A portfolio-focused behavioral model linking financial literacy and risk tolerance: Evidence from mutual fund investors in Türkiye

Abstract

This study develops a portfolio-focused behavioral model to investigate how the multidimensional components of financial literacy—knowledge, attitude, and behavior—shape financial risk tolerance among mutual fund investors in Türkiye. Whereas most papers evaluate the influence of financial literacy on investment decisions using broad investor samples, this study centers on individuals who make professionally managed, portfolio-based investment decisions, thereby making a contribution to the literature. Mutual fund investors typically have higher financial awareness and structured decision-making processes, enabling a more nuanced analysis of the impact of financial literacy dimensions on risk tolerance. Drawing on behavioral finance, financial capability theory, and the theory of planned behavior, the model traces direct and indirect paths from literacy components to risk preferences. Based on data from 703 Turkish mutual fund investors and using validated Organization for Economic Cooperation and Development (OECD)/International Network on Financial Education (INFE) and Grable-Lytton scales, our structural equation model (SEM) reveals that financial behavior is the primary driver of risk tolerance, mediating the influence of knowledge and attitudes. These findings emphasize that financial literacy translates into risk-related decision-making primarily through behavior. The study highlights the behavioral dynamics of financial capability in emerging markets and calls for financial education programs that go beyond knowledge transfer to cultivate actionable attitudes and proactive behaviors among informed investors.