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Navigating risk: Impact of overconfidence in financial literacy on retirement wealth reserves

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  • Hu, Zihao
  • Zhang, Dong
  • Xiong, Xueping

Abstract

This study examined the impact of overconfidence in financial literacy on risky asset investments within retirement wealth reserves. We used data of 36,268 respondents of the “China Aging Finance Survey” (2020–2022). The findings reveal that overconfidence significantly drives households toward riskier investments, and the conclusions were reinforced through robustness checks. Furthermore, the effect was moderated by pension replacement rate satisfaction, willingness to pay for financial advice, and risk preferences. Heterogeneity analysis indicates that male respondents and less educated respondents were significantly affected by overconfidence. Moreover, respondents with basic pension insurance were likelier to opt for risky assets.

Suggested Citation

  • Hu, Zihao & Zhang, Dong & Xiong, Xueping, 2024. "Navigating risk: Impact of overconfidence in financial literacy on retirement wealth reserves," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011255
    DOI: 10.1016/j.frl.2024.106095
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    More about this item

    Keywords

    Financial literacy; Retirement wealth reserves; Overconfidence; Aging Finance; Risk Management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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