IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v131y2016ipap198-217.html
   My bibliography  Save this article

Financial literacy, confidence and financial advice seeking

Author

Listed:
  • Kramer, Marc M.

Abstract

We find that people with higher confidence in their own financial literacy are less likely to seek financial advice, but no relation between objective measures of literacy and advice seeking. The negative association between confidence and advice seeking is more pronounced among wealthy households. We base these findings on the analysis of two rich data sources from the Netherlands: the DNB Household survey and a sample of investors from a large Dutch retail bank. Our results imply that policy makers should be careful to put financial advice forward as a mechanism to curb the ill effects of low financial literacy and that steering people towards more accurate self-assessments seems a more promising route.

Suggested Citation

  • Kramer, Marc M., 2016. "Financial literacy, confidence and financial advice seeking," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 198-217.
    • Handle: RePEc:eee:jeborg:v:131:y:2016:i:pa:p:198-217
    DOI: 10.1016/j.jebo.2016.08.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268116301834
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2016.08.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    2. Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CeRP Working Papers 52, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    3. Lauren E. Willis, 2011. "The Financial Education Fallacy," American Economic Review, American Economic Association, vol. 101(3), pages 429-434, May.
    4. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    5. Hans-Martin Von Gaudecker, 2015. "How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice?," Journal of Finance, American Finance Association, vol. 70(2), pages 489-507, April.
    6. Annamaria Lusardi & Pierre-Carl Michaud & Olivia S. Mitchell, 2017. "Optimal Financial Knowledge and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 431-477.
    7. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2010. "Cognitive abilities and portfolio choice," European Economic Review, Elsevier, vol. 54(1), pages 18-38, January.
    8. Angela A. Hung & Joanne K. Yoong, 2010. "Asking for Help Survey And Experimental Evidence on Financial Advice and Behavior Change," Working Papers WR-714-1, RAND Corporation.
    9. Dimitris Georgarakos & Roman Inderst, 2011. "Financial Advice and Stock Market Participation," BCL working papers 51, Central Bank of Luxembourg.
    10. Annamaria Lusardi & Olivia Mitchell, 2007. "Financial Literacy and Retirement Planning: New Evidence from the Rand American Life Panel," Working Papers wp157, University of Michigan, Michigan Retirement Research Center.
    11. Jappelli, Tullio & Padula, Mario, 2013. "Investment in financial literacy and saving decisions," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2779-2792.
    12. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
    13. Marc M. Kramer, 2012. "Financial Advice and Individual Investor Portfolio Performance," Financial Management, Financial Management Association International, vol. 41(2), pages 395-428, June.
    14. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    15. repec:ecj:econjl:v:122:y:2012:i::p:449-478 is not listed on IDEAS
    16. Annamaria Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," CeRP Working Papers 46, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    17. Charlotte Christiansen & Juanna Schröter Joensen & Jesper Rangvid, 2008. "Are Economists More Likely to Hold Stocks?," Review of Finance, European Finance Association, vol. 12(3), pages 465-496.
    18. Utpal Bhattacharya & Andreas Hackethal & Simon Kaesler & Benjamin Loos & Steffen Meyer, 2012. "Is Unbiased Financial Advice to Retail Investors Sufficient? Answers from a Large Field Study," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 975-1032.
    19. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
    20. Menkhoff, Lukas & Schmeling, Maik & Schmidt, Ulrich, 2013. "Overconfidence, experience, and professionalism: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 92-101.
    21. Sendhil Mullainathan & Markus Noeth & Antoinette Schoar, 2012. "The Market for Financial Advice: An Audit Study," NBER Working Papers 17929, National Bureau of Economic Research, Inc.
    22. Roman Inderst & Marco Ottaviani, 2009. "Misselling through Agents," American Economic Review, American Economic Association, vol. 99(3), pages 883-908, June.
    23. See, Kelly E. & Morrison, Elizabeth W. & Rothman, Naomi B. & Soll, Jack B., 2011. "The detrimental effects of power on confidence, advice taking, and accuracy," Organizational Behavior and Human Decision Processes, Elsevier, vol. 116(2), pages 272-285.
    24. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    25. Simonson, Itamar, 1992. "The Influence of Anticipating Regret and Responsibility on Purchase Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 19(1), pages 105-118, June.
    26. Angela Hung & Andrew Parker & Joanne K. Yoong, 2009. "Defining and Measuring Financial Literacy," Working Papers 708, RAND Corporation.
    27. Angela A. Hung & Andrew M. Parker & Joanne K. Yoong, 2009. "Defining and Measuring Financial Literacy," Working Papers WR-708, RAND Corporation.
    28. Henry Kaiser, 1970. "A second generation little jiffy," Psychometrika, Springer;The Psychometric Society, vol. 35(4), pages 401-415, December.
    29. Angela A. Hung & Joanne Yoong, 2010. "Asking for Help: Survey And Experimental Evidence on Financial Advice And Behavior Change," Working Papers 714-1, RAND Corporation.
    30. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    31. Riccardo Calcagno & Chiara Monticone, 2015. "Financial Literacy and the Demand for Financial Advice," Post-Print hal-02313173, HAL.
    32. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 1-36, June.
    33. Gathergood, John & Weber, Jörg, 2014. "Self-control, financial literacy & the co-holding puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 455-469.
    34. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    35. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    36. Halko, Marja-Liisa & Kaustia, Markku & Alanko, Elias, 2012. "The gender effect in risky asset holdings," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 66-81.
    37. Arkes, Hal R. & Christensen, Caryn & Lai, Cheryl & Blumer, Catherine, 1987. "Two methods of reducing overconfidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 133-144, February.
    38. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Win), pages 2-11.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    2. Lu, Xiaomeng & Zhang, Yong & Zhang, Yixing & Wang, Lin, 2020. "Can investment advisors promote rational investment? Evidence from micro-data in China," Economic Modelling, Elsevier, vol. 86(C), pages 251-263.
    3. Bellofatto, Anthony & Broihanne, Marie-Hélène & D'Hondt, Catherine, 2019. "Appetite for information and trading behavior," LIDAM Discussion Papers LFIN 2019002, Université catholique de Louvain, Louvain Finance (LFIN).
    4. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    5. Steffen Westermann & Scott J. Niblock & Jennifer L. Harrison & Michael A. Kortt, 2020. "Financial Advice Seeking: A Review of the Barriers and Benefits," Economic Papers, The Economic Society of Australia, vol. 39(4), pages 367-388, December.
    6. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    7. Litterscheidt, Rouven & Streich, David J., 2020. "Financial education and digital asset management: What's in the black box?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    8. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    9. Li, Xiao, 2020. "When financial literacy meets textual analysis: A conceptual review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    10. Delis, Manthos & Galariotis, Emilios & Monne, Jerome, 2021. "Economic condition and financial cognition," Journal of Banking & Finance, Elsevier, vol. 123(C).
    11. Nolte, Sven & Schneider, Judith C., 2017. "Don’t lapse into temptation: a behavioral explanation for policy surrender," Journal of Banking & Finance, Elsevier, vol. 79(C), pages 12-27.
    12. Chauhan, Yogesh & Dey, Dipanjan Kumar, 2020. "Does financial literacy affect the value of financial advice? A contingent valuation approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 25(C).
    13. M. Debbich, 2015. "Why Financial Advice Cannot Substitute for Financial Literacy?," Working papers 534, Banque de France.
    14. Hermansson, Cecilia & Song, Han-Suck, 2016. "Financial advisory services meetings and their impact on saving behavior – A difference-in-difference analysis," Journal of Retailing and Consumer Services, Elsevier, vol. 30(C), pages 131-139.
    15. Felix Holzmeister & Martin Holmén & Michael Kirchler & Matthias Stefan & Erik Wengström, 2023. "Delegation Decisions in Finance," Management Science, INFORMS, vol. 69(8), pages 4828-4844, August.
    16. Liu, Bofan & Lu, Bin, 2023. "Can financial literacy be a substitute for financial advisers? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    17. Hermansson, Cecilia & Jonsson, Sara & Liu, Lu, 2022. "The medium is the message: Learning channels, financial literacy, and stock market participation," International Review of Financial Analysis, Elsevier, vol. 79(C).
    18. Calcagno, Riccardo & Giofré, Maela & Urzì-Brancati, Maria Cesira, 2017. "To trust is good, but to control is better: How investors discipline financial advisors’ activity," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 287-316.
    19. Azra Zaimovic & Anes Torlakovic & Almira Arnaut-Berilo & Tarik Zaimovic & Lejla Dedovic & Minela Nuhic Meskovic, 2023. "Mapping Financial Literacy: A Systematic Literature Review of Determinants and Recent Trends," Sustainability, MDPI, vol. 15(12), pages 1-30, June.
    20. Hiroshi Fujiki, 2019. "Who needs guidance from a financial adviser? Evidence from Japan," Working Papers on Central Bank Communication 011, University of Tokyo, Graduate School of Economics.

    More about this item

    Keywords

    Household finance; Financial advice; Financial literacy; Confidence;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:131:y:2016:i:pa:p:198-217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.