Is Financial Literacy Associated with Investment in Financial Markets in the United States?

Mostafa Saidur Rahim Khan, Naheed Rabbani and Yoshihiko Kadoya
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Mostafa Saidur Rahim Khan: School of Economics, Hiroshima University, 1-2-1 Kagamiyama, Higashi Hiroshima, Hiroshima 739-8525, Japan
Naheed Rabbani: Department of Banking and Insurance, University of Dhaka, Dhaka 1000, Bangladesh

Sustainability, 2020, vol. 12, issue 18, 1-14

Abstract: Lack of investment in financial markets is one of the enduring puzzles in empirical finance. Although recent studies ascribe the lack of investment in stocks to financial literacy, the association between financial literacy and investment in financial markets remains inconclusive. We examine whether financial literacy is associated with investment in financial markets in the United States. We use investment in stocks, futures/options, investment trusts, corporate bonds, foreign currency deposits, and government bonds of foreign currency as a proxy for investment in financial markets. Using data from the Preference Parameter Study, a nationwide panel survey conducted by Osaka University of Japan, we provide evidence that financial literacy has a significantly positive association with investment in financial markets even after controlling for demographic, socioeconomic, and psychological factors. We check the robustness of our results by using an alternative proxy for investment in financial markets. Our study has far-reaching policy implications and we conclude by suggesting the introduction of financial literacy programs into the academic curriculum. Improving financial literacy could positively impact the mobilization of household funds and contribute to capital formation.

Keywords: financial literacy; household investment; risky securities; financial markets; United States (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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