Risk Tolerance as a Mediation Mechanism between Financial Literacy and Investment Decisions Among Students

Abstract

Purpose: to analyze the influence of financial literacy on investment decisions among students, with a focus on risk tolerance Research Methodology: This study uses a quantitative method and is analyzed with the help of smart PLS tools. The survey in this study was conducted by distributing an open questionnaire through the G-form. Results: . The results show that risk tolerance significantly mediates the influence of financial literacy on investment decisions. This means that financial literacy not only directly influences investment decisions but also does so primarily by increasing students' risk tolerance. Conclusions: Financial literacy has been shown to have a strong and substantive influence on risk tolerance, suggesting that increased financial understanding contributes to the formation of a more open attitude towards investment uncertainty. Risk tolerance, in turn, has a more dominant influence on investment decisions than financial literacy, confirming its position as a key determinant of student investment behavior. Limitations: The limitation of this study is the limited age of the students who are sampled, so for generalizations it still needs to be tested again. Contributions: Theoretically, these results enrich the behavioral finance literature by confirming that investment decisions are not only determined by knowledge but also by the psychological factors that shape an individual's readiness to face risk. In practice, these findings imply that financial education programs in college not only focus on improving cognitive financial literacy but also include training using risk simulations, paper trading, and market case studies to build more realistic and proportionate risk tolerance.