Financial Literacy, Households' Investment Behavior, and Risk Propensity

Abstract

We investigate the role of socio-demographic characteristics of households on their level of self-declared financial literacy and investment experience, and the effect of financial literacy on household risk aversion, leveraging on about 38,000 MiFID questionnaires provided to us by an Italian primary bank. We find that the level of financial literacy is lower for the young and the old, women, less wealthy and financial fragile, less educated individuals living in the Southern part of Italy, and in less densely populated areas. Past professional expertise in a finance-related field helps increasing the level of financial literacy. Risk aversion of households is significantly affected by financial literacy, as the less financially knowledgeable tend to be more risk averse.

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