Abstract:
Online brokers and robo advisors frequently use investment simulation tools to visualize portfolio choices and illustrate investment scenarios to their clients. I conduct a survey experiment to study whether people understand such a simulation tool. I analyze how using it might affect individual financial knowledge, confidence in financial decision-making skills, and motivation to deal with the topic of "saving and investing". In addition, an advice-giving task is implemented to test for mutual reinforcement effects. I find that even a simplified simulation tool is challenging to understand for a lot of individuals. Only those who are able to comprehend the tool are able to improve their financial knowledge related to the tool's content. A successfully completed advice-giving task boosts confidence for those with initial below-median confidence levels. Furthermore, there is a positive short-term effect on motivation. In the medium term, however, participants are rather discouraged to take further actions. Overall, this calls for the careful design and implementation of investment simulation tools, especially for less financially literate individuals.
