Heuristics, digital financial services, and the moderating role of risk tolerance, financial literacy, and cognitive biases in SACCO members' saving and investment decisions

Abstract

The study aimed at assessing the influence of heuristics (representativeness, availability, and anchoring), digital financial services (DFS), and the moderating role of financial risk tolerance, financial literacy, and cognitive biases in SACCO members' saving and investment decisions in Kenya. Grounded in heuristic theory, prospect theory, financial self-efficacy theory, the theory of planned behavior, and technology acceptance theory, the study collected primary data from 334 members across 86 SACCOs. Correlational and ordered probit regression analyses tested the hypotheses. Results showed that representativeness and anchoring heuristics positively influenced saving and investment decisions, while availability heuristic was not significant. Financial risk tolerance moderated the effect of representativeness but not availability and anchoring, while financial literacy moderated representativeness and anchoring but not availability. DFS benefits (speed, security, transparency) significantly influenced financial decisions, with availability heuristic positively moderating DFS speed and security but negatively moderating transparency, while anchoring negatively moderated security. Income, house location, and SACCO membership duration also predicted financial decisions. The findings highlight the role of cognitive biases, financial literacy, and DFS benefits in shaping investment behavior, emphasizing the need for targeted interventions. The study recommends tailored financial education programs addressing heuristics, enhancing DFS accessibility and security, and implementing financial risk tolerance assessments to support informed financial decision-making. Future research should explore longitudinal designs to establish causality and examine additional cognitive biases. Key words: Heuristics, behavioral biases, financial risk tolerance, financial literacy, digital financial services, saving and investment decisions, SACCOs