Universities Fostering Financially Healthy Competencies: Mitigating Domestic Bias for Optimal Decision-Making

Abstract

This study explores the relationship between financial capability and domestic bias in investment decisions among economics and business students at the University of Santiago de Compostela. Financial capability is defined as the combination of knowledge, attitudes, and behaviors that enable individuals to make informed financial decisions and manage their resources effectively. Employing a deductive approach rooted in the theory of bounded rationality and behavioral finance, a questionnaire was administered to 402 first- and fourth-year students. Structural equation modeling (SEM) tested the hypotheses, revealing that financial capability is negatively related to domestic bias. Factors such as financial knowledge, attitudes, long-term planning, price and expense analysis, and preventive behaviors significantly reduce under-diversification in portfolios, thereby benefiting investor's financial well-being. The relationship is further reinforced by the knowledge acquired during the degree program although no direct effect of academic seniority is observed. Although economics and business training may not directly lead to diversified portfolios, it helps mitigate domestic bias. The findings, situated in the Spanish context, provide implications for financial education and investor behavior.