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Is Financial Literacy Dangerous? Financial Literacy, Behavioral Factors, and Financial Choices of Households

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  • Kawamura, Tetsuya
  • Mori, Tomoharu
  • Motonishi, Taizo
  • Ogawa, Kazuhito

Abstract

Using original purpose-built 2018 Japanese survey data, we estimate the financial behaviors and attitudes of households. We find that financial literacy plays an important and consistent role in financial decision-making. However, the actual behaviors are counter-intuitive: people with high levels of financial literacy tend to take too many risks, overborrow, and hold naive financial attitudes. That is, financial literacy tends to cause people to become daring and reckless toward some financial aspects. By contrast, financially literate people are better at retirement planning and are indifferent to gambling. Preferences such as risk and loss aversions and discount factors, also play a role in financial choices.

Suggested Citation

  • Kawamura, Tetsuya & Mori, Tomoharu & Motonishi, Taizo & Ogawa, Kazuhito, 2021. "Is Financial Literacy Dangerous? Financial Literacy, Behavioral Factors, and Financial Choices of Households," Journal of the Japanese and International Economies, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:jjieco:v:60:y:2021:i:c:s0889158321000101
    DOI: 10.1016/j.jjie.2021.101131
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    More about this item

    Keywords

    behavioral factor; consumer protection; financial education; financial literacy; household financial behavior; overconfidence;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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