Three Essays on Financial Sophistication among Americans and its influence on Financial Decision Making

The dissertation is divided into three essays, each exploring financial sophistication and how it influences various areas of financial decision-making. The first essay examines an association between financial knowledge and credit card management behavior of American adults using pooled cross-section dataset from the National Financial Capability Study (NFCS) 2015, 2018, and 2021. In this study, a credit card management behavior scale is constructed as a continuous fractional response variable over a defined bounded range. Therefore, fractional regression analysis is used in this study to examine the association between financial knowledge and credit-card management behavior. The results suggest that American adults with higher levels of financial knowledge are more likely to engage in positive credit card behavior. The second essay explores the relationship between investors' sophistication and myopic loss aversion using data from the NFCS 2018 and 2021 dataset. According to the human capital theory, individual investors with higher financial sophistication are less likely to make biased decisions. The present study uses the individual decision to sell the stocks when the market drops briefly as a proxy to measure myopic loss aversion behavior. Multinomial logistic regression results show that individuals with higher financial sophistication are less likely to exhibit myopic loss aversion. The findings show that an individual investor with higher financial sophistication has a lower probability of selling the stocks when the market falls for a short period. The third essay analyzes an association between the use of social media, investment knowledge, and meme stock trading using NFCS 2021 data. The study finds those individual investors who use social media for investment information have a higher probability of trading meme stocks. In contrast, the present study finds a negative association between investment knowledge and meme stocks trading indicating that individual investors with higher investment knowledge are less likely to trade meme stocks. In addition, this study also explores that individual investors who use social media extensively and have higher investment knowledge are less likely to trade meme stocks.

Embargo status: Restricted until 09/2028. To request the author grant access, click on the PDF link to the left.