Is Financial Literacy Dangerous? Financial Literacy, Behavioral Factors, and Financial Choices of Households

•Original purpose-built 2018 Japanese survey data is used.•Financial literacy makes people daring and reckless toward some financial aspects.•This doesn’t change much even for people with fairly high financial literacy.•High financial literacy of elderly males could be a warning sign.•The “strong swimmer effect” should be taught in financial education. Using original purpose-built 2018 Japanese survey data, we estimate the financial behaviors and attitudes of households. We find that financial literacy plays an important and consistent role in financial decision-making. However, the actual behaviors are counter-intuitive: people with high levels of financial literacy tend to take too many risks, overborrow, and hold naive financial attitudes. That is, financial literacy tends to cause people to become daring and reckless toward some financial aspects. By contrast, financially literate people are better at retirement planning and are indifferent to gambling. Preferences such as risk and loss aversions and discount factors, also play a role in financial choices.