Financial socialization, strength of social ties and investment literacy of investors in peer-to-peer (P2P) lending platforms

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Abstract

This study explores survey data of investors in peer-to-peer (P2P) lending aiming to assess their investment literacy, how this literacy is affected by their financial socialization and the strength of their social ties, and whether this effect differs among investors’ sociodemographic groups. Our research model was built based on Gudmunson and Danes (2011), Gudmunson et al. (2016) and Potrich et al. (2016). It measured investment literacy, assessing three components — knowledge, skills and attitudes; included multiple socialization agents; and investigated both direct and indirect effects of financial socialization. Descriptive and reliability analysis, confirmatory factor analysis (CFA), t-tests, analysis of variance (ANOVA) and second-order structural equation modeling (SEM) analysis were employed. The results indicate that the investment literacy of P2P lending investors is high. The compound direct effect of financial socialization on the overall level of investment literacy was found to be positive and stronger than on its individual components. Although the strength of social ties had a strong influence on financial socialization, its indirect effect on investment literacy was rather weak. Peers proved to be the main socialization agent and exhibited the strongest social ties with the respondents. The strongest effect of financial socialization on the investment literacy was identified for P2P lending investors in 18–34 years group working in the financial sector with a net monthly income below 1500 euros. The research contributes to the existing literature by providing the methodology and valuable insights into the level of financial literacy among P2P investors and how investment literacy is or is not formed under social interaction in a close social environment.

Keywords: Investment Literacy, Financial Socialization, Strength of Social Ties, P2P Lending, SEM

Authors’ individual contribution: Conceptualization — R.L., G.L., and A.G.; Methodology — R.L.; Formal Analysis — G.L.; Resources —A.G.; Data Curation — R.L. and G.L.; Writing — Original Draft — R.L.; Writing — Review & Editing — G.L. and A.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G41, G53

Received: 21.10.2022
Accepted: 15.03.2023
Published online: 17.03.2023

How to cite this paper: Legenzova, R., Leckė, G., & Gaigalienė, A. (2023). Financial socialization, strength of social ties and investment literacy of investors in peer-to-peer (P2P) lending platforms [Special issue]. Journal of Governance & Regulation, 12(1), 307–322. https://doi.org/10.22495/jgrv12i1siart10