency users is vital. Users are classified as individuals who trade cryptocurrency and/or who own or hold cryptocurrency for personal or business use. Users need to understand and know the foundations of everyday constructs of financial literacy to help them stay secure in equally the short-term and long-term, protect their financial health and make critical decisions. A study undertaken by a financial services company showed individuals with low personal financial literacy acquire more by means of spending, have less riches and pay a lot more redundant expenses for budgetary items (Zucchi, 2019). As it were, those with lower financial Page 9 of 74

literacy will, in general, increase their purchases on their credit card and end up not being able to pay their full remaining balance every month. In turn, this means that their interest will accumulate and they will pay more than they can afford. Although crypto is not a credit system in itself, one may go through the channels of fiat money to borrow money to acquire crypto thus spend on interest. A study conducted by Fachrudin (2016), within the context of ‘stock right investment decisions,’ states that financial literacy is found to fortif...