What Keep Least Knowledgeable Investors from Seeking for Help?
45 Pages Posted: 20 Dec 2023
Date Written: December 11, 2023
Abstract
Financial advice is one remedy for personal financial management inefficiency resulting from financial illiteracy. Empirically, however, least knowledgeable investors acquire inadequate financial advice. We propose a model for this phenomenon where lower financial literacy leads to lower endowed information quality, lower trust in financial advisers, and higher level of overconfidence. The first effect increases marginal value of financial advice, while the latter two diminish it. Hence, financial advice acquisition and financial literacy have a hump-shaped relation, showing that mistrust and overconfidence contribute to inadequate financial advice acquisition by least knowledgeable investors. We provide supporting empirical evidence and discuss policy implications.
Keywords: financial literacy, financial advice, trust, overconfidence, information acquisition
JEL Classification: D14, D81, G11, G53
Suggested Citation: Suggested Citation