Confidence Mediates How Investment Knowledge Influences Investing Self-Efficacy

Journal of Economic Psychology, doi:10.1016/j.joep.2010.01.012, 2010.

by James Forbes and S. Murat Kara

A comprehensive investment literacy questionnaire surveyed potential sources (viz., knowledge, confidence) of investing self-efficacy in a large sample of working adults. As expected, the effect of investment knowledge on belief in one’s future capability of orchestrating a plan to achieve investment goals was mediated by confidence. Overall, employees’ applied investment knowledge accuracy was low: 57%. In general, investment knowledge was reliably related to confidence. However, confidence and investment knowledge accuracy were completely independent for 9 of 21 items, implying an inability to inhibit poor investment decisions or an inability to exploit investment opportunities. A policy of required investment training could be implemented so as to not impede individuals’ freedom of choice, which would likely help the truly uninformed to become more informed and ultimately successful investors.

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