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

Author

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  • Biwei Chen

    (Economics Department, Colby College, Waterville, ME 04901, USA)

  • Christos I. Giannikos

    (Baruch College and Graduate Center, City University of New York, New York, NY 10017, USA)

  • Jun Lou

    (Maine Business School, University of Maine, Orono, ME 04469, USA)

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.

Suggested Citation

  • Biwei Chen & Christos I. Giannikos & Jun Lou, 2023. "Is More Financial Literacy Always Beneficial? An Investigation through a Mediator," JRFM, MDPI, vol. 16(1), pages 1-10, January.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:1:p:53-:d:1037203
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    References listed on IDEAS

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    5. Cupák, Andrej & Fessler, Pirmin & Schneebaum, Alyssa & Silgoner, Maria, 2018. "Decomposing gender gaps in financial literacy: New international evidence," Economics Letters, Elsevier, vol. 168(C), pages 102-106.
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    Cited by:

    1. Xie, Qian & Ke, Haie & Peng, Juan, 2024. "Impacts of Financial Literacy on Elderly Households’ Consumption," Finance Research Letters, Elsevier, vol. 62(PA).

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