Financial Literacy and the Demand for Financial Advice
46 Pages Posted: 4 Oct 2013 Last revised: 21 Oct 2018
Date Written: February 11, 2013
Abstract
The low level of financial literacy across households suggests they are at risk of taking sub-optimal financial decisions. In this paper we assess to what extent financial advisors can substitute for low financial knowledge. We analyze the effect of investors' financial literacy on their demand of professional, non-independent advice. Using the 2007 Unicredit Customers' Survey we find that non-independent advisors are not sufficient to alleviate the problem of low financial literacy. Investors with a low level of financial literacy are less likely to consult with an advisor, while they delegate their portfolio choice more often or do not invest in risky assets. We explain this evidence with a highly stylized model of strategic interaction between investors and better informed advisors facing conflicts of interests. Advisors reveal information only to the more knowledgeable investors, who anticipating this are then more likely to consult with them.
Keywords: financial literacy, financial advice
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