Beyond Financial Literacy: A Study on the Interaction of Knowledge, Behavioral Biases, and Demographic Characteristics in Individual Investment Decisions

Abstract

This study explores the intricate relationship between subjective and objective financial knowledge, overconfidence, under- confidence, and demographic factors in personal financial decision-making. Conducted in Hyderabad, Telangana, with a sample size of 412 individuals, the research employs a quantitative approach to analyze how demographic characteristics such as age, gender, education, employment, income, and work profile influence financial knowledge and decision-making. Findings reveal a moderate positive correlation between subjective and objective financial knowledge, highlighting significant discrepancies in financial self-assessment among the respondents. The study identifies four distinct segments: individuals with accurate self-assessment, those overconfident, under- confident, and those with misaligned financial knowledge. The analysis underscores the profound impact of demographic factors on financial knowledge, with age, education, employment, work profile and income emerging as key determinants. Additionally, the research demonstrates that overconfidence and under-confidence can significantly distort financial planning, leading to suboptimal financial outcomes. The study concludes that targeted financial education and intervention strategies, tailored to specific demographic segments, are essential for improving financial literacy and fostering more informed financial decision-making across diverse populations.