Understanding the Influence of Financial Literacy and Risk Awareness on Investment Decisions and Economic Growth

Abstract

Investment is a crucial element in both the economy and individual financial planning, as it plays a significant role in driving economic growth, creating employment opportunities, and enhancing societal welfare. For individuals, investment serves as a tool to achieve long-term financial goals and protect assets from inflationary pressures. However, every investment carries inherent risks, including potential capital losses due to market fluctuations and uncertain economic conditions. Understanding these risks and maintaining a high level of financial literacy are key determinants of investment success, particularly for novice investors. The capital market, as a platform for trading long-term financial instruments, also plays a pivotal role in connecting surplus and deficit funds within society. This study aims to review the relationships among financial literacy, investment risk, and the capital market in promoting economic growth by synthesizing the latest empirical and conceptual literature. By analyzing contemporary findings, this review highlights the importance of informed decision-making, risk management, and financial education in optimizing investment outcomes and supporting sustainable economic development.