The Influence of Overconfidence on Investment Decisions: The Mediating Role of Financial Literacy (A Study of Millennials and Generation Z in the Solo Raya Area)

Abstract

This study aims to examine the influence of overconfidence on investment decisions, with financial literacy serving as a mediating variable. The population comprised Millennials and Generation Z residing in the Solo Raya Area, Indonesia. A total of 178 respondents were selected using a non-probability sampling technique with a purposive sampling approach. Data were analyzed using Partial Least Squares–Structural Equation Modeling (PLS-SEM) with SmartPLS 4 software.

The findings reveal that overconfidence has a positive and significant effect on financial literacy. Furthermore, both overconfidence and financial literacy positively and significantly influence investment decisions. The mediation analysis also demonstrates that financial literacy significantly mediates the relationship between overconfidence and investment decisions. These findings suggest that although overconfidence represents a behavioral bias, it can encourage individuals to improve their financial knowledge, ultimately leading to more rational and informed investment decisions.