📈 economics

Does Locus of Control Shape Sustainable Investment Decisions? Generational and Socioeconomic Differences Among Indian Retail Investors

This study of 600 Indian retail investors reveals that an internal locus of control positively influences sustainable investment behavior, with Millennials and upper-middle socioeconomic groups demonstrating the highest engagement in ESG activities.

Original authors: Vivek Verma, Praveen Singh, Amar Johri

Published 2026-06-24

📖 5 min read🧠 Deep dive

CC BY 4.0

Original authors: Vivek Verma, Praveen Singh, Amar Johri

Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). ✨ This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer

Imagine the world of investing as a giant, bustling marketplace. For a long time, people just looked at the price tags on goods (stocks and bonds) to decide what to buy. But recently, a new section of the market has opened up: the "Sustainable" aisle. Here, people buy goods that are good for the planet and society (like companies that don't pollute or treat workers well). This is called ESG investing.

This paper asks a simple question: Who is buying from this new aisle, and why?

The researchers, Vivek Verma, Praveen Singh, and Amar Johri, decided to look at this through three specific lenses:

The "Control" Dial (Locus of Control): Do you think you are the captain of your ship, or do you think the wind and waves decide where you go?
The "Age" Groups: Are you a Baby Boomer (older), a Millennial (middle-aged), or Gen Z (young)?
The "Wallet" Size (Socioeconomic Status): How much money and education do you have?

Here is what they found, explained with some everyday analogies.

1. The "Control" Dial: The Captain vs. The Passenger

The study looked at something psychologists call Locus of Control.

Internal Locus: You are the Captain. You believe, "If I steer hard and check the maps, I can reach my destination."
External Locus: You are the Passenger. You believe, "The wind, the captain, or luck decides where we go; I just sit back."

The Finding: The study found a strong link between being a "Captain" and buying sustainable goods. If you believe you have the power to change your financial future, you are much more likely to buy ESG stocks. It's like saying, "If I believe my vote matters, I'm more likely to go to the polls." The researchers found that people who feel in control are more willing to take the time to research and invest in companies that do good.

2. The Age Groups: The Three Generations

The researchers surveyed 600 people, splitting them evenly into three age groups: Gen Z, Millennials, and Baby Boomers.

The Millennials (The Most Active): Think of Millennials as the enthusiastic tour guides. They were the group most actively buying sustainable investments. They are old enough to have some money, but young enough to care deeply about the climate and social justice. They are the "sweet spot" of engagement.
Gen Z (The Hopeful Beginners): Gen Z is like the new recruits. They care a lot about the planet and believe they can make a difference (high "Captain" energy), but they often don't have much money yet. They are eager to buy, but their wallets are often empty.
Baby Boomers (The Cautious Veterans): Boomers are like the veteran sailors who have seen many storms. They are very focused on keeping their money safe and not losing it. They tend to be more skeptical of new "green" trends and prefer sticking to traditional, safe investments. They are less likely to be the "Captains" of sustainable investing compared to the younger groups.

The Surprise: While Gen Z cares the most, Millennials are actually the ones doing the most investing right now.

3. The Wallet Size: The Middle Class Wins

The study looked at income levels, from "Low" to "High."

The "Upper-Middle" Class: Imagine a family with a comfortable income—enough to pay bills, save a little, and have some extra for fun. This group was the most active in buying sustainable investments. They have just enough money to take a risk on these new types of stocks, but not so much money that they feel they don't need to care about the "good" stuff.
The Low Income: People with very little money are like people running on a tight budget. They need to spend every rupee on food and rent. They can't afford to think about "sustainable" stocks because they are focused on survival.
The High Income: Surprisingly, the super-rich (High SES) weren't the most active group. They were active, but not as much as the Upper-Middle class. It seems that once you have a massive amount of wealth, the "moral" drive to invest sustainably might dip slightly, or perhaps they are just more cautious about changing their established portfolios.

The Big Picture: How It All Fits Together

The researchers used a 76-question survey to talk to 600 Indian investors. They found that:

Belief drives Action: If you believe you are the "Captain" of your life (Internal Locus of Control), you are more likely to invest in green companies.
Money matters, but so does attitude: You need some money to invest, but having the right attitude (believing you can make a difference) is what pushes you to choose the sustainable option.
The "Sweet Spot": The most likely person to buy a sustainable stock today is a Millennial with a comfortable (Upper-Middle) income who believes they can control their financial destiny.

What the Study Did NOT Say

It is important to stick to what the paper actually found:

It did not say that sustainable investing is guaranteed to make you more money.
It did not say that Baby Boomers will never invest in green stocks.
It did not suggest specific policies for the government to fix these issues (though the authors mention these ideas could be useful for policymakers, the study itself is just about observing the current behavior).

In a nutshell: This paper is a snapshot of the Indian investment market. It tells us that to get more people to invest in a better future, we need to help them feel like they have control over their lives (the "Captain" feeling) and ensure they have enough financial stability to take that first step. The Millennials are currently leading the charge, but the younger generation is watching closely, waiting for their wallets to catch up.

Technical Summary: Locus of Control and Sustainable Investment Decisions Among Indian Retail Investors

Problem Statement
The research addresses a critical gap in behavioral finance literature regarding the determinants of sustainable investing (ESG) behavior. While existing studies have examined locus of control (LOC), generational cohorts, and socioeconomic status (SES) in isolation, there is a lack of integrative research exploring how these psychological and demographic variables interact to influence sustainable investment decisions. Specifically, the study seeks to understand the relationship between an individual's belief in their ability to control life outcomes (LOC) and their engagement in sustainable investing, while accounting for generational differences (Gen Z, Millennials, Baby Boomers) and socioeconomic stratification within the Indian retail investor context. The authors note that previous research often suffers from self-report bias, measurement heterogeneity, and a failure to model these cross-level interactions collectively.

Methodology
The study employs a quantitative, cross-sectional research design utilizing a structured 76-item questionnaire.

Sample: The research surveyed 600 retail investors in India, stratified to ensure equal representation across three generational cohorts (Gen Z, Millennials, Baby Boomers, 200 each) and five socioeconomic strata (Low, Lower-Middle, Middle, Upper-Middle, High). The sample was drawn from urban and peri-urban areas to ensure access to digital investment platforms and ESG products.
Instrumentation: The survey measured Locus of Control (10 items) and Sustainable Investing Behavior (10 items), alongside demographic variables (age, income, education, occupation).
Reliability: Cronbach's Alpha analysis confirmed high internal consistency for the overall questionnaire (0.907), with specific constructs showing strong reliability: Locus of Control (0.924) and Sustainable Investing Behavior (0.868).
Analysis: Data were analyzed using SPSS 25.0. Descriptive statistics, Pearson correlation, and One-Way ANOVA were used to test four primary hypotheses regarding differences in LOC and investment behavior across generations and SES levels.

Key Results

Correlation: A strong, statistically significant positive correlation was found between Locus of Control and Sustainable Investing Behavior ( $r = 0.643, p < 0.001$ ). This indicates that investors with a higher internal LOC are significantly more likely to engage in ESG activities.
Generational Differences (H1 & H2):
- LOC: Significant differences were observed across generations ( $p = 0.036$ ). Generation Z and Baby Boomers exhibited higher mean LOC scores compared to Millennials, who had the lowest mean score.
- Investment Behavior: Significant differences were found in sustainable investing behavior ( $p = 0.020$ ). Millennials demonstrated the highest level of engagement in sustainable investing ( $M = 36.27$ ), followed by Generation Z ( $M = 34.63$ ), with Baby Boomers showing the lowest engagement ( $M = 34.50$ ).
Socioeconomic Differences (H3 & H4):
- LOC: Significant variations in LOC were found across SES levels ( $p = 0.033$ ). The Low SES group reported the highest mean LOC ( $M = 36.70$ ), while the Middle SES group reported the lowest ( $M = 33.87$ ).
- Investment Behavior: Significant differences in sustainable investing behavior were confirmed across SES groups ( $p = 0.022$ ). The Upper-Middle SES group ( $₹150,000–₹300,000$ monthly income) showed the highest engagement ( $M = 36.59$ ), followed by the Middle SES group. Surprisingly, the High SES group (above $₹300,000$ ) showed lower engagement ( $M = 34.19$ ) than the Upper-Middle group, suggesting that financial resources alone do not guarantee higher sustainable investment participation; access and specific financial literacy play crucial roles.

Key Contributions

Theoretical Integration: The study is the first to empirically integrate Locus of Control Theory, Generational Cohort Theory, and Socioeconomic Status within the framework of sustainable investing. It extends Rotter's LOC theory to ESG contexts, demonstrating that internal LOC is a psychological precursor to sustainable investment adoption.
Behavioral Finance Insight: The research validates that while psychological factors (LOC) drive the intention and agency to invest sustainably, demographic factors (Generation and SES) influence the capacity and actual behavior.
Empirical Evidence in Emerging Markets: By focusing on Indian retail investors, the study provides data from a non-Western, emerging market context, addressing the lack of geographic diversity in previous literature.

Significance and Claims
The paper claims that sustainable investing is not merely a function of financial capacity but is deeply rooted in psychological control beliefs and demographic identity.

For Policymakers: The findings suggest that financial literacy education should be tailored to specific cohorts. For instance, younger investors (Gen Z) may need support regarding financial resources, while older investors (Baby Boomers) may require reassurance regarding risk and stability.
For Financial Institutions: The study argues that ESG product design and communication must align with the psychological profiles of different generations. Millennials, being the most engaged, represent a key demographic for current ESG products, while the Upper-Middle SES group represents a high-potential market for expansion.
Inclusivity: The authors highlight that financial resources and access are more influential on sustainable investment behavior than socioeconomic position alone, as evidenced by the lower engagement of the High SES group compared to the Upper-Middle group. This implies that barriers to entry (access to fintech, education) rather than lack of wealth are critical hurdles for lower-income groups.

Limitations
The authors modestly acknowledge several constraints:

Cross-Sectional Design: The study captures a single point in time, limiting causal inferences regarding the evolution of LOC and investment behavior.
Self-Report Bias: Reliance on self-reported data may introduce social desirability bias, particularly regarding ethical investment intentions.
Sample Scope: The sample is restricted to urban and peri-urban investors with digital access, potentially excluding rural populations and limiting the generalizability of the findings to the entire Indian population.
Excluded Variables: The study did not control for other potential mediators such as financial literacy, risk tolerance, or trust in ESG products, which could further explain behavioral variances.