Understanding the impact of investment literacy and risk tolerance on young adults' investment choices

Abstract

The primary factors affecting people's choices with investments are their comprehension of investments and their comfort with risk. This research assesses investment knowledge and risk appetite among respondents with varied demographic characteristics. The research focuses particularly on the relationship between investment literacy as well as risk tolerance, along with their combined effect on the investment choices of students and additionally working people aged 18-28. The study collected responses from 208 participants via an online survey. The study assessed participants’ investment literacy and risk preferences using a validated scale, and particular statistical analyses, such as Mann-Whitney U, Kruskal-Wallis, and logistic regression, were applied. The findings indicate that while investment literacy improves financial awareness, it does not substantially influence people’s willingness to engage in high-risk investments. People who can take on greater risk are 1.9 times more likely to put money into assets that have more risk. Although gender influences risk tolerance, it does not directly affect investment choices. The study’s results stress that investment literacy alone does not increase risk perception. Instead, other external factors are important to address. These findings stress the need for targeted investment literacy programs that carefully improve financial knowledge, integrating many behavioral understandings to support thoroughly well-informed decision-making. This study improves the broader comprehension of the psychological factors influencing investment decisions, especially for younger investors.