Financial literacy and investment performance in Rwanda: Case study : Kamembe City Investors

Abstract

While financial literacy has been widely studied globally, limited research exists on its impact on investment performance in emerging economic hubs like Kamembe city, Rwanda. This study fills this gap by examining how financial literacy influences investment decisions and performance among local investors, providing context-specific insights for policymakers and financial educators. The research was motivated by the growing recognition that financial literacy plays an important role in determining investment decisions, improving financial well being, and enhancing resilience in times of economic uncertainty. The specific objectives of the study were to assess the level of financial literacy among investors, evaluate their investment performance, and evaluate the effect of financial literacy on investment performance. A mixed-methods approach was employed, combining quantitative data from a structured questionnaire administered to 150 investors. The quantitative data were analyzed using descriptive statistics, correlation, and regression analysis in SPSS. Key indicators assessed under financial literacy included knowledge, skills and behavior specifically on budgeting, saving, borrowing, and investing. Investment performance was measured using return on investment rate and sales growth rate. The findings revealed that most investors possessed a moderate level of financial literacy, with the majority scoring between 3 and 4 on a 5-point scale. Investment performance , most investors were generally moderate performers with 41%, the best high performers cover 22% and the rest of 37% are qualified as low performers. A significant positive correlation (r = 0.291, p < 0.01) was found between financial literacy and investment performance. Regression analysis confirmed that financial literacy significantly predicts investment performance (R² = 0.085, p < 0.001), supporting the study's hypothesis. The study also explored investors’ experiences with financial distress, showing that while a large number faced financial challenges, many overcame them through strategies such as borrowing, selling assets, and diversifying business activities. The study has important implications for policymakers, educators, and financial institutions aiming to strengthen financial literacy programs to foster sustainable investment growth and economic empowerment.