The Influence of Financial Literacy and Financial Interest on The Financial risk Tolerance of Investor in Indonesia

Abstract

Objective: This study examines the effect of financial literacy and interest on financial risk tolerance. This research is to find out investors' knowledge in investment and also to find out whether investors keep up with news about investment so that it affects the purchase of financial products.   Theoretical framework: Every decision that investors make involves financial risk. The amount of tolerance that develops is a critical factor influencing investment decisions and the usage of funds in the capital market. Financial literacy plays a role in demonstrating investor behavior while making investment selections, which might influence financial risk tolerance results. Financial interest indicates how much investors want to be involved in investing. Thus it is vital to understand how much financial risk particular investors are willing to accept. Demographic and socioeconomic variables are investor personality features that can make each investor stand out while making investing decisions.   Methods: This research uses a quantitative approach by distributing questionnaires to a sample of experienced investors in Indonesia. Primary data for the study and analysis is collected through a structured questionnaire. The total number of respondents in this study was 184 eligible respondents.Financial risk tolerance as the dependent variable is influenced by independent variables, namely financial literacy and financial interest. There are control variables, namely demographic and social-economic characteristics like age and income. The analysis method used is Structural Equation Modeling analysis.   Result & Conclusion: The results are that financial literacy does not affect financial risk tolerance, financial interest affects financial risk tolerance, and age and income do not affect financial risk tolerance. These results show that every investor's interest in emerging news can help investors in choosing investments and planning finances   Implications of the research: Based on the results of the research and discussion that has been carried out, financial literacy, age, and income do not affect the financial risk tolerance of individual investors in Indonesia. In contrast, financial interest has a significant positive effect on the financial risk tolerance of individual investors in Indonesia. Future research can investigate investor personality and investor interest in financial well-being. Originality/value: Research on financial behavior is new in Indonesia, especially during a pandemic when many investors in Indonesia are jumping on the financial investment bandwagon. For this reason, this research has originality value in terms of knowing the demographics of Indonesian investors, financial literacy, and financial interest in financial risk tolerance.