Financial Literacy Overconfidence and Consumer Financial Satisfaction: Evidence from the 2018 US National Financial Capability Study

Abstract

An increasingly prevalent topic on the associations between financial literacy and consumer financial satisfaction has been highlighted in recent years. Utilizing the data from the 2018 US National Financial Capability Study, this study conducts ordered probit regressions to examine the effects of financial literacy on consumer financial satisfaction. To verify the robustness, this study performs a comprehensive check through replacing estimation methods, removing outliers by income, and performing regressions by various consumer cohorts. The results indicate that objective financial literacy has a significantly negative effect on consumer financial satisfaction, while subjective financial literacy has played a crucial role in improving consumer financial satisfaction. Thus, consumers are overconfident in their financial literacy. The results imply that policymakers should formulate policies to cultivate rational investment concepts and raise consumers’ risk awareness, as well as financial institutions should provide services of financial capability assessment to correct consumers’ self-perception bias.