Navigating Time-Inconsistent Behavior: The Influence of Financial Knowledge, Behavior, and Attitude on Hyperbolic Discounting

Hyperbolic discounting is a psychological phenomenon in which individuals prioritize smaller immediate rewards over larger future rewards. Time-inconsistent behavior is deemed irrational as it negatively impacts savings and investment, investment in financial knowledge, and long-term financial and personal well-being. This study hypothesizes that improving financial knowledge, promoting positive financial behavior, and fostering a future-oriented financial attitude can mitigate hyperbolic discounting bias and that these three components of financial literacy enable investors to make long-term economic decisions maximizing utility. We analyzed the responses of 114,170 active investors in Japan to examine the interactions between financial knowledge, behavior, and attitude. Our findings reveal a strong negative relationship between these dimensions and hyperbolic discounting, underscoring their crucial role in shaping individuals' intertemporal preferences. For researchers, our results highlight the need to integrate multidimensional aspects of financial literacy into investigations of intertemporal discounting behaviors. Policymakers should implement holistic financial education programs that improve knowledge, transform behavior, and shape attitudes. Financial institutions and advisors should prioritize programs that mitigate hyperbolic discounting tendencies among clients. This study represents a significant advancement in the research on financial literacy, offering a comprehensive framework for future studies and practical applications aimed at improving financial decision-making outcomes.