Role of Knowledge and Risk Tolerance in Emerging Adults’ Financial Planning Behavior

The purpose of this research was to identify how risk tolerance and financial knowledge level influence financial planning behavior of emerging adults in order to identify critical gaps in knowledge for this age cohort. Financial knowledge was measured from an objective and subjective perspective. Financial planning behavior was identified as a composite measure over six financial domains, and later examined individually. Overall, risk tolerance level, objective and subjective financial knowledge of emerging adults were found associated with engaging in a financial planning behavior. When specifically examined, risk tolerance level was positively associated with investment behavior. Objective financial knowledge was positively associated with whether or not one has a retirement plan. Subjective financial knowledge was positively connected to possessing an emergency fund. Implications for improving financial planning behavior of young adults are also discussed.