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Exploring The Link Between Financial Knowledge, Risk Aversion, And Investment Preferences: A European Union Analysis

Author

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  • UIFALEAN, Răzvan

    (Doctoral School of Finance and CEFIMO, Bucharest University of Economic Studies, Romania)

Abstract

This paper examines the relationships between financial knowledge, risk profiles, digital competence, investment preferences, and financial behaviour across EU countries. Using data from the Flash Eurobarometer 525 survey conducted in 2023, the study distinguishes between self-assessed and tested financial literacy and constructs country-level indicators of short- and long-term risk profiles, digital skills, and financial product participation. The analysis reveals a systematic pattern of underconfidence, with individuals underestimating their actual financial knowledge. Tested financial literacy is strongly associated with higher risk tolerance and engagement in long-term financial products, including housing loans, insurance, and retirement investments, while self-assessed literacy shows a weaker and less consistent link to actual risk-taking. This finding underscores the importance of objective knowledge over confidence alone in shaping financial decisions. Short- and long-term risk profiles emerge as central determinants of financial behaviour, with long-term risk aversion most strongly associated with engagement in protective and long-horizon financial products such as pensions and insurance, while short-term risk aversion (financial fragility) tracks borrowing and investment behaviour through a “gambling for resurrection” dynamic. Results suggest that improving financial behaviour requires more than increasing financial knowledge.

Suggested Citation

  • UIFALEAN, Răzvan, 2026. "Exploring The Link Between Financial Knowledge, Risk Aversion, And Investment Preferences: A European Union Analysis," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(2), pages 6-39, June.
    • Handle: RePEc:vls:finstu:v:30:y:2026:i:2:p:6-39
    DOI: https://doi.org/10.65672/fs.2026.2.1
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    Keywords

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    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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