Crypto ownership among young people: the effect of financial literacy, risk propensity and behavioural biases

This paper analyses the effect of financial literacy and risk propensity on cryptocurrency investment decisions. We use probit regression models on a cross-sectional sample of 4924 Italian respondents from the 2023 Bank of Italy survey on financial literacy among young people. We find that both literacy and risk propensity are strongly and positively associated with crypto ownership. Crucially, high risk propensity emerges as a key driver of crypto ownership even among individuals with low financial literacy, who are also more susceptible to behavioural biases. To address potential selection bias and endogeneity in our cross-sectional data, we validate our findings using a Propensity Score Matching (PSM) approach, comparing highly similar investors and non-investors. Our results are further confirmed using a set of Linear Probability Models (LPM), alternative measures of our interest variables, and a sample inclusive of all age groups. This study highlights the critical role of financial literacy in fostering conscious risk-taking and avoiding behavioral traps, with significant implications for regulatory and policy interventions, particularly for young investors.