The impact of financial literacy and financial interest on risk tolerance

We investigate and compare the effects of financial literacy and financial interest on risk tolerance, evaluating not only at the means, but also the whole distribution. We use a unique sample of 12,156 Swedish bank customers combining bank-register data with survey data. Results show that both financial literacy and financial interest are associated with higher risk tolerance. They further show that the impact of financial interest is significantly higher than the impact of financial literacy. Differences are also observed across the distribution. Quantile regressions show that financial interest has its greatest association at the medium-to-high range of risk tolerance, whereas financial literacy shows its greatest association at the lower range of risk tolerance. Findings contribute to the literature on risk tolerance, specifically pointing to the relevance of the noncognitive trait; interest, to individuals' risk tolerance. (c) 2020 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).