THE IMPACT OF FINANCIAL LITERACY AND FEAR OF COVID-19 ON FINANCIAL RISK TOLERANCE

Abstract

This research has assessed how financial literacy and fear of COVID-19 affect financial anxiety and investor optimism. It has also assessed how anxiety and optimism impact risk tolerance. Gender and education have also been analyzed as moderators, in this model. Financial anxiety has been included as a mediator. The study sample included 300 individuals working at the financial institutions of Pakistan. Data was analyzed using structural equation modeling, in the software SmartPLS3. To uncover the moderation effects of gender and education, multigroup analysis was conducted. It has been found that financial literacy and fear of COVID-19 increase financial anxiety and fear of COVID-19 decreases investor optimism. Further, the results have showed a positive association of financial anxiety and risk tolerance. The study has discovered that the link between COVID-19 fear and financial anxiety is different for gender groups such that the relationship is stronger for males. The link between COVID-19 fear and investor optimism is different across individuals who have finance education and those who do not. Specifically, the relationship is stronger for individuals with finance education. The mediation analysis has revealed that anxiety fully mediates the relationship of financial literacy with risk tolerance. This research has contributed to existing literature by providing useful and interesting findings about how financial literacy and fear of COVID-19 can impact financial risk tolerance.