Financial socialization, strength of social ties and investment literacy of investors in P2P lending platforms

Abstract

Abstract This study explores survey data of investors in peer-to-peer (P2P) lending platforms to assess their investment literacy, to explore how this literacy is affected by their financial socialization and the strength of their social ties, and to question whether this effect differs among investors’ sociodemographic groups. Our research revealed that the investment literacy of P2P lending platform investors is high and rejects a common perception that investors in P2P lending platforms have a low level of investment literacy. Significant sociodemographic determinants of investment literacy are investor gender, age, net income, and interface with the finance sector. As for financial socialization, peers showed to be the main socialization agent and demonstrated the strongest social ties with our respondents. The compound direct effect of financial socialization on the aggregated level of investment literacy of P2P lending platforms’ investors was positive and stronger than that on its separate components. Although the strength of social ties had a strong influence on financial socialization, its indirect effect on investment literacy was rather weak. The average P2P lending platform investor whose investment literacy is shaped by financial socialization and reinforced by the strength of his or her social ties was shown to be an 18- to 34-year-old person (man or woman) working in the financial sector with a net monthly income below 1500 euro. Such results show that for innovative financial services, compound financial socialization is an important mean to “fill in the gaps” in investment literacy. The results could be used by market regulators, innovative service providers and educators in the development and promotion of innovative financial products and product-related investment literacy programs. JEL classification: G41, G53.