Generation Z's Financial Behaviour: The Role of Islamic Financial Literacy

Dina Patrisia, Abror Abror, Shabbir Dastgir, Rita Rahayu

Research output: Contribution to journalArticlepeer-review


Purpose — This research aims to examine the effect of family communication patterns on Islamic financial literacy (IFL) and risk tolerance of Generation Z (Gen Z) in Indonesia. It also examines the link between IFL, risk tolerance and financial behaviour. Finally, it highlights the moderating impact of IFL on the link between risk tolerance and financial behaviour. Design/Methodology/Approach — This study used Muslim members of Gen Z in West Sumatra Indonesia who were born between 1995 and 2001 as the population. This study collected 668 responses in two months. After some preliminary tests, such as missing value and normality test, it employed 571 usable responses as the sample. Purposive sampling was conducted and variance-based structural equation model-partial least square (SEM-PLS) was employed as the method for data analysis. Findings — The results show that family communication patterns, both conformity and conversation orientation, positively and significantly influence IFL and risk tolerance. IFL has a positive and significant impact on risk tolerance and financial behaviour. Surprisingly, IFL also moderates the link between risk tolerance and financial behaviour positively and significantly. Finally, risk tolerance significantly affects financial behaviour. Originality/Value — This research makes three theoretical contributions. First, it provides a better understanding and a more complex model of the relationship between IFL with its antecedents such as family communication patterns and also with its consequences, including risk tolerance and financial behaviour. Second, it reveals that IFL affects Gen Z’s financial behaviour significantly—an aspect which is neglected in previous research. Third, it has expanded the scope of prior studies by addressing IFL as a moderator of the link between risk tolerance and Gen Z’s financial behaviour. Research Limitations/Implications — Even though this study has carried out Harman’s single-factor analysis to anticipate a common method bias, it faces the common method bias problem due to the cross-sectional nature of the study. Secondly, the study focuses on Gen Z, which means that most of the respondents are students and their financial behaviour is still affected by the decisions of their parents. Practical Implications — This study has some contributions for decision makers such as Otoritas Jasa Kewangan (Financial Services Authority) and management of Islamic banks and financial institutions. First, to increase Gen Z’s IFL, the decision makers have to educate the parents using the two-way communication orientation method. Second, the financial behaviour of Gen Z is influenced by financial literacy and risk tolerance; hence, decision makers such as the government and society have to educate Gen Z on IFL and inform them about financial risks which influence their risk tolerance when conducting financial activities.

Original languageEnglish
Pages (from-to)20-37
Number of pages18
JournalISRA International Journal of Islamic Finance
Issue number2
Early online date23 May 2023
Publication statusPublished - 13 Jun 2023

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