Investor behavior and financial literacy. Financial literacy was and remains an area of high interest among academia, politicians, financial market participants and society. Many studies have already showed that financial literacy plays a crucial role in making household decisions such as spending (e.g., Setiawan, et al., 2022; Farinella et al., 2017), retirement planning (e.g., Lusardi & Mitchel, 2017); borrowing (e.g., Almenberg, et al., 2021); insurance (e.g., Pitthan & DeWitte, 2021) and, in particular, investing (e.g., Atkinson & Messy, 2012; Lusardi & Mitchell, 2014; Aren & Zengin, 2016; Krische, 2019; Peng et al., 2022).
According to Martin-Oliver and Salas-Fumás (2010), investor behavior defines how an investor evaluates, analyzes, forecasts, and reviews decision-making procedures, including aspects such as investment psychology and investment decision-making, i.e., gathering, understanding, analyzing, and evaluating information. Research on investor behavior is centered on investing decisions and their determinants (Hunguru et al., 2020), with the financial literacy of individual investors being one of the major determinants among these determinants. For example, financial literacy is revealed as a significant determinant of stock market participation (e.g., Van Rooij et al., 2011; Almenberg & Dreber, 2015; Yamori & Ueyama, 2022). Families with a high level of financial literacy significantly increase their investment in risky financial assets (Li et al., 2020; Peng et al., 2022). Financial literacy also helps to reduce the cost of securities trading through the selection of appropriate trading strategies (Khan et al., 2021).
Recent research has tended to focus on separate domains of financial literacy, such as debt literacy (Lusardi & Tufano, 2015), insurance literacy (X. Lin et al., 2019), accounting literacy (Krische, 2019), investment literacy (Fan & Swarn, 2020) and even bitcoin literacy (Hidajat et al., 2021), and explore them separately, as each area of financial decision-making requires some area-specific knowledge, skills, and attitudes. Even though the concept of financial literacy is more widely used than investment literacy in the scientific literature, the latter more accurately evaluates specific knowledge, skills and attitudes toward investors’ decisions.
Conceptualizing investment literacy. In this paper, we concentrate on investment literacy; however, to do so, we need to refer back to some relevant aspects of financial literacy and adapt them where applicable. Our concept of investment literacy is based on financial literacy phenomena that integrate multidimensional aspects: the cognitive dimension (financial, or more specifically, investment knowledge), the practical dimension (financial/investment skills/behavior) and the psychological dimensions (financial/investment self-efficacy/attitudes) (Remund, 2010). The OECD (2013) has defined financial literacy as a blend of skill, behavior, awareness, attitude and knowledge of individuals that is required to make sound financial decisions that lead toward the achievement of financial well-being. Most researchers who apply a multidimensional approach to financial literacy choose the following three elements of this phenomenon: knowledge, behavior and attitudes (Atkinson & Messy, 2012; Potrich et al., 2016; Rai et al., 2019). The key difference between financial and investment literacy lies in their content. Investment literacy concentrates on investment and investment decision-making-related knowledge, skills and attitudes and is more focused than broad-scope general financial literacy. In the case of investment literacy, such an application would be largely limited to investment- and wealth maximization-related decisions.
An individual’s financial knowledge is the most researched constituent part of financial literacy and is often measured by a series of financial knowledge questions (Lusardi 2019, Kramer, 2016). Some researchers include not only objective but also subjective financial knowledge, which is often measured using a self-rated question to assess the perceived financial knowledge (Nguyen et al., 2017). The fact that financial skills and behavior are also very important and fundamental components of financial literacy has also been indicated by different researchers (Atkinson & Messy, 2012; OECD, 2013). Kasman et al. (2018) stressed the importance of measuring not only the level of financial knowledge but also an individual’s financial attitudes. According to Rai et al. (2019), financial attitude can be defined as personal inclination toward financial matters. We believe that while the abovementioned aspects are transferable to the measurement of investment literacy, measurement instruments must reflect on the area-specific content.
Specifically, investment literacy, or the investors’ knowledge of investment and the ability to use this knowledge effectively, has been a focus of several studies in behavioral finance that have proven its prominence. For example, Fan and Swarn (2020) analyzed robo-advisor adoption behavior in connection with one’s investment literacy. Dhar and Zhu (2006) examined how investment literacy affects the disposition effect of individual investors. Volpe et al. (2002) devoted their work to the investment literacy of online investors and aimed to determine the relationship between their knowledge and investing experience, education, gender, and other factors. Halim et al. (2021) concentrated on the current state of investment literacy and readiness to participate in the stock market of a population of young adults in Malaysia. H. Kim and K.T. Kim (2022) scrutinized how retail investors react to a market crash and revealed that investors with higher levels of investment literacy are more likely to buy additional stocks and less likely to sell their stocks, which indicates that they expect a quick recovery of the market. Takeda et al. (2013) revealed that the higher investors’ investment literacy is, the lower their level of overconfidence bias is.
In regard to innovative financial products and services, the research has also showed the major role of investment literacy. K.T. Kim et al. (2022) indicated that objective investment literacy is negatively associated with holding cryptocurrency, while subjective literacy is positively associated with holding cryptocurrency. Overconfident investors are more likely to invest in cryptocurrency. Ran et al.’s (2019) results demonstrate the importance of financial literacy for both borrowing and investment in online P2P lending.
These results suggest that a high level of investment literacy can prevent investors from making biased investment decisions. As Takeda et al. (2013) stated, efforts made to improve investors’ investment literacy by enhancing social systems could be beneficial in guiding investors to make unbiased investment decisions. We were not able to find any research that explores how innovative financial products and service-related investment literacy are formed in the social environment and what are the main determinants of this formation process; therefore, our research aims to fill this gap.
Financial socialization, social ties and investment literacy. The conceptual pathway from financial socialization to financial literacy is compelling and supported by data (Sun et al., 2002; Lusardi, 2019; Xiao & O’Neill, 2016). However, the liaison between investment literacy and financial socialization in the context of innovative financial products is underresearched.
Socialization in a general sense is understood as the inclusion and adaptation of an individual in society (Sardak et al. 2017). Financial socialization, however, is understood as a learning process wherein knowledge about money and money management is acquired and skills are developed in various financial practices, such as banking, budgeting, saving, insurance, using credit cards and investing (Bowen, 2002).
As proposed by Gudmunson et al. (2016), gaining financial knowledge or practicing new skills are considered as proximal outcomes of financial socialization, which in time develops into the ability to independently perform particular financial activities and create financial wellbeing (distal outcomes). Individuals acquire financial knowledge, skills and attitudes through different agents of financial socialization. Moschis (1987) was the first to distinguish four major agents of financial socialization: parents, peers, education, and media. According to Moschis (1987), financial socialization agents are described as interactions with the social environment through which individuals acquire financial knowledge or form financial behavior through different financial socialization channels. The most researched channels of financial socialization are financial discussions and lessons (Antoni et al., 2019; Brown et al., 2016; Gibby et al., 2021); instructions or sources of financial/economic information (Cho et al., 2012); behavior modeling (Gibby et al., 2021; Mohamed, 2017; Vijaykumar, 2021); and learning through experience (LeBaron et al., 2018). Some of the channels are more common for some agents than others; for example, behavior modeling is commonly attributed to family and friends/colleagues/peers.
In regard to the research on financial socialization agents, our analysis revealed that family is considered the main agent of financial socialization and is most widely explored, while other agents are underresearched (Cho et al., 2012). The breakthrough in family financial socialization research could be associated with the conceptual model of family financial socialization presented by Gudmunson and Danes (2011), as a number of researchers have relied on this model afterward. In recent decades, financial education has also been increasingly evaluated as a financial socialization agent. However, it is often evaluated only tentatively as one’s engagement in taking financial, economic or mathematics lessons (Agnew, 2018; Chowa & Despard, 2014; Glenn, 2018; Gutter & Copur, 2011), while the content of these lessons is not evaluated. Additionally, in the 21st century, more attention has been given to the agents of friends/colleagues or peers and their importance in shaping individuals' economic and financial knowledge, attitudes or behavior patterns. Media as a socialization agent is not widely studied in the context of economic and financial socialization. Most of the authors (Sohn et al., 2012, Sundarasen et al., 2016) who have assessed media as an agent of financial socialization have viewed it rather basically, i.e., only as a source of financial/economic knowledge. There are also some studies (Sama, 2019; Wu & C. Lin, 2017) that have evaluated the impact of media on an individual's financial behavior; however, they do not examine financial socialization. Additionally, there are a limited number of empirical studies that have evaluated financial socialization agents all together (Ameliawati & Setiyani, 2018; Cho et al., 2012; Copur & Gutter, 2019; Kovarova-Simecek & Aubram, 2018) and assessed their complex effects. We believe that in the global, dynamic and rapidly changing financial system, there is no single most important agent of financial socialization; rather, their joint efforts should lead to a higher effect. Therefore, it is relevant to assess not only the individual agents of financial socialization and the directions of their impact but also the complex effect of all agents of financial socialization. Our research facilitates knowledge in this area.
Empirical studies of financial socialization have mostly analyzed teenagers and students (Agnew, 2018; Chowa & Despard, 2014; Glen & Heckman, 2020; Kagotho et al., 2017; J. Kim et al., 2011; Moreno-Herrero et al., 2018; Rea et al., 2019; Sari et al., 2017; Shim et al., 2015; Sohn et al., 2012; Tang, 2017; White et al., 2021). Children and teenagers are particularly receptive to new information and behavior patterns, which is why financial socialization studies are popular among respondents of this age group. Studies of financial socialization in adult samples are on a much smaller scale (Copur & Gutter, 2019; Cwynar et al., 2019; Gibby et al., 2021). Additionally, previous empirical studies have not evaluated the users of a specific financial service and the impact of financial socialization on them. This finding supports the importance and novelty of our research on adult investors in a specific financial product.
In this study, we also build on the importance of the intensity or strength of social ties (sometimes referred to as social interactions) with specific agents, which is analyzed as an interrelated part of financial socialization (Agrawal et al., 2015; Gao ir Fok, 2015; Giudici et al., 2018; J. H. Kim ir Torquati, 2021; M. Lin & Viswanathan, 2016). Most researchers include the aspect of social ties intensity when analyzing parental influence, referring to it as parental warmth (Gudmunson & Danes, 2011; J. Kim et al., 2011; LeBaron & Kelley, 2021). Gudmunson and Danes (2011) included relationships with parents in their family financial socialization model, while taking the direct and indirect effect (through purposive financial socialization) of this factor on the proximal outcomes of financial socialization, such as financial literacy. In the peer context, Alshebami and Aldhyani (2022) found that peer influence (measured as social ties with peers, peer discussions and behavior modeling) has a positive and significant impact on respondents’ financial literacy and saving behavior. However, the study did not isolate the strength of social ties but rather measured its effect along with the other socialization mechanisms. Although there are a few studies on social interactions and their impact on financial behavior (Hong et al., 2004; Sikarwar, 2019), the analysis of social ties with individual agents, except family, and their impact not only on financial behavior but also on proxy variables such as financial literacy is very underresearched. From the behavioral finance perspective, social ties could be an important factor in explaining the formation of behavioral biases (for example, herding). In regard to financial products and services, taking into consideration their novelty, speed of innovations and easy access and lower or no regulation, social ties could be an important factor influencing investors’ behavior and facilitating their investment literacy formation.
Sociodemographic characteristics, financial socialization and financial literacy. Research on financial literacy and financial socialization has also revealed the importance of sociodemographic variables such as gender, age, income, qualification and education. Sociodemographic variables are the most commonly researched determinants of the differences in the levels of financial literacy or financial socialization.
A number of studies have identified significant differences in financial literacy levels according to gender. For example, Cupak et al. (2018) disclosed that in OECD countries, on average, women score lower on financial literacy than men. Bottazzi and Lusardi (2021) revealed that according to data on financial literacy from more than 140 countries, gender differences are present everywhere, i.e., from developing to advanced economies. In the context of income, the financial literacy level tends to increase with an increase in income (Lusardi & Tufano, 2015). Low-income individuals and less-educated people tend to consistently underperform on literacy tests (Batsaikhan & Demertzis, 2018; Wagner, 2019). High-income households display higher levels of financial knowledge (Van Rooij et al., 2009). In the context of age, mostly financially literate individuals are middle-aged individuals (Van Rooij et al., 2009; Lusardi & Mitchell, 2011; Batsaikhan & Demertzis, 2018).
The financial socialization process and its consequences (such as financial literacy) are also dependent on sociodemographic factors; factors such as age, gender, income and living conditions affect socialization by influencing the learning process. Gudmunson and Danes (2011) also included personal characteristics as an important construct of factors in the family socialization model. Most of the research in this field analyzes gender-based differences in the financial socialization process and its outcomes; for example, women can benefit more than men from a parental influence in terms of behaving in a more positive manner toward the financial decision-making process (Fan & Chatterjee, 2019; Agnew et al., 2018; Tang et al., 2015). Socioeconomic status has also been taken into consideration in some of the financial socialization research, revealing that a higher socioeconomic background leads to more intensive and productive financial socialization in families (mostly with young children) (Luhr, 2018; Shim et al., 2010). However, the age factor is very much underresearched in this area and does not provide enough insight into how adults learn new financial knowledge, skills and attitudes. Additionally, there is a lack of knowledge about how the abovementioned sociodemographic factors affect the financial socialization process in other social (peer, school or media) environments, especially in the context of learning about innovative financial instruments that require new knowledge, skills and reshaped attitudes.
Our research also facilitates knowledge in this area by identifying sociodemographic characteristics that explain significant differences in investment literacy across the research sample and then, for those that prove to be significant, by exploring whether these characteristics lead to significantly different effects of financial socialization and the strength of social ties on investment literacy.