Confidence, Financial Literacy and Investment in Risky Assets: Evidence from the Survey of Consumer Finances

43 Pages Posted: 14 May 2020

See all articles by Andrej Cupák

Andrej Cupák

National Bank of Slovakia

Pirmin Fessler

Oesterreichische Nationalbank (OeNB)

Joanne W. Hsu

Board of Governors of the Federal Reserve System; Howard University - Department of Economics

Piotr R. Paradowski

Gdańsk University of Technology

Date Written: January 16, 2020

Abstract

We employ recent Survey of Consumer Finances (SCF) microdata from the US to analyze the impacts of confidence in one’s own financial knowledge, confidence in the economy, and objective financial literacy on investment in risky financial assets (equity and bonds) on both the extensive and intensive margins. Controlling for a rich set of covariates including risk aversion, we find that objective financial literacy is positively related to investment in risky assets as well as debt securities. Moreover, confidence in own financial skills additionally increases the probability of holding risky assets and bonds. While these relationships are rather robust for the extensive margin, they break down with regard to the conditional share of financial wealth in risky assets of those who actually hold them. The relevance of financial literacy as well as confidence varies considerably with the distribution of wealth as well as across several socio-economic dimensions such as age, education and race.

Keywords: Financial literacy; Confidence; Risky assets; Household finance; Survey data; Portfolio allocation

JEL Classification: D12; D14; D31; D91; G11; I20

Suggested Citation

Cupák, Andrej and Fessler, Pirmin and Hsu, Joanne W. and Paradowski, Piotr R., Confidence, Financial Literacy and Investment in Risky Assets: Evidence from the Survey of Consumer Finances (January 16, 2020). FEDS Working Paper No. 2020-004 https://doi.org/10.17016/FEDS.2020.004, Available at SSRN: https://ssrn.com/abstract=3600390

Andrej Cupák (Contact Author)

National Bank of Slovakia ( email )

Imricha Karvasa 1
813 25 Bratislava
Slovakia

Pirmin Fessler

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Joanne W. Hsu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Howard University - Department of Economics ( email )

Washington, DC 20059
United States

Piotr R. Paradowski

Gdańsk University of Technology ( email )

Poland

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