Whom to educate? Financial literacy and investor awareness

We conducted an experiment and survey in Shenzhen, China, to measure individuals' risk preferences, financial literacy, and the effect of a financial education program. A proportion of individuals may be unaware of the high risk associated with a high-return financial product and thus may purchase financial products inconsistent with their risk attitudes. Participating in our education program significantly reduced individuals' tendency to hypothetically invest in high-risk products, especially for those who are risk-averse. Therefore, rather than randomly assigning the education program to investors, we suggest that risk-averse investors be targeted. We find that the responses to standard financial literacy questions are not related to individuals' awareness of the link between high risk and high return, calling for a newly designed question of financial literacy as proposed in our study. •Some individuals are unaware of the high risk associated with a high-return financial product and thus may mispurchase.•Our education program reduced individuals' tendency to invest in high-risk products, especially for risk-averse individuals.•Standard financial literacy questions cannot predict individuals' awareness of the link between high risk and high return.