FINRA Study Considers Relationship Between Overconfidence And Financial Literacy

In a study funded by FINRA's Investor Education Foundation, researchers found that financial overconfidence (i.e., high confidence in an individual's financial knowledge relative to their actual financial literacy) may result in excessive financial risk-taking.

The researchers surveyed a large sample of adults between the ages of 58 and 101 to review "financial decision-making including tests of financial literacy and ratings of confidence in their financial knowledge." The researchers identified "relatively small adult age differences in financial literacy and financial risk tolerance, and no substantial age differences in confidence in financial knowledge." (Age explained only about 1 percent of the variance in financial risk tolerance whereas overconfidence explained about 6 percent of the variance in risk taking.)