THE INFLUENCE OF FINANCIAL LITERACY AND PSYCHOLOGICAL BIASES TOWARDS INVESTMENT DECISION (A STUDY OF GEN Z AT JABODETABEK)

Abstract

Investment decisions are a process influenced by both emotional and logical elements. Although financial literacy is very important, many psychological biases, including FOMO, herding behavior, optimism bias, and overconfidence bias, can significantly influence investor decisions, especially among Generation Z, who are very linked to technology and social media. This study is to examine how financial literacy and psychological biases affect Gen Z's investment decisions in Jakarta, Bogor, Depok, Tangerang, and Bekasi (Jabodetabek). Using Structural Equation Modeling–Partial Least Squares (SEM–PLS), a quantitative method was applied. The data were gathered from 131 valid respondents using a Likert-scale questionnaire that was distributed using cluster sampling across five cities: Jakarta, Bogor, Depok, Tangerang, and Bekasi. The findings show that investing decisions are significantly influenced by herding behavior, optimism bias, and financial literacy. On the other hand, overconfidence bias and FOMO do not have a significant impact. These results suggest that Gen Z, while very financially knowledgeable, is still vulnerable to social dynamics like a tendency to follow the crowd (herding) and too optimistic in investing results (optimism bias). This research suggests that financial education programs should be developed to assist young investors in making more informed and resilient investment decisions by not only highlighting technical knowledge but also increasing awareness of psychological influences.