Financial literacy as a determinant of market participation: New evidence from China using IV-GMM

Financial literacy–a regulator of intended investment behaviour: analysing the hypothetical portfolio composition

“…Lower levels of financial literacy were associated with choosing portfolios with low-risk traditional assets. High levels of financial literacy translated into an increased probability of including more sophisticated avenues in the portfolio displaying that the results are consistent with few studies (Sood and Medury, 2012;Aren and Zengin, 2016;Cup ak et al, 2022;Chen et al, 2023). Yet the overall association of financial literacy was negative indicating that when individuals are financially literate, they prefer balanced portfolios rather than risky portfolios with lesser diversification.…”

“…Financial education aims to evaluate risky decisions that make way for wealth-generating activities. When investors are made to understand the impact of their today's investment or allocation of savings on the distribution of their future wealth, the investors are more likely to create well-balanced diversified portfolios that are neither too risky nor too traditional (Bollen and Posavac, 2018;Chen et al, 2023). Thus, to say that financial literacy is not only necessary for avoiding excessive risk-taking concerning financial investment but also for procuring required finances (Mihal cov a et al, 2014).…”

“…Financial literacy takes its roots in financial education (Lusardi, 2019;Le Fur and Outreville, 2022). Past studies have found financial literacy to be a significant predictor of investment and portfolio diversification decisions (Guiso and Jappelli, 2009;Al-Tamimi and Kalli, 2009;Kimball and Shumway, 2010;Sood and Medury, 2012;Aren and Zengin, 2016;Gerhard et al, 2018;Nag and Shah, 2022;Cup ak et al, 2022;Chen et al, 2023). When an individual's financial literacy increases, the risk propensity also increases, leading to an increase in the expectation of returns (Aren and Aydemir, 2015).…”

“…Understanding the financial products offered to an individual investor depends on their financial literacy level. The role of financial literacy as a regulator of improved investment behaviour has been established in research works in the past (Abreu and Mendes, 2010;Loke, 2015;Agarwalla et al, 2015;Grohmann, 2018;Cup ak et al, 2022;Lahiri and Biswas, 2022;Chen et al, 2023). There is a growing body of research focussing on the relationship between financial education and improved financial behaviour in actual and hypothetical situations (Hilgert et al, 2003;Cole et al, 2009;Carlin and Robinson, 2012;Hibbert et al, 2013;Adil et al, 2022).…”

Revalidating Fernandes et al.’s 2014 financial literacy scale in response to ongoing legislative and behavioral changes

“…Klein (2022) has argued that this is likely to translate to autodidactism, with new investors increasing their financial literacy through self-education. Looking at historical data from extensive household surveys, van Rooij et al (2011) and Chen et al (2023) showed how stock market participation is positively correlated with financial literacy in the Netherlands and China, respectively, although the causal direction cannot be inferred from their data. As a result, we would expect to see an increase in financial literacy scores over time, and a reduction in perceived difficulty, in particular for measures such as Fernandes et al (2014)'s which are more heavily weighed towards investment questions.…”