The Role of Financial Literacy in Investment Decision-Making: A Review

Abstract

In order to facilitate economic development, financial services are essential in that they offer individuals and enterprises access to capital, risk management, and financial products. Understanding the necessity and raising awareness of financial literacy is crucial for the expansion of the financial sector in this context. Understanding how financial literacy affects investing choices is the main focus of this essay. This study underscores the pivotal role of financial literacy in shaping investment decisions. Individuals with higher financial knowledge exhibit greater confidence in making informed investment choices, while those lacking such knowledge tend to avoid risks. Financial education is crucial for enhancing financial independence and fostering rational decision-making. The results demonstrate that better investing outcomes are achieved when financial knowledge and a modest degree of overconfidence are combined. Additionally, age and education significantly influence financial behavior. Promoting financial awareness and encouraging active participation in financial planning can improve economic well-being and enable individuals to navigate complex investment landscapes effectively.