What Keep Least Knowledgeable Investors from Seeking for Help?

45 Pages Posted: 20 Dec 2023

See all articles by Chong Huang

Chong Huang

University of California, Irvine - Paul Merage School of Business

Ning Tang

San Diego State University - Finance Department; TIAA Institute

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

Huang, Chong and Tang, Ning, What Keep Least Knowledgeable Investors from Seeking for Help? (December 11, 2023). Available at SSRN: https://ssrn.com/abstract=4661161 or http://dx.doi.org/10.2139/ssrn.4661161

Chong Huang (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

Ning Tang

San Diego State University - Finance Department ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States

TIAA Institute ( email )

8500 Andrew Carnegie Blvd
E3/S8
Charlotte, NC 28262
United States

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