Is Financial Literacy Dangerous? Financial Literacy, Behavioral Factors, and Financial Choices of Households

Using purpose-built original 2018 Japanese survey data, we estimate the financial behaviors and attitudes of households. We find that financial literacy plays an important and consistent role in financial decision-making. However, the actual behaviors are counter-intuitive: People with high financial literacy tend to take too many risks, overborrow, and hold naive financial attitudes; that is, financial literacy makes people daring and reckless in some financial aspects. By contrast, financially literate people are good at retirement planning and are indifferent to gambling. Preferences such as risk and loss aversions and discount factors, also have a role in financial choices.

Keywords: behavioral factor, consumer protection, financial education, financial literacy, household financial behavior, overconfidence

JEL Classification: C83, D14, G41

Suggested Citation: Suggested Citation

Kawamura, Tetsuya and Mori, Tomoharu and Motonishi, Taizo and Ogawa, Kazuhito, Is Financial Literacy Dangerous? Financial Literacy, Behavioral Factors, and Financial Choices of Households (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=3621890 or http://dx.doi.org/10.2139/ssrn.3621890