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ABSTRACT
Financial literacy is urged more in the present because there many alternatives to reach the individual financial goal through both real asset and financial asset. The more alternatives of investment instruments are caused by derivative products with the return derived from the performance of underlying assets both commodities related and financial related. Beside legal financial products, there also various illegal investment types. One of the prominent phenomenon of progress in investment activities is "get rich quick scheme" through Ponzi Scheme and Pyramid Scheme. Both schemes are type of junk investment schemes where actually return on investment paid to investors comes from the other investors or not from real investment activities. This study was concluded that positively financial literacy influenced investment decision through both schemes. It is freaky because the people with good financial literacy are still trapped under these junk investment trick modes. It was assumed that there were the other factors as the example, psychological factor like individual greed that influenced the financially literate people to invest through both junk investment schemes. It was also suggested a modification in financial literacy measuring because the existing financial literacy measuring tools had not been able to accommodate the understanding of scam investment.
JEL Classification: D53; G10.
Keywords: Financial Literacy; Ponzi Scheme; Pyramid Scheme; Junk Investment.
1.INTRODUCTION
Financial literacy is a serious issue in the present social life. Some surveys have consistently indicated that low level of financial literacy does not occur at low income countries and middle income countries only. But, it is also an actual and serious problem in high income countries. Such problem will not only cause negative impact of individuals and families, but it also gives a negative impact of common society. Jappelli (2010) classified the economic literacy benefits into three fold. They were benefits in terms of assets, debt side, and macroeconomic side. In terms of assets, economic literacy is important because of the presence of increasingly numerous financial products in the present. Low level of financial literacy can lead to non-optimal diversification of risks, inefficiency of portfolio allocation, and low amount of savings.
From the point of view of debt, lending money in the mortgage market, unwise credit card ownership, and increase in consumer credit may higher financial risk...