Numeracy, Financial Literacy, and Investment Behaviors

Past research has established the connections linking augmented financial literacy and objective numeracy to better-informed investment decisions. However, no known research has examined the independent predictive power of numeric competencies (i.e., objective numeracy, subjective numeracy, symbolic-number mapping) and financial literacy on investment behaviors, and it is unclear which skills may matter most. In an online study, participants (N=235) completed a test of general mathematical ability (i.e., objective numeracy), symbolic number-mapping, financial knowledge, and indicated their perceived mathematical ability and preference for numbers (i.e., subjective numeracy). To assess investment behaviors, participants completed a retirement savings game (Koehler et al. 2015) and answered a variety of questions related to personal investment decisions (e.g., “How much do you invest in stocks?”). We hypothesized that greater financial knowledge and greater numeric competencies would predict greater total retirement savings in the savings game. Additionally, we predicted that individuals with greater numeric competencies and greater financial knowledge would report more active engagement in investment activities (e.g., stocks, bonds, mutual funds). Results indicated that financial literacy and numeric competencies were correlated with investment decisions and behaviors in various ways. Specifically, higher vs. lower financial literacy predicted more active participation in investments, longer years of investment experience, preference for riskier investment options such as stocks over bonds, treasury bills, bank savings and commodities. Additionally, individuals with higher vs. lower financial literacy scores were more likely to own retirement accounts, and they were stauncher about their investment beliefs. Inconsistent with hypotheses, higher vs. lower objective numeracy (ONS) was not predictive of many self-reported investment behaviors and was negatively correlated to risk taking in life. Results also indicated that greater subjective numeracy (SNS) was positively correlated to risk taking in general in life, but was not correlated to risk taking in investments. Higher SNS was also associated to owning a larger variety of investment compositions. The retirement savings game yielded interesting results as well. Consistent with hypotheses, individuals with higher vs. lower financial literacy and higher vs. lower ONS had more savings at the retirement stage. Generally speaking, greater financial literacy and objective numeracy were shown to be positively correlated to a variety of positive investment traits and better savings behaviors in retirement game. Results suggest that efforts to improve financial literacy and objective numeracy may help improve investment decisions, however future experimental research is needed.Fisher College of BusinessNo embargoAcademic Major: Financ