The forms of financial literacy overconfidence and their role in financial well‐being

Overconfidence in financial literacy (FL) is defined and assessed in various ways, and results regarding the effects of FL overconfidence on financial well‐being are inconsistent. Therefore, this study aims to develop our understanding of the processes by which overconfidence in FL influences the financial well‐being of consumers; that is to separately examine the effects of the different forms of FL overconfidence on financial well‐being. In order to map the associations between FL, the forms of FL overconfidence, and financial well‐being, the data of 506 randomly selected Hungarian test‐takers were collected by a self‐report questionnaire. According to the results, FL and its overestimation (OE) are positively linked to households' financial outcomes. Hence, perceived FL is a better predictor of financial well‐being than actual FL skills. Moreover, the results add to the existing body of literature by showing that the effects of the different forms of overconfidence are divergent: overprecision and OE may be damaging. Thus, the paper provides evidence that FL overconfidence is a multifaceted construct, and its different forms affect financial well‐being differently.