Using a unique multi-wave dataset from nationally representative surveys in Portugal (2015, 2020, and 2023), this study extends the household finance literature by examining the mechanisms linking financial literacy to capital market participation. We propose and test a moderated mediation framework, arguing that the relationship is channeled through the mediating roles of financial resilience and self-efficacy and is contingent upon sociodemographic moderators. Our findings reveal a decline in average financial knowledge between 2015 and 2020/23, with persistent gaps across socioeconomic groups. Empirical results from count, logit, and ordered logit models provide strong evidence for partial mediation; financial literacy significantly enhances a household’s financial resilience, which in turn is a strong positive predictor of participation in stocks, bonds, and mutual funds. Furthermore, we find that perceived financial knowledge is a more powerful direct driver of participation than objective knowledge. Crucially, these pathways are powerfully moderated by income and education, highlighting that socioeconomic status is a fundamental boundary condition for converting knowledge into investment behavior. The results challenge simplistic direct-effects models and suggest that policy initiatives aimed at boosting market participation, such as the Portuguese National Plan for Financial Education, must look beyond knowledge dissemination to also foster financial resilience, self-efficacy, and address structural inequalities.
Abreu et al. (2025) studied this question.