How Do Variations in Financial Literacy, Influenced by Demographic Factors, Affect Investment Behavior Among the Belgian Population Aged 18 to 65?

Abstract

This thesis investigates the interplay between financial literacy, demographic characteristics, and investment behavior among Belgian adults aged 18 to 65. In an era of increasing financial complexity, financial literacy—defined as the ability to acquire, comprehend, and apply financial knowledge—has become vital for sound investment decision-making. Despite growing global attention to its importance, the mechanisms by which financial literacy influences investment behavior remain underexplored in the Belgian context. This study addresses this gap by examining the effects of demographic variables on financial literacy and, in turn, the role of financial literacy in shaping individual investment behaviors.

Empirical findings reveal significant demographic disparities: men, individuals with higher education levels, and those with academic or professional finance exposure exhibit higher financial literacy. Contrary to life-cycle model expectations, age was not a significant predictor. The analysis further indicates that financial literacy is positively linked to diversified asset allocation and increased trading frequency—potentially reflecting overconfidence. It also shows marginal positive effects on risk tolerance and engagement in active investment strategies, though no clear pattern emerged regarding long-term investment horizon preferences.

These results underscore the dual role of financial literacy: it fosters informed, diversified investment choices but may also contribute to excessive trading. The persistence of financial literacy gaps across demographics highlights the need for targeted educational initiatives. Policy recommendations include integrating financial literacy into formal education and creating behaviorally informed programs to mitigate cognitive biases and promote financial inclusion.

While offering meaningful insights, the study's generalizability is limited by methodological constraints. Future research should adopt more robust methodologies and consider behavioral mediators to clarify how financial literacy shapes investment behavior. Ultimately, this thesis provides a nuanced understanding of financial literacy as both an enabler of prudent investing and a potential driver of suboptimal behaviors in the Belgian context.