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Prime Journal of Business Administration and Management (BAM)ISSN: 2251-1261. Vol. 3(3), pp. 896-911, March 30th, 2013www.primejournal.org/BAM© Prime JournalsReview PaperInvestment practices among university students-A Study of United States International University-1 Priscillah N. Mungai, 2 Roselyn W. Gakure, 1 Amos G. Njuguna, and 2 Victor N. Keraro1 USIU, P.O Box 14634, 00800, Nairobi, Kenya2 Jomo Kenyatta University of Science and Technology (JKUAT) Box 62000, 00200, Nairobi, KenyaAccepted 23rd March, 2013One of the key reasons why most people invest is to make money. In this case, investment is the placement ofcapital into a project or business with the intent of making a profit on the initial capital. An investment mayinvolve the extension of a loan or line of credit, which entitles one to repayment with interest, or it, may involvebuying an ownership stake in a business, with the hope that the business will become profitable (Robins,2006).Young investors who take advantage of savings plans may not be aware of the importance of assetallocation, a strategy for selecting various investment vehicles to spread risk among stocks, bonds and cashreserves , such as money market funds and certificates of deposit. The decisions young people make early intheir careers can have a tremendous impact on their future financial security and retirement (Benartzi andRichard, 2001). Students who plan their finances are likely to have more positive choices to make later in life.Financial planning for young people is all about change of their circumstances. For most people, it takes morethan luck to get what they want out of life. They have to know what they want and then commit to a plan to meettheir goals. Young investors sometimes miss out on becoming financially independent because they fail toplan. They may not know what action to take or they may simply procrastinate without knowing the long termcosts of such delays.The main objective of this study was to analyze investment practices amongst universitystudents with a focus on students in United States International University (USIU). Descriptive research designwas used in the study with a target population of 5000 students. Samples were selected using simple randomsampling technique. Data collection was through questionnaires. The results of the study revealed that amajority of the students on the various investment products studied would want to invest in shares and thatstudents preffered investment in local companies rather than in international firms or emerging companies. Thestudy also revealed inadequate finances, lack of understanding of financial matters, poor market access, weakgovernment support, lack of effective communication from the society and corruption as some of the mainchallenges that affect investment choices made by students. To overcome these challenges, the studyrecommended that investment companies should conduct educational and orientation programs incollaboration with universities, and other related institutions on various aspects of investments so that theinvestors can enhance their knowledge for making more prudent investment decisions.Key words: Investment, investor, profitability, financial planning, financial literacy, investor asset allocation, businessownership.INTRODUCTIONPeople invest to make money. Though their motivations,such as, a bigger house, better education for theirchildren or a better retirement for themselves may differ,their objectives do not. Investment is the act of placingcapital into a project or business with the intent of makinga profit on the initial placing of capital (Rajarajan, 2002).An investment may involve the extension of a loan or lineof credit, which entitles one to repayment with interest, orit, may involve buying an ownership stake in a business,with the hope that the business will become profitable(Robins, 2006). Investing may also involve buying aparticular asset with the intent to resell it later for a higherprice. Many types of investments exist, and each issubject to greater or lesser regulation in the jurisdiction in

897 Prim. J. Bus. Admin. Manage.which it takes place. Legally, investing requires theexistence and protection of individual property rights.Investing wisely requires a combination of astuteness,knowledge of the market, and timing (Robins, 2006).According to the Kenya population and housing censushighlights (2009), half of Kenya‟s population is under 35years of age, representing almost 20 million people.Odean (2002) argues that this demographic profilecombined with information on employability and incomesuggests that Kenya‟s university students, especiallythose in the country‟s less developed region; do not enjoythe same financial and intellectual opportunities availableto their peers in other countries. Odean (2002), furtherindicate that Kenyan university students must confrontcomplicated financial decisions at a young age in today‟sdemanding financial environment, and financial mistakesmade early in life can be costly. Young people often findthemselves carrying large amounts of student loans.Such early entanglements can hinder their ability toaccumulate wealth.Scarce socio-economic opportunities provided foryoung people are further limited due to the inadequateknowledge of investment and financial managementskills. Young people rarely make a financial plan norbalance their income and spending to secure theirfinancial future by investing. They also lack knowledge onhow to use financial investment tools which could end upwith a young population undertaking risky financialdecisions (Koke, 2004). An important issue which hasalso attracted a lot of attention in light of the recent globaleconomic environment is the national personal savingsrates. The personal savings rate (PSD) is defined asdisposable income less consumption expenditures, alldivided by disposable income – meaning that a negativePSD means that the individual is spending more thanthere income after taxes Chuhan (2004). To aid youngerconsumers, it is critical for researchers to explore howfinancially knowledgeable young adults are.Understanding the factors that contribute to or detractfrom the acquisition of financial knowledge can helppolicymakers design effective interventions targeted atthe young population (Middleton, 2006).Investment products in KenyaVenture capitalVenture capital is a subset of private equity and refers toequity investments made for the launch, earlydevelopment, or expansion of a business. It has aparticular emphasis on entrepreneurial undertakingsrather than on mature businesses. In fact, in most of theliterature on private equity and venture capital, these twoconcepts are used interchangeably (Kaplan andStromberg, 2009).Hedge fundsHedge Funds differ from private equity firms in terms oftheir time-to-hold, liquidity, leverage and strategicdirection of investments which in turn dictates differencesin their exit strategy, risk tolerance and desired rate ofreturn of the two types of funds (Kilka and Weber, 2000).Hedge funds seek a quick flip of their investments withthe average length of their investments being 6-18months, whereas private equity firms stay invested foraround 3-5 years. Hedge funds are also inclined towardsvolatile withdrawal of investments as opposed to privateequity firms which are focused on long term returns.However, of late, it has been observed that the arenas ofactivities of such institutional investors are not mutuallyexclusive. Many private equity groups own hedge fundsand make long term investments in hedge funds. Further,attracted by the significant returns in buyout deals, manyhedge funds have joined hands with private equityplayers to make large buyout deals (Kaplan andStromberg, 2009).Private equityPresently there is lot of ambiguity surrounding theconcepts of private equity and alternative investmentchannels like venture capital and hedge funds (Slovic,Fischhoff and Lichtenstein, 2000). Private equity financehas become popular in recent times as it confers variousbenefits on the companies concerned, as well as theindustry, economy and society at large. KPMG survey of119 PE-sponsored firms in Asia found that most privateequities conceptualize „provision of capital‟ as their mostimportant contribution to growth of business followed byoptimizing company‟s financing structure, generalmanagement guidance at the board level, ability to recruitthe best managers to run the business, improvecorporate governance and improvement of businessprocesses. Host companies also benefit frominternational network of contracts, injection ofinternational know-how, etc. Several studies have alsodocumented that private equity/venture capitalists speedup product commercialization (Hellman and Puri, 2008),adoption of human resource development policies andstrengthens companies commercialization strategies(Gans, Hsu and Stern, 2009).Mutual fundsThe simplest mutual funds definition is that they are aninvestment group set up by professional investors andheaded by an investment manager. Individuals are thenable to invest small amounts of money into the fund formaking a reasonable profit. There are an incredibly largenumber of mutual funds. While some mutual funds aim toproduce short term, high yield profits, others look for thelong term profit. But, large segment of people are scaredto invest in the capital market. Some personal and familyfactors are pulling them in deciding different type ofinvestments. Age, Gender and marital status are some ofthe socio demographic factors that share the investors‟decision and preference in making investments. Manystudies have shown that age interact with financial

899 Prim. J. Bus. Admin. Manage.NSSF and 0.7 billion by non-bank investors (NSE, 2011).Foreign currenciesThe market for foreign exchange involves the purchaseand sale of national currencies (Gans et al., 2009). Aforeign exchange market exists because economiesemploy national currencies. If the world economy used asingle currency there would be no need for foreignexchange markets. Foreign exchange is the world‟slargest and most actively traded market. Each day morethan USD 3 trillion changes hands. This is only possiblebecause of the market‟s professional and efficientorganization. Moreover, the currency market is becomingmore and more transparent, despite its size.Globalization is integrating the global economy, and thereare fewer and fewer pegged exchange rates. The numberof non tradable currencies is also declining, according tothe world Trade Organization report (2011). This meansthat, in addition to traditional currencies, new investmentopportunities are also emerging in growth markets suchas Asia and Latin America. Investing in foreign exchangemeans investing in the economic development of acountry or group of countries. Factors such as GDPdevelopment, trade balances, interest rates, industrialoutput, and the political stability of a country or region allhave a decisive effect on exchange rates. Foreignexchange investments are no longer the preserve oflarge investors. Since the minimum amounts for foreignexchange investments are falling, private investors canincreasingly take advantage of the opportunities offeredby these products. Investment horizons can range from asingle day to several years. As a separate asset class,foreign exchange investments make an ideal portfoliosupplement. They offer investors attractive instrumentswith which to actively manage their portfolios (Heath andTversky, 1991).CommoditiesSince early 2000s, commodity futures have emerged as apopular asset class for many financial institutions.According to United States Department of the Treasury(2010), the total value of various commodity index-relatedinstruments purchased by institutional investors hadincreased from an estimated $15 billion in 2003 to atleast $200 billion in mid-2008. Various observers, policymakers and the US Department of Treasury expressed astrong concern that index investment as A form offinancial speculation might have caused unwarrantedincreases in the cost of energy and food and inducedexcessive price volatility. What is the economic impact ofthe rapid growth of commodity index investment? Toaddress this question, it is important to recognize theconcurrent economic transition of commodities marketsprecipitated by the rapid growth of commodity indexinvestment. Prior to early 2000s, despite liquid futurescontracts traded on many commodities, their pricesprovided risk premium for idiosyncratic commodity pricerisk and had little movements with stocks and with eachother (Fellner and Maciejovsk, 2007). These aspects arein sharp contrast to price dynamics of typical financialassets, which carry premium only for systematic risk andare highly correlated with market indices and with eachother. This contrast indicates that commodities marketswere partially segmented from outside financial marketsand from each other. Recognition of potentialdiversification benefits from investing in the segmentedcommodities markets prompted the rapid growth ofcommodity index investment after early 2000s andprecipitated a fundamental process of financializationamongst commodities markets.Individual savings accountAn Individual Savings Account (ISA) is designed for thepurpose of investment and savings with a favourable taxstatus. Money is contributed from after tax income andnot subjected to income tax or capital gains tax within aholding or upon withdrawal. Cash and a broad range ofinvestments can be held and there is no restriction onwhen or how much money can be withdrawn. Fundscannot be used as security for a loan. It is not a pensionproduct but can be a useful complement to a pension forretirement income, particularly when it is desirable todraw down capital at a faster rate than permitted in apension (Dash, 2010).Endowment policyAn endowment policy is a life insurance contractdesigned to pay a lump sum after a specified term (on its'maturity') or on death. Typical maturities are ten, fifteenor twenty years up to a certain age limit. Some policiesalso pay out in the case of critical illness. Policies aretypically traditional with-profits or unit-linked (includingthose with unitised with-profits funds). Endowments canbe cashed in early (or surrendered) and the holder thenreceives the surrender value which is determined by theinsurance company depending on how long the policyhas been running and how much has been paid in to it(Allen and Faulhaber, 1989).Most endowment policies are established for a setperiod (the policy term) of 10 years or more, this isbecause advantageous taxation rules apply to LifeAssurance policies with terms of 10 years or more. Thesetaxation rules (called the Qualifying rules) allow for anyinvestment gains made within suitable policies, calledQualifying policies, to be paid to the policyholder withoutany personal tax being deducted. As endowment policiesare Life Assurance policies then a term for the policymust be established at outset. Although it is possible forpolicies to have terms of less than 10 years, this is quiterare.Where the policy premiums are invested will differ inaccordance with the policy type. The majority of suchpolicies are 'With Profits'. In these instances the policypremiums are invested in the With Profits fund of the Life

Mungai et al., 900Assurance Company. With Profits type policies havebeen popular for decades. Under these policies the LifeAssurance Company makes all the investment decisions.They use any investment profits gained to providebonuses, which are added to the policy, normally on anannual basis, to increase the policy's value.The amount of bonuses added year on year is at thediscretion of the Life Assurance Company. Often some ofthe profits made in years of high investment returns areheld in reserve, and not distributed as bonuses. Thisallows the Life assurance Company to maintain the levelof bonus during years of less attractive investment gains.This smoothing of investment returns has, in the past,proved popular with savers. However more recently WithProfits type investments have witnessed a series ofreductions in bonuses. These have been triggeredbecause the investment reserves built up during years ofgenerous investment profits have been reduced as lowerinvestment returns have become more common duringthe late 1990's and through into the new century.AnnuitiesTax-deferred variable annuities (hereafter “annuities”) arecontracts with insurance companies through which thepublic can invest in portfolios of stocks and bonds similarto mutual funds.2 Annuities are costly, complexinvestments sold based on typically insignificant tax orinsurance benefits by financial advisors with strongfinancial incentives adverse to those of their customers.These financial advisors receive generous commissionsfor selling annuities to investors who would be far betterserved by investments in individual stocks and bonds ormutual funds. Variable annuities are investment contractssold by insurance companies through brokers. Theamount paid for an annuity is allocated across managedpools of securities called subaccounts. Annuitypurchasers typically have many subaccounts available tochoose from within an annuity. Subaccounts are similarto stand-alone mutual funds offered by mutual fundcompanies. In fact, mutual fund companies may offerstand-alone mutual funds with the same names andessentially identical portfolios as the subaccounts offeredwithin annuities. The value of an annuity fluctuates as aresult of changes in the net asset values of thesubaccounts and because of fees assessed by theinsurance company (Hellman and Puri, 2008).The returns to an annuity are not taxed prior to the startof scheduled withdrawals. When the withdrawals begin,the returns accumulated within the annuity are taxed ascurrent income rather than at the lower capital gains taxrate, even if the returns are entirely capital gains. It ispossible - even likely - those investors buying annuitieswill actually end up paying more in taxes and having lessafter-tax wealth at retirement, because of the harmcaused by the tax benefit claimed for tax-deferredannuities. Annuities contain an insurance-like featurecommonly referred to as a Guaranteed Minimum DeathBenefit (“death benefit”). If the purchaser of an annuitydies before the investment is redeemed or paymentsupon retirement start, a designated beneficiary isguaranteed to receive at least the amount invested lessany withdrawals. This feature pays off if the aggregatevalue of the investments in the subaccounts has declinednet of withdrawals since the initial investment. Variableannuities are typically more expensive than analogousmutual funds and their expenses are not easilyunderstood. Management fees are assessed against thesubaccounts much like mutual fund expense ratios. Inaddition, the insurance company assesses a fee referredto as the Mortality and Expense risk charge. Thisexpense is substantial and is inaptly named since,contrary to the implication of its name, only a minisculeportion of it goes to funding the death benefit.Perceptions on InvestmentRisk attitudesThe first step in understanding how investment decisionsare made is the understanding how people perceive theunderlying risk of different financial instruments. Also itinvolves further helping investors to avoid biases andmake sensible decisions. According to MacGregor et al.,(1999) risk and uncertainty are more than justmathematical and statistical concepts, but alsopsychological constructs. The writers established thatalthough for some assets financial advisors and plannersdefined risk in similar way to the traditional financetheory, they embraced contextual and emotional factors,such as knowledge and worry, into the risk evaluation forspecific investments. According to Olsen (1997), riskperception by professional analysts and nonprofessionalwealthy is multidimensional; however nonprofessionalsare more sensitive to potential losses. Further Diaconand Ennew (2001) believe the perception on risk ofpersonal financial service can be characterized by fivedimensions, namely, distrust, the seriousness of averseconsequence, volatility, knowledge observability, andfailure of regulation. All these studies focused onprofessional groups or at least active investors.According to Cortor and Chen (2006) if investors havemore experience of investing, their level of risk tolerancewill be high and less experience investors will possesslow risk tolerance level. This is because investorsconstitute their investment portfolio with regards to theirrisk tolerance level. This means that high risk tolerantinvestors will constitute a portfolio of relatively high riskand low risk tolerant investors will constitute low risksecurities portfolio (Cortor and Chen, 2006). Maritalstatus of investors also plays an essential role as far asdetermining the risk perception of investors in the marketis concerned. Several studies have shown that indeedmarried investor have less risk perception due to beingmore experienced as compared to unmarried investor. Ithas also been proved that among married individuals,those who are relatively old time married have more risk

901 Prim. J. Bus. Admin. Manage.tolerance due to having more disposable income whichcan be invested (John, Saunders and Senbet, 2010).According to Corter and Chen (2006) risk tolerance ofmarried investors on average is higher than in unmarriedinvestors.GenderGender is another important variable having itsbehavioral implications which affects the attitude ofinvestors in the stock market. It is evident from thestudies that females adopt more conservative behaviorand risk averse style while investing in the stock marketas compared to the male investors (Fellner andMaciejovsk, 2007). Another study of Ronay and Kim(2006) states that attitude towards investments by thetwo genders is the same on the individual level, but atgroup level male groups are found to make moreinvestments as compared to female groups. Sensationseeking behavior of individuals in the general life is alsoevident while investing in the stock market.Risk taking and risk averse attitudes are characterized bythe general traits of personality of individuals. (Smith andWatts, 2010) states that sensation seeking is part of thegeneral personality traits of individuals. They further claimthat this attitude also prevails in the financial decisionmaking. Sensation seeking has been defined as consentto accept various types of risk for the sake of making newand complex experiences. A study by Crosnan andOneezy (2004) established that indeed women take lessrisk than men. The various factors that might beresponsible for such a difference in preference may beage, marital status, number of children and culture.Similarly it was established that women are risk aversethan men as far as investment decision involving risk wasconcerned. Giessen and Ruezi (2009) in their study ongender and risk averseness of investors revealed thatfemale fund managers are moderately more risk aversethan male fund managers. Also female fund managersfollow significantly less extreme investment styles ascompared to their male counterparts. As such, it wasconcluded that a fund investor may prefer femalemanager to manage the fund.FamiliarityAccording to Huberman (2001), a familiar environmentmakes individuals to feel safer. In the same regard, whenit comes to investment decisions, most people perceivethe familiar investment products to be safer. It isassumed that the individuals maximize their expectedutility. This means therefore that the risk-averse investorsshould favor diversification. In real sense, there are manyinstances where people do not follow this strategy.Instead, investors focus their portfolios on the assetswhich they feel they are familiar or feel comfortable withexample, domestic assets, employer‟s stocks(Huberman, 2001).According to Kilka and Weber (2000) investors areoveroptimistic and underestimate the risk of theinvestment instruments that they are familiar with.Greater familiarity lowers the perceived risk (Slovic,Fischhoff and Lichtenstein, 2000). One main reason isthat familiarity leads to induced positive feelings.Personal emotions and feelingsThe personal emotions and feelings play an essential rolein investment decisions, which usually assume correctand homogeneous probability beliefs among all investors.Studies show that instead of being rational Bayesians,people rely on heuristics and are subject to certainbiases. This is because it is too complicated to collectand process all relevant information. In this regard,affection and emotions are often served as cues to judgethe risk. One best example is that the perceived risk andbenefit of investments seem to be negatively correlated inthe minds of the people, despite the objective risk andbenefit being usually positively correlated in the externalenvironment (Alhakami and Slovic, 1994). The mainreason is that rather than investors evaluating the prosand cons of an investment analytically, the judgment ismainly driven by how people feel about the particularactivity or whether they like it or not. If they like aninvestment, then they tend to believe that the risk is lowand the benefit is high, and vice versa (Finucane, Petersand Slovic, 2003).Challenges in making investment decisionsInformation asymmetrySeveral factors, that are specific to the Sub Sahara Africacontext, are at the root of this information asymmetrybetween small scale investors and bankers. The first isthat most small scale investors evolve in the informalsector and are therefore not in a position to give banksthe minimum information they generally require, that is,contact details, legal documents, and financialstatements. In addition, for small scale investors evolvingin the formal sector, the absence of accounting, as wellas the lack of independent, competent and credibleaccounting firms, have an impact on the quality offinancial information transmitted to banks (Byrne, 2005).Small scale investors do not have audited financialstatements to yield credible information on a regularbasis. They also do not have publicly traded equity ordebt, yielding no market prices or public ratings thatmight suggest their quality (Corter and Chen, 2006). Thesmall scale investors also suffer from a lack of financialsophistication, as they are usually product or servicespecialists. Thus the information asymmetry problem isone inherent in the spheres of communication andcredibility (Merton, 2003). Finally; there are usually notools that would allow banks to learn about the paymentbehaviours of their new clients.This strong information asymmetry, which cannot beoffset by satisfactorily securing loans, has two significantimplications. First, it increases transaction costs (risk

Mungai et al., 902assessment and supervision) which, given the low levelof committed amounts of loans, leads to a problem ofeconomies of scale. Second, it leads to inaccurate riskassessments with risks often being overestimated bybanks. This overestimation of risk, coupled with highoperating costs on small scale investors‟ loans, promptsbanks to avoid these counterparties or offer rates whichare too high. It is therefore necessary to reduceinformation asymmetries between financial intermediariesand small scale investors in order to give the latter betteraccess to financing. One solution would be to promotethe development of smaller commercial banks or ruralbanks, ideally with local capital. This reduces theeconomic, geographical and cultural distances betweenbanks and small and medium enterprises (Bryne, 2005).Corter and Chen (2006) note that lenders may bereluctant to fund small scale investors with new andinnovative products because of the difficulty associated inevaluating new products. They observe that thesedifficulties are classic information problems. They areunable to obtain sufficient information about the partiesinvolved in the transaction. Small firms also lack or havelittle credit history, hence the information asymmetry(Barber and Odean, 2001).FinanceFinance has been shown to impact decision-making in arange of financial situations, including participation in thestock market and pension plans (Lusardiand and Mitchell,2006). Accordingly, the level of financial ability of aninvestor has a direct effect on their investment choicedecisions (Koke, 2004). Prior research suggests thatdeficiencies in finances are among the causes of inertiaand suboptimal financial decision-making. These studiesare generally based on subjective measures that assessindividuals‟ attitudes and behaviors in relation to generalfinancial matters. In ongoing scenario, family capital isthe most common way of financing investments inemerging/developing economy.A major adverse feature of the environment recognizedby many studies is the poor supply of external finance fornew investment ventures (Huberman, 2005). Althoughthe owners may raise most or all of the initial capital fromown sources, these are generally limited and the growthorientedinvestment ventures wishing to expand wouldneed external sources of finance such as banks andventure capital. External finance is usually not availableto most small firms for a variety of reasons. The commonview among economists is that the market for loans isimperfect and restricted in scope, even in developedeconomies, and that it fails to address the financingneeds of small investment ventures (Crosnan andOneezy, 2004). Furthermore, small investment venturesare also likely to be subject to credit rationing because ofthe information asymmetry in the capital markets (Bryne,2005). Therefore, banks are more likely to meet the creditneeds of larger firms whose ability to provide track recordand collateral is greater than smaller firms, thus offsettingthe information asymmetry effect. Small firms are lessable to provide the required collateral, and less likely toaccess finance.LiteracyFinancial literacy has wide-reaching implications forhousehold savings and investment behavior. Accordingto households lacking basic financial knowledge, savingbehaviors are dominated by basic rules of thumb.Bernheim and Garett (2003) affirm that individuals whoare exposed to financial education in high school or in theworkplace save more than individuals who are notexposed to such education. In the same regard, Lusardiand Mitchell (2007) indicate that individuals who displaylow financial literacy are less likely to plan for retirementand as a result accumulate much less wealth. Anexploratory study in the United Kingdom suggested thatfinancial capability could be conceived as encompassingfour different domains of „managing money‟, „planningahead‟, „choosing products‟ and „staying informed(Bernheim and Garett, 2003).Education systems often fail to prepare young peopleadequately to participate in decision-making. They do notdevelop the necessary analytical skills for critical thinkingor problem solving through participatory, active learning.In some cases young people are given the opportunity toparticipate in decision making without ensuring that theyreceive adequate training or access to the appropriateinformation that would enable them to make informeddecisions.Market InformationAccording to Allen and Faulhaber (2003), the mostimportant market imperfection is the lack of marketinformation. Producers are often unsure about the size ofthe local markets, the presence of other producers andthe availability of inputs both domestic and imported. Theowners are presumed to be change focused and theirhigher propensity to seek new opportunities, they mustthen be aware of the existence of the opportunities(Smith and Watts, 2010). As with any other businesses,investors operate to make a positive return on theirinvestment. Smith and Watts continue to argue that thiscan only be possible if there is a fair market for theiroutputs. For Most investors in Africa traders are thesources of market information. Most investors in Africahave been left untouched by globalization process asthey have remained isolated due to the rudimentary stageof other market supporting institutions hindering accessto markets and information (Mayer, 2009). According toChristensen and Raynor (2003) market information,especially about investments, is difficult for many smallinvestors to obtain. They argue that knowledge ofinternational markets requires both resources andmanagement capacity, both of which may be lacking in

Mungai et al., 906Educating the youth on investment opportunitiesInvestment education is increasingly important, and notjust for investors. It is becoming essential for the averagefamily trying to decide how to balance its budget, buy ahome, fund the children‟s education and ensure anincome when the parents retire. For one thing, thegrowing sophistication of financial markets meansconsumers are not just choosing between interest rateson two different bank loans or savings plans, but arerather being offered a variety of complex financialinstruments for borrowing and saving, with a large rangeof options. At the same time, the responsibility and riskfor financial decisions that will have a major impact on anindividual‟s future life, notably pensions are being shiftedincreasingly to workers and away from government andemployers. As life expectancy is increasing, the pensionquestion is particularly important as individuals will beenjoying longer periods of retirement. Individuals will notbe able to choose the right savings or investments forthemselves, and may be at risk of fraud, if they are notfinancially literate. But if individuals do become financiallyeducated, they will be more likely to save and tochallenge financial service providers to develop productsthat truly respond to their needs, and that should havepositive effects on both investment levels and economicgrowth.Human capital is a crucial factor that determinesproductivity of a country and is a key engine of economicgrowth. For employers it is an important factor thatinfluences the competitive position on the product market.For employees human capital investment improves theirposition on the labour market and is an importantdeterminant of individuals‟ earning capacity andemployability. Education is also associated with otherpersonnel and social welfare benefits, including greaterhappiness, better health and greater longevity. Humancapital formation concerns initial education andmaintenance, company training. Underinvestment ingeneral and firm-specific human capital is a reality (Bayeret al., 2006)Employment opportunities for the youthAccording to the Mobius (2004), 160 million people in theworld today are unemployed, and many more subsist onthe margins of the economy or have jobs that do notprovide them with adequate means to ensure theirsurvival. Nearly 40 per cent of those without work areyoung people, and levels of unemployment tend to betwo to three times higher for this group than for the adultpopulation. For those young people who are employed,many find themselves in low-paying temporary jobs withfew protections. With the world population projected togrow by 110 million during this decade and withtechnological advances leading to further“rationalizations” of labour demand, some 500 millionnew jobs have to be created within the next 10 yearsmerely to maintain the status quo. Current trends in jobcreation offer little hope that growth on this scale can beachieved. The situation is particularly grave for youngpeople, as demographic trends suggest a hugeimbalance between the supply of young workers and thedemand for their labour (Mobius, 2004).Vibrant, creative, and energetic – these wordsessentially sum up today‟s youth. Ironically, the samequalities in youth, if thwarted, lead to social unrest,conflict, and economic instability Mobius (2004). Youngpeople when productively employed are an asset to theircommunities and to the world. It is imperative thatstructures be generated to ensure sustainableemployment and sustainable environments for youngpeople. But the reality is that there are a billion youngadults – between the ages of 15 and 24 – in the worldtoday, eighty-five percent of them live in developingcountries where there are few opportunities for productivework. The International Labor Organization indicates thatthe unemployment rate in 1997 for OECD nations foryouth ages 15 to 25 age was 13.4 percent, more thantwice as high as the comparable figure for adults (5.9percent). In developing countries, existing data suggestthat the gap between youth and adult employment ratesis far wider. This large group of young people cannot beabsorbed in urban and industrial employment, at least inthe short run. High levels of youth unemploymentcontribute to poverty, discontent, alienation, social unrest,conflict, and urban migration, all of which hindereconomic growth and threaten political stability (Mobius,2004).Young adults must have meaningful employmentopportunities in order to build stable and sustainablecommunities. Young people, when gainfully employed,represent a tremendous resource for developing andindustrialized nations; they bring energy, creativity, andimagination to many nation-building tasks, from buildinginfrastructure to preserving the environment. But until aglobal, collaborative approach is developed thatempowers youth to promote environmental sustainability,and make this an economically viable alternative, avaluable asset to help address global environmentalgoals will remain untapped.METHODOLOGYDescriptive research design was employed in this study.The study targeted a population of 5000 registeredstudents at USIU, Nairobi. Simple random samplingtechnique was used. Questionnaires were administeredon 100 students with 80 responses, representing 80%response rate. Data analysis was done using frequencytables and the use of Statistical Package for SocialSciences (SPSS) software.FINDINGS AND DISCUSSIONProducts that university students would want toinvestThe study findings on the various investment products

907 Prim. J. Bus. Admin. Manage.that the university students would like to invest inrevealed that majority of the respondents would want toinvest in shares, investment trusts, at fixed deposits aswell as foreign currencies. These findings are in line withthe study by Rajarajan (2000) when he investigated therelationship of demographic variables such as age,income, occupation, employment status and stage in lifecycle with investment behavior of an individual in thepaper titled, "Predictors of Expected Rate of Return byIndividual Investors". The findings are also in line with thesurvey by Gans, Hsu and Stern (2009), that was carriedout to estimate the number of households, the populationof individual investors, their economic and demographicprofile, portfolio size, and investment preference forequity as well as other savings instruments. The studyfound out that the investors' choice of investmentinstruments matched the risk perceived by them.Perceptions of the university students oninvestmentsIt was also revealed from the study that majority of therespondents regarded investment in local companiesrather than international firms or emerging companies.These findings are in line with the argument byHuberman (2001), when he stated that a familiarenvironment makes individuals to feel safer. In the sameregard, when it comes to investment decisions, mostpeople perceive the familiar investment products to besafer. It is assumed that the individuals maximize theirexpected utility. This means, therefore, that the riskaverseinvestors should favour diversification. In realsense, there are many instances where people do notfollow this strategy. Instead, investors focus theirportfolios on the assets which they feel they are familiaror feel comfortable with for example domestic assets,employer‟s stocks.Respondents rated as selling winners and holding ontolosers neutral, therefore neither important norunimportant. Similarly, the results showed that therespondents view the need to believe that an investmentyou make is right. According to Diacon and Ennew (2001)the perception on risk of personal financial service can becharacterized by five dimensions, namely, distrust, theseriousness of averse consequence, volatility,knowledge/observability, and failure of regulation. Allthese studies focused on professional groups or at leastactive investors. Further According to Cortor and Chen(2006) if investors have more experience of investing,their level of risk tolerance will be high and lessexperience investors will possess low risk tolerance level.This is because investors constitute their investmentportfolio with regards to their risk tolerance level. Thismeans that high risk tolerant investors will constitute aportfolio of relatively high risk and low risk tolerantinvestors will constitute low risk securities portfolio(Cortor and Chen, 2006).In the same regard, respondents believed that theinvestment possesses emotions. Studies show thatinstead of being rational Bayesians, people rely onheuristics and are subject to certain biases. This isbecause it is too complicated to collect and process allrelevant information, in this regard; affection andemotions are often served as cues to judge the risk. Onebest example is that the perceived risk and benefit ofinvestments seem to be negatively correlated in theminds of the people, despite the objective risk and benefitbeing usually positively correlated in the externalenvironment (Alhakami and Slovic, 1994). FurtherFinucane, Peters and Slovic, (2003) argue that thepersonal emotions and feelings play an essential role ininvestment decisions, which usually assume correct andhomogeneous probability beliefs among all investors. Themain reason is that rather than investors evaluating thepros and cons of an investment analytically, the judgmentis mainly driven by how people feel about the particularactivity or whether they like it or not. If they like aninvestment, then they tend to believe that the risk is lowand the benefit is high, and vice versa.Challenges faced by university students in makinginvestmentsThe findings on the challenges that affect the universitystudents revealed that, finance to a larger extent, acts asa challenge to the university students in their investmentdecision making. Financial has been shown to impactdecision-making in a range of financial situations,including participation in the stock market and pensionplans (Lusardi et al., 2006). Accordingly, the level offinancial ability of an investor has a direct effect on theirinvestment choice decisions (Smith and Watts, 2005).This finding aligns with prior research which suggeststhat deficiencies in finances are one of the causes ofinertia and suboptimal financial decision-making. Thesestudies are generally based on subjective measures thatassess individuals‟ attitudes and behaviors in relation togeneral financial matters (Hwang and Kim, 2009).Financial literacy as well as market access to a very largeextent acted as a challenge to the university students inmaking investment decisions. This finding is similar to afinancial literacy study of Dutch households, by vanKlock, Mansi and Maxwell (2005) who designed twomodules of questions to measure basic financial literacyand more advanced financial knowledge. The basicfinancial literacy measures responses relating to theworking of inflation and interest rates, and moreadvanced financial knowledge questions assessrespondents‟ understanding of financial marketinstruments.Lack of effective market information was also rated ashaving acting as a challenge to investment decisions bythe university students. According to Akamirokhor (2003),the most important market imperfection is the lack ofmarket information. Producers are often unsure about thesize of the local markets, the presence of other producers

Mungai et al., 908and the availability of inputs both domestic and imported.The owners are presumed to be change focused andtheir higher propensity to seek new opportunities, theymust then be aware of the existence of the opportunities(Chuhan, 2004). As with any other businesses, investorsoperate to make a positive return on their investment.This can only be possible in a situation where there is afair market for their outputs.Finally the aspect of Government support also emergedas being a challenge to the university students in makinginvestment decisions. This finding complements thatfinding by Thiemeyer (2003), when he established thatinvestment decisions are strongly influenced byoverarching socio-economic policy goals, such as anticyclicalstabilization of employment or support forregional economic development. According to him suchobjectives are translated into corporate goals withmechanisms that are less transparent than externalregulation. It is clear that the ownership rights give thegovernment limited ability to shape managementdecisions in ways compatible with broader societalobjectives.Measures that can be taken to enhance Universitystudents Investment PracticesThe findings on the measures that can be taken toenhance university student‟s investment practicesrevealed that indeed the respondents regarded thefollowing as the most suitable measures: educating theuniversity students on investment opportunities, creatingemployment opportunities for the university students,government support and equal access to resources. Inthis case, as financial markets become more liquid andcomplete, changes in official interest rates are morereadily transmitted to the whole term structure and moregenerally to financial asset prices. This in turn affects thewhole economy through the cost of investment financingand return on saving. In addition, the increasing weight offinancial and non-financial assets in firms andhouseholds‟ balance sheets implies that the effects ofmonetary policy through changes in asset prices andrelated wealth effects are likely becoming larger whileweakening the bank lending channel (Dash, 2010).These findings also agree with Hamid and Abaidullah(2006) when he stated that individual investors do nothave huge assets or the personal references asguarantee to get the loans; this is the major issue. Since,there will be adequate capital with individual investorsthey will hire the service of expert management. Becauseof keen interest now taken by regulators, this sector iscertainly going to improve and increase its contribution inthe economic development of the region.CONCLUSIONSThe following are the major conclusions from this study:- Products that university students would want to invest: Ithas been established that there are various investmentproducts that university students can invest in. Based onthese findings, the study concludes that majority of theinvesting respondents were found to be in the age groupof 23 to 30 years. It can also be concluded that majorityof the university students would want to invest in shares,investment trusts, as well as in foreign currencies.- Perceptions of the university students on investments:Regarding, the pereptions of the yotuh on investments, itcan be concluded that majority of the university studentsprefer investment in local companies rather thaninternational firms or emerging companies. Similarly, itcan be concluded that the university students need tobelieve that an investment they make is right. In the sameregard, the majority of the university students believe thatthe investment possesses emotions.- Challenges faced by the university students in makinginvestments: Based on the study findings, it can beconcluded that the following are the challenges that affectthe university students to a greater extent; finance,understanding financial matters, market access,government support, lack of effective communicationfrom the society and corruption.- Measures that can be taken to enhance universitystudents investment practices: The study concludes thatthe measures that can be taken to enhance universitystudent‟s investment practices includes; educating theuniversity students on investment opportunities, creatingemployment opportunities for the university students,government support and equal access to resources.RecommendationsIn the wake of the increasing number of investmentproducts available to the university students, thosebelonging to the age group of less than 30 years werefound to be less aware of different investment schemes.Investment companies cannot afford to continue ignoringthe increasing number of university students in theKenyan society and hence measures to increase theawareness of these junior citizens about differentinvestment schemes need to be designed andimplemented. There are varied perceptions by theuniversity students on investment products. This to someextent affects their investment decisions. As such it isimportant for the various stakeholders especiallyinvestment companies to conduct educational andorientation programmes in collaboration with leadingorganizations such as Universities, Institutes and StockExchanges, on various aspects of investments so that theinvestors are able to enhance their knowledge for makingprudent investment decisions.It is without doubt that the university students in Kenyaand the whole world in general face a number ofchallneges as far as their investment decisions areconcerned. As such, the study recommends that furtherstudies may be undertaken to unfold various otheraspects like Performance and Challenges of investments.Such studies will provide guidance to the Investors on thechanges and challenges faced by university students.

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