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Actual and perceived financial sophistication and wealth accumulation: The role of education and gender

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  • Christina E. Bannier

    (Department of Corporate Finance, Johannes Gutenberg-Universitaet Mainz)

  • Milena Neubert

    (Department of Corporate Finance, Johannes Gutenberg-Universitaet Mainz)

Abstract

This study examines the role of actual and perceived ?nancial sophistication (i.e., ?nancial literacy and con?dence) for individuals’ wealth accumulation. Using survey data from the German SAVE initiative, we ?nd strong gender- and education-related di?erences in the distribution of the two variables and their e?ects on wealth: As ?nancial literacy rises in formal education, whereas con?dence increases in education for men but decreases for women, we observe that women become strongly undercon?dent with higher education, while men remain overcon?dent. Regarding wealth accumulation, we show that ?nancial literacy has a positive e?ect that is stronger for women than for men and is increasing (decreasing) in education for women (men). Con?dence, however, supports only highly-educated men’s wealth. When considering di?erent channels for wealth accumulation, we observe that ?nancial literacy is more important for current ?nancial market participation, whereas con?dence is more strongly associated with future-oriented ?nancial planning. Overall, we demonstrate that highly-educated men’s wealth levels bene?t from their overcon?dence via all ?nancial decisions considered, but highly-educated women’s ?nancial planning suffers from their undercon?dence. This may impair their wealth levels in old age.

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  • Christina E. Bannier & Milena Neubert, 2016. "Actual and perceived financial sophistication and wealth accumulation: The role of education and gender," Working Papers 1605, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    • Handle: RePEc:jgu:wpaper:1605
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    2. Balasubramnian, Bhanu & Sargent, Carol Springer, 2020. "Impact of inflated perceptions of financial literacy on financial decision making," Journal of Economic Psychology, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Financial literacy; ?nancial sophistication; con?dence; wealth; household ?nance; behavioral ?nance; gender; formal education;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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