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

Abstract

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 self-selection 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.