Social Media's Influence on Investment Decisions - DIVA
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Social Media’s Influence on
Investment Decisions
A qualitative study based on an
individual’s financial literacy
Lucas Chapman, Julia Pettersson
Department of Business Administration
International Business Program
Bachelor Thesis, 15 Credits, Spring 2021
Supervisor: Dennis Sundvik[Blank Page]
Abstract With the current technological trends pointing to people having more capabilities to independently manage their financial future, the financial knowledge a person possesses will become evermore essential to create a sustainable financial future. Simultaneously, the growth of social media platforms and users have substantially increased over the past ten years, which has allowed people to find and create countless types of content. The potential problem culminating from these trends is that people who do not have the necessary financial knowledge to make educated investment decisions will have the opportunity to do so. Furthermore, if people have a lack of understanding about financial concepts, supplementing their lack of knowledge with information and recommendations from social media could lead to people making investment decisions based on unknown individuals' opinions. As a result, this study aims to determine if there is a connection between the financial literacy a person possesses and the usage of social media. We found that the financial literacy of university students in Sweden was not a determinant of social media influences on their investment decisions. Despite this overall conclusion, it was apparent that every participant in this study had been influenced by social media in some capacity when making investment decisions whether they intentionally or unintentionally used social media as a reference or unexpected circumstance. Keywords: Social Media, Investment Decisions, Financial Literacy, Risk Tolerance
Acknowledgements
Firstly, we would like to thank Umeå School of Business, Economics & Statistics for three
wonderful academic years, and for providing a great environment and the necessary tools
for us complete this thesis.
We would like to show a special gratitude to our Supervisor Dennis Sundvik who has
supported and guided us throughout this entire process giving us constructive criticism to
make sure the thesis is the best to its ability.
Lastly, we would also like to thank every participant that kindly agreed to participate in
this study and highly value the time you took out of your schedules and the effort you
devoted with providing valuable inputs during the interview process.
20-05-2021
Umeå, Sweden
JULIA PETTERSSON LUCAS CHAPMAN[Blank Page]
TABLE OF CONTENTS
1 INTRODUCTION ................................................................................. 1
1.1 PROBLEM BACKGROUND .......................................................................... 1
1.2 THEORETICAL BACKGROUND AND RESEARCH GAP .................................. 2
1.3 RESEARCH QUESTION............................................................................... 4
1.4 PURPOSE AND MAIN FOCUS OF RESEARCH ............................................... 4
1.5 DELIMITATIONS........................................................................................ 4
1.6 DISPOSITION ............................................................................................. 5
2 SCIENTIFIC METHODOLOGY ......................................................... 6
2.1 PHILOSOPHICAL FOUNDATION & METHOD ............................................... 6
2.2 RESEARCH PHILOSOPHY ........................................................................... 7
2.2.1 Ontology ........................................................................................... 7
2.2.2 Epistemology .................................................................................... 7
2.2.3 Axiology ............................................................................................ 8
2.3 RESEARCH APPROACH ............................................................................. 8
2.4 RESEARCH METHOD................................................................................. 9
2.5 RESEARCH DESIGN ................................................................................. 10
2.6 ETHICAL CONSIDERATION ...................................................................... 11
3 THEORETICAL FRAMEWORK ...................................................... 12
3.1 FINANCIAL LITERACY ............................................................................ 12
3.1.1 Numeracy........................................................................................ 13
3.1.2 Financial and Mathematical Anxiety ............................................. 13
3.1.3 Gender ............................................................................................ 14
3.1.4 Educational Background ................................................................ 14
3.1.5 Measuring Financial Literacy ........................................................ 14
3.2 RISK TOLERANCE ................................................................................... 15
3.3 SOCIAL MEDIA ....................................................................................... 16
3.3.1 Instagram........................................................................................ 17
3.2.2 TikTok ............................................................................................. 18
3.2.3 Twitter ............................................................................................ 18
3.2.4 Reddit.............................................................................................. 18
3.4 SOCIAL MEDIA’S EFFECT ON DECISION MAKING ...................................... 19
4 PRACTICAL METHODOLOGY....................................................... 21
4.1 DATA COLLECTION AND SAMPLE ........................................................... 21
4.2 LITERATURE SEARCH PROCESS .............................................................. 22
4.3 FINANCIAL LITERACY TEST.................................................................... 23
4.4 INTERVIEW ............................................................................................. 25
4.5 DATA ANALYSIS .................................................................................... 285 EMPIRICAL RESULTS ..................................................................... 29
5.1 FINANCIAL LITERACY TEST.................................................................... 29
5.2 INTERVIEW RESULTS .............................................................................. 30
5.2.1 Investment Decisions ...................................................................... 30
5.2.2 Source of Financial Information or Recommendations ................. 33
5.2.3 Social Media Usage & Influence.................................................... 36
6 DISCUSSION ...................................................................................... 40
6.1 FINANCIAL LITERACY ............................................................................. 40
6.2 SOCIAL MEDIA ........................................................................................ 42
6.3 ALTERNATIVE GROUPINGS ..................................................................... 43
7 CONCLUSION AND RECOMMENDATIONS ................................. 45
7.1 THEORETICAL & PRACTICAL CONTRIBUTION ......................................... 45
7.2 SOCIETAL AND ETHICAL IMPLICATIONS ................................................. 46
7.3 LIMITATIONS AND FURTHER RESEARCH SUGGESTIONS .......................... 47
7.4 QUALITY CRITERIA ................................................................................. 48
8 REFERENCE LIST ............................................................................ 50APPENDICES APPENDIX 1: FINANCIAL LITERACY TEST BY KLAPPER ET AL., (2016, p.6)…….55 APPENDIX 2: INTERVIEW GUIDE……………………………………………………..56 LIST OF FIGURES FIGURE 1: INTERVIEW GUIDE……………………………...……...………....25 FIGURE 2: BRAUN AND CLARKS’ 6 STEP THEMATIC ANALYSIS………...........28 LIST OF TABLES TABLE 1: FINANCIAL LITERACY TEST QUESTIONS…………………………..24 TABLE 2: PARTICIPANT INFORMATION……………………………………….27 TABLE 3: FINANCIAL LITERACY TEST RESULTS……………………….……..29
1 Introduction
The aim of the introductory chapter is to introduce the background of our research
problem and inform the reader about the relevance of the topic. This chapter will
provide an overview of the problem, introduce the research question and purpose as
well as go through previous research on the subject.
Technological advancements have allowed individuals the opportunity for increased
financial market accessibility. This opportunity was exploited by a Reddit community called
WallStreetBets that choreographed a plan to take advantage of strong short positions by
Wall Street. One specific company that the WallStreetBets community targeted was
GameStop due to the financial state of the company. The COVID-19 pandemic caused
retailers to struggle mightily and GameStop was not an exception (Bhattarai and Telford,
2021). As of 2019, they had 5,509 store locations worldwide and a very weak online
presence, which caused them to lose money rapidly once the lockdowns transpired
(GameStop, 2020). GameStop planned on closing 450 stores worldwide during 2020
(Helmore, 2021). However, e-commerce ‘experts’ and executives believed GameStop
should transition to an all online marketplace that would compete and function like Amazon
(Helmore, 2021). Due to these circumstances, amateur investors, a part of the
WallStreetBets community, used platforms like Robinhood as well as other financial
services to purchase the stock while it was at a relatively cheap price (Helmore, 2021).
Alternatively, Wall Street thought the idea of competing with Amazon was an ambitious
bet and believed GameStop would fail (Helmore, 2021). Therefore, Wall Street took a risky
short position on GameStop that ended up with them losing $2.79 billion (Helmore, 2021).
Shorting a stock is risky because it is ‘borrowing’ the stock of the company and then selling
the stock of the company with the intention of buying it back at a cheaper price (O’Brien,
2021). This extreme event was described as a David-versus-Goliath moment, when the
small amateur investors developed a plan that they believed would make Wall Street pay.
Due to the massive media publicity of the event, individuals from outside the Reddit group
purchased shares of GameStop. Even though this was an extreme situation, there are other
instances regarding the effect that social media has had on the stock market and more
specifically the individual investors active on social media. The fact that a social media
community was able to have the reach and ability to influence countless individuals spurred
the idea of this study.
1.1 Problem Background
The ability for individuals to have access to financial markets and manage their financial
future independently has created a demand for recommendations from amateurs and in some
cases unqualified individuals on social media platforms. As a result of increased
accessibility, people who do not have the knowledge or financial literacy to make sensible
financial decisions have the capabilities of making poor decisions (Skagerlund et al, 2018,
p. 19). Additionally, individuals that are financially literate have the risk of unintentionally
following the advice of a ‘social media expert’ due to the ease and persuasiveness of
uncontrolled social media platforms. A problem arises when unqualified, inexperienced, or
amateur investors are creating financial recommendations for people that do not have the
necessary knowledge or wherewithal to make sound decisions. This problem has the
potential to continue growing as more publicity and awareness for social media
communities, like WallStreetBets, increase and their audience’s grow.
1Not only has the amount of social media platforms drastically increased since the beginning
of the 2000’s but also the amount of monthly active users have substantially increased. To
put the increase of activity into perspective, the beginning of social media arguably started
in 2004, when MySpace amassed 1 million active users per month (Ortiz-Ospina, 2019).
Comparatively, Instagram amassed 1 billion active users per month during 2019, which is
just one of the many social media platforms that are currently operating (Koack et al., 2019,
p. 625). This only shows a small magnitude of how much social media activity has increased
over roughly the past 17 years. One of the many reasons why such a large number of people
have joined social media is to gather information or self-educate themselves about various
topics (Whiting & Williams, 2013, p. 363). Self-improvement is just one example of why
people join social media; however, the knowledge being posted and shared on most social
media platforms are not regulated by experts or fact checked, which opens up the possibility
of untrustworthy information spreading. This becomes a problem when content creators or
‘community’ leaders have the capabilities of reaching massive audiences and gaining
enormous followings while spreading, in a financial context, ill-advised information. The
group, WallStreetBets, is an example of a social media ‘community’ where individuals
discuss, recommend, and speculate about stocks and trading options (Wolff-Mann, 2021).
The information discussed in the group does not need to be fact checked or have sound
financial concepts to verify opinions. People immersed within or spectating the online
community may be reading and gathering information from amateur or unqualified
investors that are not educated about financial markets. Furthermore, professional financial
advisors are held accountable by their clients and employers to make educated
recommendations. Professional financial advisors must make informed decisions and must
disclose conflicts of interest when making decisions or advising for clients (Tretina, 20211).
Conversely, content creators on social media have no accountability when making
recommendations, do not need to make informed decisions, and do not need to disclose
conflicts of interest. As a result, people relying on social media can make decisions that are
not based on sophisticated or well informed processes and may not be making investments
with their best interest in mind.
The potential escalating problem is the culmination of people having the ability to make
their own financial decisions while having access to the opinions of more social media
‘communities’ and content creators. The current alignment of these two trends can lead to
people making poor financial decisions, such as purchasing shares of GameStop at the peak
or decline of the stock price, due to the erroneous influence of social media platforms on
both financially literate and illiterate individuals. This will be vital to know because as
technological advancements continue changing the financial landscape, by enabling more
independence, individuals need to be aware of the consequences of following imprudent
suggestions. Establishing how specific social media platforms influence an investor's
decisions, based on their own financial literacy, will illuminate the extent of influence social
media has on investors.
1.2 Theoretical Background and Research Gap
A study conducted by Chiang & Zheng (2010, p. 1920) showed that herding behavior is
present in advanced stock markets and Asian markets. Herding is used to describe the
correlation in trades, which is a result of interactions between investors. Investors with this
behavior tend to copy and follow the activities of financial gurus and successful investors
instead of using their own knowledge as that could make them suffer a greater loss. This
behavior tends to be triggered by crises in different countries, which leads to a contagious
effect that spreads to neighboring countries (Chiang & Zheng, 2010, p. 1911). Furthermore,
Sahi et al. (2013, p. 102) researched the psychological biases in financial investment
2behavior, the findings showed that individuals have various beliefs and preferences that bias
their financial investment decision behavior. Physiological motives like greed, security,
fears and safety are guided by our social nature, all of which impact investment decisions
(Sahi et al., 2013, p. 102). The study also shows that emotions and affective influences have
an effect on investment behavior as many people tend to relate to money in an emotional
way, which makes them biased in their decision making, and that they are inclined to use
heuristics when they cannot effectively analyze the information available on the market
(Sahi et al., 2013, p.101-102). A study by Bellofatto et al. (2018, p. 178) showed that people
with higher financial literacy and more experience of financial markets tend to make smarter
investments. Additionally, they also display both higher net and gross returns as well as
higher excess Sharpe Ratios (Bellofatto et al., 2018, p. 178). Investors who see themselves
as very literate usually exhibit a higher trading activity on stocks and other financial
instruments (Bellofatto et al., 2018, p. 178).
Pedersen (2021, p. 33) presented findings that some investors participating in financial
markets are rational while others gather their knowledge through social networks and echo-
chamber environments. Pedersen (2021) researched the case of GameStop and the effects
social networks can have on the financial markets. Through the social media platform
Reddit, a few interested retail investors who believed GameStop was undervalued started to
buy the shares and push the stock price up, which led to a chain reaction where more people
started buying the stock Pedersen (2021, p. 29-33). A link to the Reddit community for the
GameStop traders was then tweeted by the business mogul Elon Musk, with a following of
around 55 million people (Twitter, 2021), which led to an increase in the stock price as
many others followed his advice (Pedersen, 2021, p. 4-5). Siikanen et al. (2018, p. 212)
researched the relationship between Facebook data and investors’ decision making based
on the data from investors’ transactions on Nokia. This research showed that the more
sophisticated investors, like financial institutions, are not associated with Facebook data.
While the less sophisticated investors, like households, are associated with Facebook data
(Siikanen et al., 2018, p. 212). This could be explained by the fact that households might
not have the same access to professional financial data and news as financial institutions,
which leads to households utilizing biased information found on Facebook (Siikanen et al.,
2018, p. 212).
The previous research (Chiang & Zheng, 2010; Sahi et al., 2013; Bellofatto et al., 2018;
Pedersen, 2021 & Siikanen et al., 2018) focuses a lot on how different aspects affect an
individual's investment behavior and how certain platforms and events have influenced the
market and investment decisions. The previously mentioned studies are all quantitative
studies except the research conducted by Sahi et al. (2013), which is qualitative. Therefore,
we are conducting a qualitative study to further test the theories supported by the
quantitative studies and expand upon the pre-existing theories. A qualitative approach will
allow greater insights and explanations into the subject because of the complexity and depth
that the responses to the interview questions from the respondents. Moreover, a qualitative
study will garner a deeper understanding into the impact that social media has on personal
finance and investment decisions as well as the magnitude of effect that social media can
have on an individual's investment decision. Utilizing a qualitative approach to determine
if there is a difference between how people with differing financial literacies gather their
knowledge before investing and if they are affected or inspired by trends and news on
different social media platforms will add to the previously established theories.
31.3 Research Question
Due to recent instances regarding social media’s influence on the stock market and
investments, identifying if a relationship exists between the use of social media and the
financial literacy of individuals is pertinent. Questions, such as: how much influence does
social media have on investors? and, how does social media affect an individual’s
investment decisions? were the initial thoughts that developed during the research leading
up to this study. Eventually, this led to a refined research question that illuminates and
encapsulates the purpose of this study.
Does social media influence the investment decisions of individuals differently depending
on their financial literacy?
1.4 Purpose and Main Focus of Research
The purpose of this thesis is to investigate the effects that social media has on the decision
making process of individuals based on their financial literacy. The objective will be to
determine if there is a difference between the influence and role social media plays in the
investment decisions of individuals based on their financial literacy. The financial literacy
of the respondents will be placed in either a higher or lower financial literacy group. The
respondents will be ranked amongst one another to form the higher or lower financial
literacy group depending on their score compared to the other participants, further
information will be given in Section 4.3. Due to the development of social media, people
have the ability to communicate and gain knowledge about investment ideas and
opportunities easily. Simultaneously, the development of financial technologies are
allowing individuals the chance to control their economic state by granting them the means
to select investments. The combination of having the ability to control their financial future
and receive recommendations from social media gives people the assumption that they can
make investment decisions independently. However, past events have indicated that social
media can heavily influence investments and short-cut the decision making process without
the necessary financial knowledge to support decisions. Therefore, the main focus will be
examining the impact that social media content has on the investment decisions depending
on the financial literacy of the participants.
1.5 Delimitations
Since we have a limited time frame and resources to complete this thesis, our research is
limited to consist solely of Swedish born and raised individuals because including
individuals from different countries would be too complicated and time-consuming.
Additionally, all eight participants of our study are people studying various university
programs, which means every individual a part of this study has a higher educational
background. Having participants that studied at a university was the priority because
previous studies (Klapper & Lusardi, 2020, p. 592; Lusardi & Mitchell, 2007, p. 219;
Skagerlund et al., 2018, p. 22) concluded that there is a connection between educational
background and financial literacy. Lastly, the age range of the participants was 20 to 25
years old, meaning that no comparisons were done between different age groups. Selecting
the age range between 20 and 25 years old was because of the social media and
technological usage associated with this age range. As a result of this delimitations, all the
respondents were 20 to 25 years old, university educated, and from Sweden.
41.6 Disposition
The following chapter will present the scientific methodology of our thesis, where the
philosophical foundation is presented. The chapter describes the chosen inductive research
approach, the qualitative method of gathering data and the exploratory design of our thesis,
as well as our standpoints in the ontological, epistemological and axiological philosophies.
Chapter three presents our theoretical framework, where we review previous literature on
the subjects of financial literacy, risk tolerance, social media and its effect on decision
making. This chapter presents the theories from previous research that was utilized to
develop the research question and topic for this thesis. The fourth chapter includes the
practical methodology where our data collection and sample are described in detail. The
chapter describes how we calculate the participants' financial literacy through an online
survey, our choice of conducting semi-structured interviews and its process, and how the
data will be analysed in the chapters thereafter. The following chapter, chapter five, presents
the empirical results of the thesis, where the results from the financial literacy test are
presented and the information gathered through interviews with each participant. This
stating of our findings is followed by a discussion in chapter six where we analyze our
results and make connections and comparisons with the theory presented in chapter three.
The aim of this chapter is to answer our research question and discuss the implications of
the results. Lastly, chapter seven is the final chapter of this thesis, which will present a
conclusion that summarizes the work in this study. This chapter also includes
recommendations for future research, theoretical and practical implications and the quality
criteria of this thesis.
52 Scientific Methodology
This chapter describes the chosen methods and philosophies used in this thesis. The
chapter starts by describing the philosophical foundation & method followed by the
relevant research philosophy applied in this thesis. Then we introduce the applied
research approach, method and design. The chapter ends with the ethical
considerations of this thesis.
2.1 Philosophical Foundation & Method
When conducting scientific research, declaring the specific research paradigm philosophy
will dictate the methodology that the research will be based upon. This philosophy is viewed
as a spectrum that consists of two paradigms, positivism and interpretivism (Collis &
Hussey, 2014, p. 43-44). Interpretivism explains reality as a subjective perspective that is
constructed based on individuals' experiences, which aligns with our qualitative study
because we will be conducting interviews that will explore the individual experiences of our
respondents (Collis & Hussey, 2014, p. 45). More specifically, we want to gain a further
understanding of how social media influences each individual's decision making process.
Basing our research on positivism would not allow us to learn about each individual’s
personal insights, explanations, and preferences because positivism is defined as an
independent reality that can be verified scientifically using statistical analysis, which is
utilized for quantitative studies (Collis & Hussey, 2014, p. 44). Therefore, the interpretivist
paradigm will be utilized in our study to gather a more comprehensive view of results by
examining each individual’s personal thoughts, experiences, and explanations.
When applying specific research paradigms, avoiding contradiction is essential to
conducting a thorough study with valid results (Collis & Hussey, 2014, p. 50). Conducting
an interpretivist study requires the use of small samples to gain in-depth knowledge of the
social phenomena used by the respondents (Collis & Hussey, 2014, p. 51). Due to our desire
for rich insight into each individual's experiences, a sample size of eight respondents will
be utilized to grant us the opportunity to attain personal information. Conversely, positivist
studies portray a generalization of a population and do not allow the same in-depth
understanding of respondents, which does not align with our study and would inhibit our
ability to understand our interviewees (Collis & Hussey, 2014, p. 51). Therefore, our study
will obtain subjective and valuable qualitative data that will not generalize a population
using statistical analysis.
Presenting high validity findings is an imperative aspect of interpretivist studies because
our questions need to be directly related to the main focus of our study to get responses that
align with the purpose (Collis & Hussey, 2014, p. 214). Neglecting this aspect can lead to
the respondents losing focus and failing to maintain interest in the quality of their responses.
If this were the case, our findings would not clearly answer or relate to our purpose, which
lowers the validity and relevance of our study. To avoid low validity findings, we will
clearly state the purpose of our study to our interviewees as well as formulate our interview
questions with the main focus of the study in mind and connect the questions to theories
stated in the theoretical framework.
62.2 Research Philosophy
2.2.1 Ontology
In philosophy, ontology is the science of what is, of the nature and structures of processes,
objects, events, relations, and properties in every area of reality (Smith et al., 2003, p.155).
Asking about the meaning of a concept equals asking about the nature of reality. Within
qualitative research, debates and discussions about concepts relate to the meaning of
concepts, while in the quantitative approach it concentrates on issues of data and
measurement (Goertz & Mahoney, 2012, p.207). Ontology seeks to provide a
comprehensive and definitive arrangement of entities in all spheres of being (Smith et al.,
2003, p.155).
Ontology is made up of two sides; objective and subjective (Saunders et al., 2009, p.111).
When articulating our ontology, we have to decide whether we see the world and view
reality as objective or subjective (O’Gorman & MacIntosh, 2015, p.55). Objectivism can be
described as viewing reality as made up of solid objects, which exist even when we are not
directly observing or experiencing them, which can be tested and measured (O’Gorman &
MacIntosh, 2015, p.56). The objective perspective can thus be described as despite our
comprehension of it, reality exists independently, and it is possible to explain and establish
facts and principles through replicable methods (O’Gorman & MacIntosh, 2015, p.57).
Subjectivism can be defined as reality built on the interactions and perceptions of living
subjects (O’Gorman & MacIntosh, 2015, p.56). The subjective perspective assumes that
what we perceive is what shapes reality and that every individual experiences their time and
place in the world differently. Facts are subject to the flexible experiences, attitudes,
interpretations and behaviors of the observer and the observed (O’Gorman & MacIntosh,
2015, 57).
This will be a qualitative study where we will research how social media impacts the
individual investment decision based on their financial literacy. In this study, the individual
experiences that social media has on our respondent’s investment decisions will be
explored. Therefore, the subjective approach is to be considered since it allows us to draw
conclusions from each respondent's personal experience.
2.2.2 Epistemology
Epistemology revolves around what is true and what is not true (Klakegg, 2016). Questions
about epistemology involve the notions of knowledge, probability, justification, evidence,
reasons for believing, what one should believe or similar notions (Fumerton, 2006, p.1). It
is the theory of knowledge (Klakegg, 2016). Through examining the relationship between
the research subject and the researcher, we analyze which knowledge is valid to use in
research (Collins & Hussey, 2014, p.47).
There are two positions for epistemology, positivism and interpretivism (Saunders et al.,
2009, p. 113). Positivists can be described as hypothesizing and explaining principles
(O’Gorman & MacIntosh, 2015, p.59). The paradigm focuses on facts and is usually
connected with the natural sciences (O’Gorman & MacIntosh, 2015, 60). The research is
driven by objective facts and data where the reality is distinctly observable (Saunders et al.,
2009, p.115). Positivism uses highly specific and precise data, which makes it popular in
business (O’Gorman & MacIntosh, 2015, 61). Research conducted with this approach aims
to test and study existing data and to further cultivate this data and theory (Saunders et al.,
2009, p.115). The concept of interpretivist can be viewed as interpreting and understanding
7relationships (O’Gorman & MacIntosh, 2015, 59). While the positivist paradigm focuses on
facts, the interpretivist paradigm instead focuses on meaning and understanding what is
happening (O’Gorman & MacIntosh, 2015, p.60). This approach is often thought of as the
generic paradigm of the social sciences (O’Gorman & MacIntosh, 2015, p.64). The
interpretivist belief is that individuals behave differently as social actors in different
circumstances. Each individual interprets situations differently and behaves according to
their interpretation of the world (Saunders et al., 2009, p.113). This approach takes into
account the various realities, which are unavoidably revealed by the viewpoints of different
individuals. Interpretivism focuses on understanding what is happening in a certain situation
rather than measuring it (O’Gorman & MacIntosh, 2015, 65).
Objective ontology is usually aligned with the positivist approach, while subjective
ontology usually aligns with the interpretivist approach (O’Gorman & MacIntosh, 2015,
p.59). In this research we will conduct a qualitative study and the data will be collected
through interviews. The interpretivism approach usually uses smaller samples and attempts
to create new theories (Collis & Hussey, 2014, p.50). Therefore, since we will interview a
selected group of investors with varying financial literacies and perspectives, the
interpretivist philosophy is better suited for our research to analyze and draw conclusions.
2.2.3 Axiology
The philosophical judgement of values greatly impacts the findings and methods of a study
and consists of two main viewpoints of how the role of a researcher’s values impact a study
(Collis & Hussey, 2014, p. 48). Within this philosophical framework, there are two beliefs
that have opposing views on the role that the researcher has on both respondents and results
specifically. The interpretivist viewpoint is that the research, in general, is subjective and
researchers need to acknowledge their impact and involvement in their studies (Collis &
Hussey, 2014, p. 48). Due to the interview process and in-depth information we strive to
obtain, we are fully aware of the potential impact that we may have on our respondents as
well as the subjectivity that could be displayed based on the results from our interviewees.
Conversely, the positivist viewpoint argues that researchers must be objective about their
results and remain independent from their data (Collis & Hussey, 2014, p. 48). This way of
thinking does not align with our study because it does not enable us the opportunity to
elaborate about our results and communicate extensively with our respondents to get the
necessary depth of knowledge. Ultimately, the interpretivist viewpoint will allow us to
subjectively respond to our findings and interact with your interviewees.
2.3 Research Approach
Applying the correct argumentation for the research approach establishes the scientific
reasoning and validates the processes associated with formulating the fundamental
framework of a study. There are two research approaches, deductive and inductive
reasoning, that have opposing viewpoints of how theories and hypotheses are constructed
(Spens & Kovács, 2005, p. 374) . The deductive approach to research derives logical
conclusions or hypotheses based on previously established theories (Spens & Kovács, 2005,
p. 376). Then the hypotheses or theories are empirically tested to determine the significance
of the findings and draw conclusions. As a result, deductive reasoning is considered a theory
testing process that establishes a generalization with the intention of testing whether specific
examples apply to the theory (Hyde, 2020, cited in Spens & Kovács, 2005, p. 376). Using
this rationale to determine the influence that social media has on individuals’ investing
decisions would not allow us to gain the necessary insights to the personal explanations and
justifications of our respondents. Therefore, basing our study on the deductive research
8approach would generate findings that lack the depth that would accurately reflect the
influence each interviewee has experienced.
Ultimately, inductive reasoning is the more suitable research approach for our study due to
the aspects this approach utilizes. Instead of deriving specific hypotheses from theories to
determine the significance of results or empirical findings, the inductive approach uses
empirical findings as the starting point to develop theories further (Spens & Kovács, 2005,
p. 377). Since the aim of our study is to gain further knowledge of how social media
influences the decision making process of investments, using inductive reasoning
establishes the fundamentals that will enable our study to achieve this goal and further
develop findings from previous research.
In addition to inductive and deductive reasoning, there are basic and applied research
approaches that help characterize the design and framework of a study. The studies that
utilize the basic research approach have the purpose of broadening the existing scientific
findings and knowledge (Collis & Hussey, 2014, p. 6). This approach does not represent the
intention of our study because the findings we will produce will not broaden existing
scientific findings. Instead, the intention of our findings will be to enhance the
understanding of social media's influence over investment decisions. This aligns perfectly
with the applied research approach because the applied process refers to studies that are
concentrated on identifying specific findings and knowledge (Collis & Hussey, 2014, p. 6).
Studies that use applied research approaches have the intention of enhancing the
understanding of existing problems in order to achieve improved policies, practices, or
knowledge (Collis & Hussy, 2014, p. 6). As a result, our study will utilize the applied
research approach as a part of the framework to develop an increased understanding of how
social media influences individuals’ investment decisions.
2.4 Research Method
Leedy and Ormrod (2001, cited in Williams, 2007, p. 65) defined research as the activity of
gathering, analyzing, and interpreting data to be able to understand a phenomenon.
According to Adams et al., (2007, p. 26) there are two main ways to conduct research:
qualitative and quantitative.
Quantitative data can be reduced to numbers, which allows it to be analyzed using statistics.
However, some information cannot be reduced to numbers, like people’s feelings, emotions,
beliefs and ideas, which we classify as qualitative data. This kind of information can only
be described using words and not manipulated mathematically, and it records qualities
rather than quantities (Walliman, 2011, p.71). Therefore, the methods used to collect data
in a qualitative study are based on interactions with the respondents (Creswell, 2014, p. 4),
which can be collected through observations or interviews (Adams et al., 2007, p. 26).
Qualitative research is different from quantitative research in the sense that the researcher
tries to understand the different viewpoints of the respondents, while quantitative research
remains objective and creates a distance between the respondent and researcher (Bryman,
1984, p. 78). The qualitative paradigm views knowledge through an interpretivist approach,
meaning it focuses on understanding the opinions of individuals and how they can perceive
a situation differently (Creswell, 2014, p. 8). On the other hand, the quantitative approach
is viewed more through a positivist approach, meaning the approach has a more objective
point of view, which assumes claims that concern an individual’s behavior cannot truly be
positive (Creswell, 2014, p.7). Qualitative data is usually expressed in words rather than
numbers and can never be accurately measured (Walliman, 2011, p. 72). This data has a
9descriptive character, which can lead to great insights into human society. It depends on
plotting the interrelationships between the development of variables and concepts and the
definition and meaning of words (Walliman, 2011, p.73).
In this study, a qualitative approach will be used in order to gain a deeper knowledge about
the effect social media can have on investing. Even-though this method limits us to a smaller
sample size than the quantitative approach, where we could construct a survey that would
potentially gain a larger response rate, we believe that interviews allow for a deeper
discussion that are not restricted to simple yes and no answers. Therefore, the qualitative
approach was best suited for this thesis, which will help gain a broader knowledge into the
phenomenon, which can help us understand the influences behind individuals investment
decisions. The alternative method of a larger scaled survey that could have been used was
not chosen due to the fact that most previous research (Chiang & Zheng, 2010; Bellofatto
et al., 2018; Pedersen, 2021 & Siikanen et al., 2018) conducted has had a quantitative
approach, which furthers the reasoning behind our choice of conducting a qualitative study
as it would enrich our research and contribute with a different viewpoint.
2.5 Research Design
Research design is the general plan and structure for the research (Saunders et al., 2009,
p.136). There are three main ways to manage research, depending on its nature it can be
exploratory, descriptive, or explanatory (Saunders et al., 2009, p. 139).
Research performed with an exploratory approach aims to investigate new ideas,
perspectives or clarifications of vague concepts to further develop and explore what is
already established from previous research (Saunders et al., 2009, p. 139-140). This research
seeks to find explanations as to why a phenomenon exists and to explore prospective
relationships between occurrences or variables (Adams et al., 2007, p.20). This type of
research is usually completed through interviews, searching for literature or focus groups
(Saunders et al., 2009, p. 140). Descriptive research is focused on describing a phenomenon
through preconceived behavior (Edgar & Manz, 2017, p. 133). It should describe the
different characteristics of a phenomenon in order to analyze certain behavior and make
specific predictions (Sreejesh et al., 2014, p. 33). According to Adams et al. (2007, p. 20)
descriptive studies want to describe a phenomenon but do not really aim to understand the
behavior behind the way it is. Descriptive studies usually generate informative qualitative
results but not mathematically quantifiable results and they have a subjective nature (Edgar
& Manz, 2017, p. 133). Methods used when conducting a descriptive study are case studies,
surveys, and case reports (Edgar & Manz, 2017, p. 132). Explanatory research describes a
phenomenon but also aims to understand the behavior behind the way it is (Adams et al.,
2007, p. 20). The emphasis is on creating casual relationships between variables and
describing the underlying reasons behind this phenomenon (Saunders et al., 2009, p. 140).
Based on these three methods, we can conclude that the nature of our research is exploratory
since we want to investigate a new perspective on how social media can affect decision
making in a subject that has not yet been researched, and we aim to explore the why or why
not of how social media has affected on personal investments. The reason we did not choose
an explanatory approach is because the authors want to explore if social media has any
effect on individuals’ investment decisions based on their financial literacy, and not solely
focusing on finding a casual relationship.
102.6 Ethical Consideration
All research must be carried out honestly and researchers must act with integrity to produce
a study that is credible and unbiased. Interactions with participants always lead to ethical
dilemmas because the way they are treated and interact can result in complications at any
stage of the study (Walliman, 2011, p. 42). In order to avoid ethical implications with our
participants, we consulted with outside advisors to discuss and develop ethical guidelines
to implement in every interaction with our participants.
Before conducting interviews, we established certain criteria that were followed to assure
the potential participants were fully aware of the subject and purpose of the research as well
as clarified that their participation was completely voluntary. To avoid any added pressure
to commit to being interviewed for our study, we gave ample opportunity for the participants
to change their minds so that no participant would regret taking part in our study. As an
additional measure, we told every participant that there was an option to terminate their
responses and participation at any point in time with no repercussions. Finally, every
interviewee was made fully aware that we, the authors, were both students doing this activity
as an academic exercise.
Furthermore, ethical guidelines were developed to treat participants with ethical
consideration when communicating and presenting their personal responses and information
(Walliman, 2011, p. 47). We have taken the necessary precautions to minimize the risk that
could be harmful to the participants’ dignity, privacy or reputation. One way of doing this
is by explaining the exact process and thoughts that go into any conclusion that will be
formulated to avert accusations of false information or misrepresentation. However, there
are possible ethical dangers when simplifying responses while discussing data from our
interviews, which can occur when misinterpreting vocal inflections, subtleties of humour,
or asides (Walliman, 2011, p. 48). Full transparency of the information gathered will be key
for our study to avoid misconceptions because we are fully aware of the consequences of
misinterpreting information. Additionally, any and every piece of personal information will
remain confidential and stored in a safe location only accessible to the authors.
The ethical guidelines established for this study are in accordance with Umeå University
standards and will result in honesty and integrity regarding the use/creation of our own
words, thoughts, and ideas as well as the interactions with the interview participants. Due
to the applied research approach being more susceptible to ethical investigations,
maintaining scientific objectivity as much as possible will reinforce the validity of the
findings from the research (Walliman, 2011, p. 46). Ultimately, the ethical implementations
of this study have been thoroughly thought through to create a study with little to no
scrutiny.
113 Theoretical Framework
This chapter introduces the relevant theory used in this thesis and the previous
findings within the topic we are investigating. The aim of this chapter is to give the
reader a broader knowledge of the different concepts and theories: financial literacy,
risk tolerance, social media, and social media's effect on decision making.
3.1 Financial Literacy
Conventional microeconomics suggests that a well-informed and fully rational individual
will make the optimal savings and consumption decision (Lusardi & Mitchell, 2014, p. 2).
However, this theory assumes that well-informed and fully rational individuals are able to
understand complex financial calculations and financial markets, which is another way of
stating that individuals are financially literate. Previous research has conclusions that
question the validity of this theory due to the decision making process that financially
literate individuals follow (Modigliani & Bromberg, 1954; Friedman, 1957; cited in Lusardi
& Mitchell, 2014, p. 2). Additionally, this theory does not account for outside influences
that can alter and manipulate the decision making process. As a result, countless studies
have been conducted to determine the importance and significance of financial literacy
(Klapper et al., 2016; Lusardi & Mitchell, 2020; Lusardi & Mitchell, 2007; Skagerlund et
al., 2018).
By virtue of escalating financial complexity, the need to increase the general population’s
basic understanding of financial concepts is growing (Lusardi and Mitchell, 2007). The
future financial stability of a person is becoming increasingly more and more in their own
hands due to technological advancements and access to information. Based on current
trends, Skagerlund et al. (2018, p. 18) believe that the financial future of an individual will
be completely dependent upon their own actions and decisions in the future. Therefore,
having the ability and knowledge to make intelligent financial choices, with the use of
financial concepts, will be a pivotal life skill to possess for the sake of an individual and
society the individual is embedded in. Without a basic understanding of financial concepts,
Klapper & Lusardi (2020, p. 589) believe that people would not have the necessary
knowledge to make sound financial decisions regarding savings, borrowing, investing, and
more because financial literacy affects matters on multiple levels. This belief opposes
conventional microeconomic’s theory and will later be supported by findings from other
studies. Furthermore, past research supports the notion that financially literate people have
the necessary abilities to obtain financial stability (Lusardi & Mitchell, 2011, p. 5).
Multiple studies have been conducted and concluded that the greater understanding a person
has about financial concepts, the more likely a person will be to participate in financial
markets (Almenberg & Dreber 2015; Christelis, Jappelli, & Padula, 2010; Van Rooij,
Lusardi, & Alessie, 2011; Yoong, 2011, cited in Klapper & Lusardi, 2020, p. 590). A few
examples of financial market participation include the stock, bond, real estate, and capital
markets. In addition to more financial market participation, studies have proven that
financially literate people are also more likely to choose mutual funds and diversify their
savings (Hastings & Mitchell, 2011; Hastings, Mitchell, & Chyn, 2011; Hastings & Tejeda-
Ashton, 2008, cited in Klapper & Lusardi, 2020, p. 590). The actions and decisions made
by financially literate people clearly impact their planning behavior positively, which was
established in Lusardi and Mitchell (2007). This means that people do a better job of saving
for retirement, handling unexpected market shocks, and reducing their risk exposure
(Lusardi & Mitchell, 2014, p. 7; Klapper & Lusardi, 2020, p. 590).
123.1.1 Numeracy
Social theory argues that literacy is something that people do while autonomous models
claim that people either are or are not literate (Craig & Guzman, 2018, p. 5). Numeracy is a
concept that is intangible in these opposing views because numeracy is considered a specific
form of literacy, which leads to the question of whether people are numeric or numeracy is
what people do. Numeracy is the ability to understand basic numerical concepts,
probabilities, ratios, and quantitative estimations (Cokely et al., 2012, p. 25). Previous
research has concluded that people with lower levels of numeracy have an understanding
of “‘real number line, time, measurement, and estimations’ whereas higher levels focus on
an ‘understanding of ratio concepts, notably fractions, proportions, percentages, and
probabilities’” (Reyna et al., 2009, cited in Ghazal et al., 2014, p. 16). One point of
argumentation from researchers in the past has been that a substantial portion of the
construct of financial literacy is attributed to numeracy (Skagerlund et al., 2018, p.
18). Moreover, numeracy may even “provide the computational engine behind financial
decision making based on conceptual knowledge of finance” (Skagerlund et al., 2018, p.
19). Multiple studies support this notion because there is correlation and predictive behavior
between the level of numeracy and financial behavior/decision making (Ghazal et al., 2014,
p. 22). Specifically, statistical numeracy, which is the understanding of statistical and
probabilistic problem solving, is considered one of the best predictors for decision making
and superior judgment of not only numerical tasks but also non-numerical tasks (Cokely et
al. 2012; Cokely & Kelley, 2009; Kutner et al., 2006; Lipkus & Peters, 2009; Peters, 2012;
Peters & Levin, 2008; Peters et al., 2006; Reyna et al., 2009, cited in Ghazal et al., 2014, p.
15).
3.1.2 Financial and Mathematical Anxiety
In addition to other characteristics and factors that determine financial literacy, there are
also theories based on emotional aspects, financial and mathematical anxiety, that are
hypothesized to independently interfere with an individual’s ability to obtain financial
literacy (Skagerlund et al., 2018, p. 19). Financial anxiety can be defined as a negative
feeling that is associated with inadequacy regarding financial institutions, systems, and
concepts (Skagerlund et al., 2018, p. 19). Due to the subjectivity of emotional aspects, using
a questionnaire that states responses, such as ‘I am uncertain about the words and phrases
that are being discussed by financial experts,’ are the only way of measuring the extent of
the effect on an individual (Skagerlund et al., 2018, p. 19). One definition of mathematical
anxiety is by Richardson & Suinn (1972, p. 551), which states that the definition is “feelings
of tensions and anxiety that interfere with the manipulation of numbers and the solving of
mathematical problems in a wide variety of ordinary life and academic situations.”
However, mathematical anxiety is not directly related to the inability to solve mathematical
problems or classified as a personality trait (Ramirez et al., 2013, cited in Skagerlund et al.,
2018, p. 19). The simplest way of describing it is as a negative attitude or outlook toward
numbers. A study by Skagerlund et al. (2018, p. 19) concluded that mathematical anxiety
was a stronger option at predicting financial literacy than financial anxiety. Based on
Skagerlund et al. (2018, p. 19) conclusion, the belief was that mathematical anxiety hampers
the ability of a person to acquire the necessary mathematical competencies to attain financial
literacy. There was also an expectation that mathematical anxiety impacts the direct
influence on economic decisions because it manipulates numbers. As a result of multiple
studies (Lusardi, 2012; Grohmann et al. (2015 cited in Skagerlund et al., 2018., p. 19),
mathematical anxiety is considered the stronger predictive emotional factor for financial
literacy than financial anxiety.
133.1.3 Gender
In 2016, a survey was conducted by the S&P Global FinLit Survey to test and measure the
financial literacy of individuals of varying genders, educational levels, nationalities, and
other factors. One conclusion drawn from the survey was that there was an overall
difference in financial literacy between men and women (Klapper et al, 2016, p. 12). On a
worldwide basis, 35% of men are considered financially literate while 30% of women are
considered financially literate (Klapper et al., 2016, p. 12). Despite women having a less
likely chance of correctly answering a financial literacy question, Lusardi & Mitchell
(2014), along with other studies, observed that women are much more likely to signify they
do not know the answer to a question. This could be explained by the fact that women are
more susceptible to the deterrents of financial and mathematical anxiety (Skagerlund et al.,
2018, p. 19). This literacy gap is found not only in emerging economies but also advanced
economies (Klapper et al., 2016, p. 12). Even when taking into consideration the variations
of age, education, income, and country, women still measured weaker than men in financial
skills (Klapper et al., 2016, p. 12). Various theories have been tested to identify the cause
or reason for the difference in financial literacy between men and women. However,
explanations why there is a gap between genders at a young age is unknown and studies
conducted have inconclusive results.
3.1.4 Educational Background
The amount of research about the correlation between financial literacy and years of
education has mounted up and has continuously presented the same conclusions. There is a
relationship between the education background and financial literacy (Lusardi & Mitchell,
2007, p. 219; Skagerlund et al., 2018, p. 22). Specifically, Lusardi & Mitchell (2007, p. 219)
conducted a study where they divided their respondents by their educational degree, who
all varied on levels of financial literacy. Their results concluded that the individuals with
the least amount of education, no high school diploma, were substantially worse compared
to the other educational degrees (Lusardi & Mitchell, 2007, p. 219). The reason why
educational degrees have a strong relationship with financial literacy is because financial
literacy clearly increases with educational attainment (Klapper & Lusardi, 2020, p. 592).
3.1.5 Measuring Financial Literacy
Lucardi and Mitchell (2007) believe the predominant way to measure the financial literacy
of an individual is by administering a simple test that requires participants to answer
questions about various financial concepts correctly. Although there are different ways of
structuring the questions, the consensus among researchers is that there are four main
concepts that need to be addressed through the test that will determine the degree of
financial literacy. Depending on the length and difficulty of questions asked, the degree of
financial literacy is dependent upon the number of correctly answered questions, which is
decided individually for every test. One test creator claims that there are three aspects of
financial literacy: “(1) Numeracy/knowledge of interest compounding, (2) knowledge of
inflation, and (3) knowledge of risk diversification” (Klapper and Annamaria, 2020, p. 592).
However, the S&P Global FinLit Survey specifies that there is a difference between
numeracy and interest compounding (Klapper et al., 2016, p. 6). Klapper and Lusardi (2020,
p. 592) identified that the four fundamental financial concepts based on the S&P Global
FinLit Survey are risk diversification, inflation, numeracy interest, and interest
compounding.
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