Financial Self-awareness: Who Knows What They Don't Know?

We examine the influence of financial literacy and perceptions of financial knowledge on households’ financial risk-taking. Greater literacy and self-belief in one's literacy positively relate to equity ownership. However, self-awareness of illiteracy reduces participation by about 5%. We find that financial self-awareness is impacted by innate traits and environmental elements. Specifically, it is reduced by risk-seeking preferences and rising income but increases with income uncertainty. Overall, we demonstrate that accurate self-assessment has implications for individuals’ portfolio choices, which suggests policy implications for improving financial decision-making.