FINANCIAL LITERACY WORKING AS AN EMOTION REGULATION TOOL IN FINANCIAL DECISION MAKING

Abstract

Objective: This paper tests financial literacy as an influence moderator of incidental anxiety on financial risk tolerance, improving individuals’ reappraisal potential. Methods: Two experiments were conducted to investigate the role of financial literacy potentially contributing to reappraisal (i.e. emotion regulation strategy) and moderating the influence of incidental anxiety on financial risk tolerance. One-way ANOVA and ANCOVA were used to analyze data. Results: Individuals influenced by incidental anxiety chose more risk-averse options in the risk assessment than those not influenced, but financially literate individuals were less influenced than the financially illiterate respondents. The findings support the moderating impact of financial literacy on the influences of incidental emotions in financial decisions. Conclusion: Results contribute to the research on emotions and decision making, showing that there are variables (i.e., skills such as financial literacy) that can help mitigate the harmful influences of incidental emotions on financial decision making.

Keywords: Financial literacy, Decision making, Emotion regulation, Behavioral economy, Incidental emotions.