Smart Money or Costly Mistakes? Financial Literacy and Its Impact on Debt and Investment Decisions

Brianna Ramirez

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Yu, Huaibing

Abstract:

This study examines how differences in financial literacy influence individuals’ debt and investment decisions. As access to financial products continues to expand, many individuals lack the financial knowledge necessary to manage credit responsibly and participate effectively in investment markets. This gap in financial literacy can result in costly financial mistakes, including excessive debt accumulation and limited long-term wealth building.The purpose of this research is to evaluate the relationship between financial literacy and key financial behaviors related to debt usage and investment participation. Using publicly available national survey data, this study employs descriptive and comparative analysis to assess differences in credit use, saving behavior, and investment participation across varying levels of financial knowledge.The findings suggest that individuals with lower financial literacy are more likely to rely heavily on high-interest debt and less likely to engage in long-term investing. In contrast, individuals with higher financial literacy demonstrate stronger financial decision-making, including improved debt management and greater participation in investment markets. This research highlights the economic consequences of financial illiteracy and underscores the importance of financial education in promoting responsible financial behavior. The results have practical implications for educators, policymakers, and financial institutions seeking to improve financial outcomes and reduce financial vulnerability.