Financial Literacy and Investment Decision-Making among Young Retail Investors

Abstract

The rapid expansion of app-based investing has increased the participation of young retail investors in equity, mutual fund, exchange-traded fund, and other market-linked investment products. However, easier market access does not necessarily imply that younger investors possess the financial knowledge, risk-assessment ability, or behavioral discipline required for informed investment decisions.
This study investigates how objective financial literacy, perceived financial competence, digital investment exposure, and selected behavioral biases jointly influence investment decision quality among young retail investors.
A distinctive feature of the proposed research is the separation of factual financial literacy from self-perceived literacy, thereby identifying situations in which investor confidence exceeds measurable financial understanding.
The study further proposes an explainable machine-learning framework for classifying investors according to the quality of their investment decision-making using financial, behavioral, and digital-engagement indicators.
Particular attention is given to diversification, risk-return assessment, information verification, investment horizon, susceptibility to social influence, and reactions to short-term market movements. The proposed framework is designed to complement conventional statistical analysis by identifying nonlinear interactions among literacy, confidence, digital participation, and behavioral tendencies.
The study is expected to provide useful evidence for investor education, financial technology platforms, regulators, and institutions seeking to improve responsible participation among the emerging generation of retail investors.