Is More Financial Literacy Always Beneficial? An Investigation through a Mediator

Biwei Chen, Christos Giannikos and Jun Lou ()
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Biwei Chen: Economics Department, Colby College, Waterville, ME 04901, USA
Jun Lou: Maine Business School, University of Maine, Orono, ME 04469, USA

JRFM, 2023, vol. 16, issue 1, 1-10

Abstract: We study the impact of financial literacy on financial risk preference. When financial literacy is measured jointly by actual and self-assessed scores, we find compelling evidence of a valley-shaped relationship between actual financial literacy and risk preference. At a given level of self-assessment, as actual financial literacy increases, the willingness to take risks initially decreases and then rises. Actual financial literacy is modeled to impact risk preference through self-assessed financial literacy, the mediator; this mediation effect is significant. Furthermore, increasing actual financial literacy has a positive (negative) effect in underconfident (overconfident) individuals on several financial behaviors.

Keywords: financial literacy; perception bias; risk preference; mediation effect (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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