Education of people on the financial world, and the effect of digitalization on the financial world

This thesis examines the relationship between financial literacy, digital tools, and investment behavior, aiming to understand how knowledge and technology influence rational financial decision-making. The study is structured around two main hypotheses: first, that financial literacy/education positively correlates with rational investment decisions, and second, that digital financial tools enhance literacy but may also increase risk exposure for certain users. The first part of the thesis focuses on financial literacy and its role in enabling informed investment choices. It highlights the growing complexity of financial markets and the increasing need for individuals to understand interest rates, inflation, and risk diversification. A key case study is Lusardi & Mitchell (2014), which demonstrates empirically that individuals with higher financial literacy make more rational decisions, supporting the first hypothesis. However, individual literacy alone is not sufficient. Macro-level assessments by banks and institutions are necessary to capture broader patterns, taking into account demographic trends, regional differences, and general knowledge levels. These macroeconomic insights help financial institutions design suitable products, manage risk, and guide clients more effectively. The thesis then explores the psychology of the investor, emphasizing how emotions, cognitive biases, and limited rationality affect financial decisions. The Prospect Theory of Kahneman & Tversky (1979) illustrates how individuals deviate from purely rational behavior. This behavioral perspective informs client profiling practices in modern banking, where digital platforms segment customers by risk tolerance, investment objectives, and time horizon. Digital tools are increasingly used not only to collect and analyze these behavioral data but also to educate users and support decision-making. The second part examines the role of digital financial tools in enhancing literacy and the potential trade-offs involved. It explores how digital advisors, data collection platforms, and AI-based systems personalize investment guidance and improve financial knowledge. At the same time, the thesis addresses the associated risks, showing that enhanced access and automation can lead some users to overconfidence or exposure to unsuitable products. Blockchain technology is analyzed as a means to secure and manage data, while Excel remains a practical tool for reporting and decision support. The integration of AI further enhances data interpretation and predictive modeling, reinforcing the digital paradox of empowerment versus exposure. Overall, the thesis aims to evaluate how financial literacy and digitalization jointly shape investment behavior. By linking individual knowledge, institutional assessment, and technological tools, it contributes to a better understanding of the mechanisms behind rational investment decisions and the challenges posed by the digital transformation of finance.