The Effects of Financial Literacy, Income, and Risk Preference on Investment Decisions: The Mediating Role of Return Perception

Abstract

This study explores the influence of financial literacy, income, and risk preference on investment decisions, with return perception as a mediating variable among millennial investors in Yogyakarta. A quantitative approach was applied, using questionnaires distributed to 110 respondents who had engaged in investment activities at least once. Data analysis was conducted with SmartPLS 4.0 to examine both direct and indirect effects. The findings indicate that financial literacy and risk preference significantly and positively affect investment decisions, while income shows no direct effect. Return perception has a significant positive impact on investment decisions and mediates the relationship between income and risk preference with investment decisions, but does not mediate the effect of financial literacy. These results highlight the importance of psychological and economic factors in shaping millennial investment behavior. Return perception emerges as a key mechanism that bridges rational aspects, such as income, and behavioral aspects, such as risk preference, in determining investment choices. The study provides implications for policymakers and financial institutions to strengthen literacy programs and design strategies tailored to millennial investors.