CHAPTER ONE INTRODUCTION
Background of the Study
The economic growth of Ghana coupled with other drivers has been aligned to its financial sector development as it makes it easier for organization and allocation of resources. Financial intermediaries such as banks, investment companies and insurance firms within the financial sector are important as they are able to rally savings of household’s sector through various instruments. This is highly possible with individuals also patronizing this wide range of financial investment products.
In Ghana, the informal sector accounts for about 80% of the labor (Koto, 2015). With this percentage, implies a greater amount of the workforce in Ghana, which results to a lot more revenue since most of their revenues are not disclosed as most of them do not keep books of accounts. The financial investment behavior of the informal sector may vary among the other sectors of the labor force.
Chen (2012) emphasized the importance and the contribution of the informal sector as it is here to stay and contribute greatly to economic development. Those in the informal sector are also considered to be investors who also partake in investing in financial investment and hence a better understanding of their investing behavior is needed to assess the investment behavior of informal sector workers in Ghana.
Investment can be defined as the commitment of funds into an activity over a period of time in order to generate a return on the committed funds (Vernon, 2017).
One purpose of taking up financial investments ensures better security in terms of one’s finances which will lead to an improved life as returns on investments take care of financial needs (Kumar et al, 2018).
Savings and Investment are two major variables which play an important role in the growth of an economy, stabilizes inflation and brings about employment most especially in the developing countries, for this to be possible requires the mobilization of savings unto different investment avenues (Raudla et al., 2018). For a sustained economic growth to be reached in an economy, certain conditions need to be put in place to ensure that investments by individuals are not too risky and to ensure this implies the redistribution of profits and losses as a result of investments between the investors and the society as a whole (D’Exelle & Verschoor, 2015). The growth in financial markets across the world presents an opportunity for people to invest in a variety of financial products (Lim et al, 2016).
Investor behavior shows how individuals in their normal state influence their decision to invest. Baker and Ricciardi (2014) asserts investor behavior attempts to understand and explain decisions by amalgamating the disciplines of Psychology and Investing based on individual levels and the role of financial markets. This involves mental process, emotional issues that investors face during financial planning and investment. This may be based on past events, beliefs, hearsays among others.
There are a wide range of factors which influence an investor’s decision to invest. Obamuyi (2013), Bi and Usman (2017), Brown et al. (2016) have established a wide range of factors which influence or plays a major role in one’s decision to invest in a product or security and
some of these factors are age, gender, marital status, online information, profitability. From this, we realize that the investor has many factors influencing their decision to invest.
There is a wide range of financial investment products available to an investor. Khatri et al. (2017) list mutual funds, fixed deposits, public provident fund, insurance, equity, recurring deposits, provident fund and commodity derivatives as some financial investment products available to an investor and these products obviously come with returns though they differ based on the risk appetite of the investor.
Though studies have been carried out on the investment behavior of individuals, the literature concerning the informal sector is limited and especially that of the Ghanaian context. It is on the back drop of this the study seeks to examine the investment behavior of informal sector workers in Ghana.
Problem Statement
The informal sector in developing and developed economies play a very vital role in growth and development of the country (Piketty, 2015). They play a very strong role in creating a vibrant economic growth employing the ever increasing workforce in countries contributing one way or the other in economic growth of a nation. The inability of the formal sector to provide the amount of jobs needed has pushed many into the informal sector. The informal sector of Ghana accounts for well over 80% of the labor force of Ghana (Koto, 2015).
Financial investments provide an avenue for all and sundry to put their money into and expect some form of return. This goes a long way to improve the lives of individuals especially when they are in need of money for urgent purposes.
Reitan and Sorheim (2000), Bhushan (2014), Aduda et al. (2012), Samdura and Burghate (2012) just to mention a few have done extensive works on investment behavior of individuals but these existing literature and others have done little or no work on the informal sector.
In Ghana, studies have been limited to foreign direct investments as Antwi et al. (2013), Enu et al. (2013) and Aryeetey (2008) focused their studies on foreign direct investment. Naa-Idar et al. (2013) also limited their studies to the private sector investment in Ghana.
All these works have done very little to capture the investment behavior pattern of the informal sector of Ghana which plays a very vital role in the development of the economy as a whole. This study is therefore to fill the gap concerning the Investment Behavior of informal sector workers in Ghana.
Objectives of the Study
The main objective of this study is to determine investment behavior of informal sector workers in Ghana.
The study will be guided by the following:
- To determine the financial investment products preferred by the informal sector in Ghana
- Determine their major reason for investing
- Determine the various factors influencing investment
- To establish how financial literacy affects investment
