Investment in financial literacy and financial advice-seeking: Substitutes or complements?

This paper studies the strategic relationship between investment in financial literacy and seeking advice from a financial planner. While the existing literature on this topic considers financial literacy as exogenously given, we propose a simple model in which it is endogenously determined through the consumer's investment in financial literacy. Our theoretical model suggests that in this case, investment in financial literacy and financial advice-seeking are substitutes. We test this hypothesis using data from the 2016 Survey of Consumer Finances. When using the propensity score matching method to control for selfselection bias, we find a significant negative relationship between the probability of seeking advice from a financial planner and investment in financial literacy. While these findings cannot be easily explained by existing models, this paper shows that endogenizing financial literacy reconciles the results. (c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.