Developing and Validating an Islamic Financial Literacy Index: A Shariah-Based Assessment of Malaysian Generation Y

Mohamad Yazid Isa; Rosemaliza  Ab Rashid; Zairani  Zainol; Zaki  Ahmad; Hasniza Mohd  Taib

doi:10.48161/qaj.v6n3a2074

Authors

Mohamad Yazid Isa Islamic Business School, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia; https://orcid.org/0000-0002-9514-5231
Rosemaliza Ab Rashid Islamic Business School, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia; https://orcid.org/0009-0000-1343-7963
Zairani Zainol Islamic Business School, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia; https://orcid.org/0000-0002-0430-3530
Zaki Ahmad Islamic Business School, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia; https://orcid.org/0000-0003-1346-5379
Hasniza Mohd Taib School of Economics, Finance and Banking, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia. https://orcid.org/0000-0002-1440-4845

DOI:

https://doi.org/10.48161/qaj.v6n3a2074

Keywords:

Islamic financial literacy, Financial literacy index, Shariah-compliant finance, Financial education, Financial behavior, Maqasid al-shariah.

Abstract

The global emphasis on financial literacy has led to the development of numerous institutional frameworks; however, most existing measures are grounded in conventional financial paradigms and do not adequately reflect the Shariah principles underpinning Islamic finance. Addressing this gap, the present study develops an Islamic Financial Literacy (IFL) framework and index tailored to the Malaysian Y generation. Specifically, the study aims to: (1) identify the conceptual basis of IFL from the Qur’an and Hadith, (2) develop and validate an IFL construct, (3) examine the determinants of IFL, and (4) construct an index to assess the level of IFL. A mixed-methods triangulation design was employed, combining qualitative interviews with Shariah scholars and industry experts and a quantitative survey of 800 respondents from Malaysian public universities. The qualitative phase used thematic analysis to derive the core IFL dimensions, namely moderation in spending, priority-based spending, compulsory and voluntary spending, saving and investment, and prudent debt usage. In the quantitative phase, the construct was validated using exploratory factor analysis, supported by Kaiser–Meyer–Olkin and Bartlett’s tests, factor loadings, eigenvalues, and reliability assessment. Ten of the eleven items were retained as a valid and reliable single-factor measure. The IFL index was then constructed from 20 knowledge-based items derived from the validated themes and scored based on the proportion of correct responses. Correlation and multiple regression analyses showed that Underlying Principles and Financial Education Exposure significantly predicted IFL, while Social Influence was not a significant predictor in the regression model. The index results revealed a moderate level of IFL, with an average correct response rate of 60%. Higher IFL scores were associated with higher income, academic occupation, and a greater number of dependents. The findings contribute a Shariah-grounded and empirically validated measure of financial literacy that may support policy, education, and future Islamic finance research.

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