How does financial literacy affect investment decisions and customer profitability?

: the case of ActivoBank’s clients

Abstract

In a time of economic uncertainty, financial literacy appears as an essential
tool for an individual’s financial well-being, namely through effective investment
decisions. These financial decisions also affect the demand for financial products
offered by financial intermediaries, such as ActivoBank.
In this research paper, we address the level of financial literacy of
ActivoBank’s clients and we try to understand what sociodemographic factors
influence it. Moreover, we examine how financial literacy affects clients’
investment decisions. Accordingly, we analyse if financial literacy is related to
the returns each client generates to the bank, with the rationale that people who
invest the most tend to generate higher profits, through the payment of fees.
The main findings show that ActivoBank’s clients seem to have an overall level
of financial literacy better than the Portuguese average. Moreover, gender and
education are found to have a positive impact on financial literacy and marital
status a negative one. Further, financial literacy is shown to positively impact
saving, planning for retirement, and investing in riskier assets. Finally, results
show that financial literacy doesn’t have a significant relationship with customer
profitability.

Date of Award	13 Jul 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Paulo Alves (Supervisor)