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Investment in financial literacy and financial advice-seeking: Substitutes or complements?

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  • Barthel, Anne-Christine
  • Lei, Shan

Abstract

This paper studies the strategic relationship between investment in financial literacy and seeking advice from a financial planner. While the existing literature on this topic considers financial literacy as exogenously given, we propose a simple model in which it is endogenously determined through the consumer's investment in financial literacy. Our theoretical model suggests that in this case, investment in financial literacy and financial advice-seeking are substitutes. We test this hypothesis using data from the 2016 Survey of Consumer Finances. When using the propensity score matching method to control for self-selection bias, we find a significant negative relationship between the probability of seeking advice from a financial planner and investment in financial literacy. While these findings cannot be easily explained by existing models, this paper shows that endogenizing financial literacy reconciles the results.

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  • Barthel, Anne-Christine & Lei, Shan, 2021. "Investment in financial literacy and financial advice-seeking: Substitutes or complements?," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 385-396.
    • Handle: RePEc:eee:quaeco:v:81:y:2021:i:c:p:385-396
    DOI: 10.1016/j.qref.2021.06.020
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    More about this item

    Keywords

    Financial literacy; Financial planning; Household finance; Consumer choice;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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