The Effect of Financial Literacy, Investment Decision, and Overconfidence on Mental Accounting in The Term of Investing in Cryptocurrency

. Investment is a financial activity known by many people. With the advance of technology, people can now invest in digital currency. The purpose of this study is we would like to know the factors affecting mental accounting. Whether financial literacy, investment decision, and overconfidence affect mental accounting regarding investment activities in cryptocurrency. To do this, we use a quantitative method with six-point Likert scale questionnaires as a measurement to collect samples. The questionnaires are shared with individuals from different regions that have or do not have an experience in investing activities. In addition, the demographic is further categorized into age, gender, and education level. We got 279 samples, mainly from Southeast Asia and a few from East Asia, Europe, and North America. The data will be processed using SEM-PLS software to conduct the result. The finding implies that investing in cryptocurrency is strongly affected by the investor’s behaviour, such as mental accounting. Overconfidence is a significant factor contributing to investors’ mental accounting and investment decisions, while financial literacy is only associated with decision-making and not related to mental accounting.


Introduction
Investment is an activity to commit resources to achieve later benefits, which is common in a financial activity.In recent years, COVID-19 broke out, resulting in significant changes in many sectors, and which financial sector also got affected by it.Fortunately, technology has developed drastically, as we can see in this current period.Many individuals are doing their activities from home using the internet, thus increasing the use of the internet to do investing activities, and people also start trying cryptocurrency investments.The virus outbreak also caused most financial markets to change drastically, ranging from 10% to 0% in one day [1,2].The cryptocurrency market was already really liquid, with the fall of the financial market making it much riskier to invest in it.Even with the high risk of cryptocurrency, people still tend to invest in it.
Cryptocurrency is a digital currency created using encryption algorithms.After the accelerating technological innovation started, many aspects changed drastically, especially when the Internet of Things (IoT) and blockchain were introduced.This blockchain later functions as the base of cryptocurrency.As usual, how currencies work, this digital currency known as cryptocurrency can be used as an alternative form of payment with a peer-to-peer exchange system.Many digital currencies such as Bitcoin, Ethereum, and Litecoin are the most known within cryptocurrency.However, even as an exchange method on computer networks, cryptocurrency is not controlled by any government authority or banks.Therefore, without any safety organization or legal laws overseeing these coins other than the system itself, we can say that it is one of these digital currencies risks.The transactions on the crypto market are visible to the public, but the person's identity remains anonymous.It can be a part of fraud or hacks.Another risk that often occurs in cryptocurrency is liquidity.The crypto market is always open 24/7, even on holidays and weekends.Hence it is impossible to monitor the growth every time.This makes the currency easy to increase or decrease drastically or, in other words, very liquid.Many people argue that stock is risky, but cryptocurrency is the riskiest investment distinct from stock now because it is not tangible.But it is not the real problem because cryptocurrency tends to be volatile with unexpected occasions.Significant incidents may affect the price of currencies, not their liquidity.Al-Yahyaee, Mensi, Ko, Yoon & Kang [3] stated that market efficiency is still high even with high liquidity but low volatility.If both liquidity and volatility are high, then the market becomes inefficient.
With all the high risks in making a cryptocurrency investment, it is usual for an individual with excellent financial literacy or financial knowledge background to do well in this activity.There are studies about financial literacy, financial knowledge, and the financial outcome.Fernandes, Lynch, and Netemeyer [4] did a study to explain the benefit of using financial literacy.They assessed financial literacy and found that positive financial behaviour is positively associated.They also find that an individual with an intervention in their financial literacy and knowledge has minimal impact on their financial behaviour.These findings cause a conflict regarding the study.A study conducted by Bernheim, Beret & Maki [5] found that individual who has an excellent financial education since high school has good financial literacy and higher subsequent saving rate, while Mandell [6] finds mixed result and also suggest that a good financial education since high school does not associate with financial literacy but they do find that it is related to financial behaviour of an individual.
Investing in a stock market is already risky, but investing in cryptocurrency is a lot riskier, hence investing in cryptocurrency.Mushinada & Veluri [7] stated that investors needed rational decision-making to achieve the most valuable outcome.Not only that, another study by Kahneman & Tversky [8] said that under uncertainty, an individual's behavioural aspect would affect their judgment in the related activity.Furthermore, a recent study by Rahman [9] documented the correlation of behavioural factors with the risk from the activity.In the behavioural factor, overconfidence is one factor that will have the most effect on investor decision-making rationality because investors tend to overestimate their ability and underestimate the risk of investing in cryptocurrency.An investor must look at the factor that can help make a rational decision.
With investing in cryptocurrency, behavioural finance will play a significant role because it will be used to take action while playing with investment activities [10].Financial behaviour will help an individual to enhance the ability to regulate daily planning, budgeting, checking, managing, and storing funds.In previous research that had been done, psychology had been a factor that affected investors in doing their activity [11] and one of them is mental accounting.Mental accounting has a significant role in making decisions for investment activities.Still, it usually causes the investor to make an irrational decision and can make an individual behave counterproductively [12].
Therefore, the primary purpose of this study is to find if there is an effect on people's mental accounting regarding their investment activities in cryptocurrency.It is dire to know what will affect an investor's mental accounting.Hence, it is possible to make a rational decision regarding the risk of investing surrounding cryptocurrency during a financial crisis time.For the study, it can raise several questions: 1.Does financial literacy affect mental accounting? 2. Does investment decision affect mental accounting? 3. Does overconfidence affect mental accounting? 2 Literature Review

2.1.Behavioural finance Theory
The study of investment activities is affected by many factors, and one of them is behavioural finance which is connected to psychology and other types of investor behaviour in handling information and taking action in many financial situations [10].
It is stated by Barber & Odean [13] that behavioural finance is a factor that will lead an investor to make a financial decision such as for investment.Regarding investment decisions, behavioral finance is highly correlated with mental accounting, and overconfidence usually results in decision-making later on.
Mental accounting can be described as a process of categorizing and evaluating money to see the economic outcome [14].With the uncertainty and the high risk of cryptocurrency, an individual's cognition is highly affected by emotion, resulting in irrational, partially rational decisions [12].
This Study assumes that an individual's mental accounting is affected by psychological factors such as overconfidence and knowledge factors such as financial literacy.

2.2.Financial Literacy
In many financial activities, it can be concluded that financial literacy will lead people to better financial behaviour [15].Financial literacy can be defined as an individual's ability to understand how to manage their financial activities, Remund [16] defines financial literacy as a measuring degree of an individual understanding of the key financial concept and ability to manage financial activities through a short-term decision making and longterm planning on economic conditions.
Mandell [17] stated that financial knowledge is essential to make a financial decision such as investing.It is known that an individual with good financial literacy is more likely to participate in the stock market, and someone that has a low level of financial literacy, especially less knowledge about stocks and bonds, will participate less often in stock market activities [18].
Previous research has provided evidence that financial literacy has a significant role in making decisions.It is known that it has a significant effect on making judgments about investment-related decisions [19].In making an investment-related decision, it is usually associated with mental accounting.Baker, Kumar, Goyal & Gaur [20] stated that mental accounting biases are associated with financial literacy.Still, other research from Takeda, Takemura & Kozu [21] said otherwise because the increase in financial literacy does not appear to be associated with mental accounting biases.
In terms of investing in cryptocurrencies, Zhao & Zhang [22] stated that financial literacy was found to be associated with investing in cryptocurrency, although it is not statistically significant.It is also stated that investment experience significantly impacts investing in cryptocurrency [23].But in the end, Zhao & Zhang [22] also stated that even though investment experience is a greater factor for investing in cryptocurrency, a high rate of financial literacy will help to enhance the experience that individuals have.
Regarding the topic, it can be said that financial literacy affects investment activities.It also raises questions regarding the literacy could also have affected an individual's mental accounting during investment activities, so it raises a hypothesis: H1.Financial literacy has an effect on an individual's mental accounting in regard to investing in cryptocurrency.

2.3.Investment Decision
Investment is an activity to get profit in the future by putting some funds into certain businesses in the capital market.In general, people make investments to gain more wealth.However, investment needs enough knowledge and skill to reach their financial goals.Intuition about business would also be necessary to determine which stock to buy or sell.Bodie, Kane & Marcus [24] in Santi, Sahara, & Kamaludin [25] stated that there are two important aspects in investment which are return and risk.These aspects will mainly affect investment decisions and mental accounting.Investment decisions can affect mental accounting depending on the purpose and income.There are dimensions in investment decisions, such as what, where, when, how much, or how long the investor is willing to invest.The aspects, especially the risks, will affect the psychology of the investors in decision-making.Because if the investors decide to use unspent money, they will likely not overthink it if their investment fails.The investor's purpose also plays a role in whether they focus on the gains or losses.Usually, investors are more likely to become loss aversion if they run into loss in the first place.On the other hand, if they have a gain first and then a loss, it is less influential because the loss is covered by the previous gain [26].

H2. Investment Decision has an effect on an individual's
mental accounting in regard to investing in cryptocurrency.

2.4.Overconfidence
Overconfidence is a subjective view or assumption of people being confident in their ability rather than actual performance.In terms of investing, it can occur when people feel too confident with their financial judgment when estimating the risks [27].Overconfidence has a significant effect on investment decisions.For example, the easiest way to see overconfidence bias is from gender differences.Barber & Odeans [27] stated that Male investors tend to be more overconfident compared to female related to investments.Male investors believe they are more competent with their financial knowledge and skills than female investors.This competence is considered masculine because man is more dominant in financial matters.
Meanwhile, higher financial literacy affects investment decisions, leading to overconfidence [28].For female investors, the effect of high financial literacy on overconfidence bias is more likely to emerge rather than male-related investment decisions [29].This overconfidence later may affect mental accounting caused by loss when people are too confident in investment decisions.
H3. Overconfidence has an effect on an individual's mental accounting in regard to investing in cryptocurrency.

Methodology
This study uses questionnaires to collect data about mental accounting.The questionnaire has four sections: the demographic section and three other sections for the variable items.For the questionnaire items, we used multiple paper sources as references.Kirchler [34] In the questionnaire, each section will use a 6-point Likert scale to gather the respondent's answers.The point of using a 6-point Likert scale is to avoid a biased respondent response or an answer that the respondent does not want to answer willingly to the question the researcher has asked [35].The 6-point Likert scale will be 1 = strongly disagree, 2 = Disagree, 3 = Somewhat disagree, 4 = Somewhat Agree, 5 = Agree, 6 = Strongly Agree.
The questionnaire's target respondents are individuals still studying in high school and above, and it is open to individuals who never did an investing activity.The questionnaire will not be focused on one specific region.
It is an open questionnaire for regions, e.g.as, South East Asia, East Asia, Europe, and North America.
From the questionnaire that was given using a Google form, the total respondent collected was 279.This study used the Structural Equation Model-Partial Least Square (SEM-PLS) to measure the variable.This analysis method uses validity and reliability tests to measure the consistency and accuracy of variables.

Results
This study uses SmartPLS version 3.2.9, a structural equation model or SEM software that aims to test 2 or more relations between variables that are usually difficult to measure using a technique such as combining factor analysis and regression analysis to show the result between those variables [36].

Sample Demographic
From the shared questionnaires, we managed to get 279 respondents.The respondents are mostly from Asia, mainly Southeast (86.4 percent) and East, with a few from Europe and North America.For age, the number of respondents mainly varies between under 26 (36.2 percent), 27 -42 (23.7 percent), and 43 -58 years old (33.3 percent).Meanwhile, gender is dominated by males (73.5 percent).Education is mostly filled with undergraduate (42.7 percent) or graduate students (40.5 percent).Therefore, jobs are dominated by students (31.2 percent) and workers (51.9 percent).Most of the respondents who filled out the questionnaire know about doing investment activities (88.9 percent).Despite that, most of the respondent's experience in investment-related activities is less than two years (61.7 percent), followed by 2-5 years of experience (29.0 percent).

Validity Test
Figure 1 shows the estimated measurement model.The data that had been collected from the questionnaire had been imported and examined with SmartPLS software.As it is presented in Image I, there are 4 indicators which are X1 (financial literacy), X2 (investment decision), X3 (overconfidence) & Y (mental accounting).The SEM PLS application will indicate if the indicator is valid or not by the number provided.If the indicator has a result <0.7, it means that it is not valid, and if the result is >0.7 it means that it is valid.After importing the data, it can be seen that from the four indicators, there are two estimated indicators that have a result below 0.7 which are FL 4 and ID 4. Because these two indicators have a result below 0.7, it is not valid and therefore cannot be used.The two invalid indicators (FL4 & ID 4) will be removed and the PLS Algorithm will be recalculated to make the valid estimation model.

Average Varia3nce Extracted (AVE)
From the recalculation of the valid estimated model, calculating Average Variance Extracted (AVE) is the next step of convergent validity after outer loadings to ensure no more invalid variables.The value of AVE that is considered valid is >0.5 because if the AVE is greater than 0,5, it means that the latent variable has the ability to explain more than half of the indicators on average [38].
If there is an AVE value <0.5 it indicates that the variable is not valid and needs to check back the outer loadings.
From Table 2 it can be concluded that all the indicator's AVEs are >0.5 so it can be concluded that there are no more invalid variables.

R square
R square is a value that shows how much an independent variable affects a dependent variable.The value in R square ranges between 0 to 1, indicating the effect of a combination of the independent to dependent variables.Chin [37] stated the value of R square is categorized into three categories, which are strong (>0.67),medium (ranging between >0.33 and <0.67), and low (ranging between >0.19 and <0.33).The argument is also supported by a recent study from Hair, Ringle, and Sarstedt [39] with the three categories' limit slightly different, which is strong (0.75), medium (0.50), and low (0.25).
In this table, we use R square adjusted to prevent problems that usually happen on normal R square, whose value always increases if a new independent variable is added to the model.On the other hand, adding additional variables using R square adjusted does not always result in increased value, making it more accurate.To be concluded, based on the table, we can see that the value of the dependent variable (Y) is 0.767, which enters the strong effect category (>0.75).This means that independent variables can explain 77% of dependent variables while the remaining 23% is considered outside the scope of independent variables and cannot be explained.

Hypothesis Testing
Hypothesis testing is done using bootstrapping one of the SEM PLS applications.Bootstrapping is a process to evaluate the significance level or the probability of the direct effects, indirect effects, and total effects.The bootstrapping process generates the result to test the significance, which is the T-statistics and the P-value.The T-statistics is a value used to test a hypothesis's significance, which can be seen from the T-statistics result.If the T-statistics is >1.96, then the hypothesis testing is significant, and if the T-statistics is <1.96, then the hypothesis testing is not significant [38].
A P-value is used to check if the value of a variable is below a significant level.The P-value testing can be seen by using the significance rate of 5% (0.05).If the value is >0.05, the H0 is accepted, and if the value is <0.05, that means the H0 is rejected [38].Hypothesis 1 (H1) is to test if financial literacy (X1) has an effect on an individual's mental accounting (Y) in regard to investing in cryptocurrency.Based on the table, it is stated that the T-statistic for financial literacy (X1) is 1.325.This value is <1.96, meaning the hypothesis testing is insignificant.For the P-values, it is 0.186, which is >0.05, therefore, H0 is accepted means that financial literacy does not affect an individual's mental accounting in regard to investing in cryptocurrency.
Hypothesis 2 (H2) is to test if an investment decision (X2) has an effect on an individual's mental accounting (Y) in regard to investing in cryptocurrency.Based on the table, the T-statistic for investment decision (X2) is 2.397.This value is >1.96, meaning the hypothesis testing is significant.For the P-values, it is 0.017, which is <0.05, therefore, H0 is rejected means that the investment decision affects an individual's mental accounting in regard to investing in cryptocurrency.
Hypothesis 3 (H3) is to test if overconfidence (X3) has an effect on an individual's mental accounting (Y) in regard to investing in cryptocurrency.Based on the table, it is stated that the T-statistic for overconfidence (X3) is 41.191.This value is >1.96, meaning the hypothesis testing is significant.For the P-value, it is 0.000, which is <0.05, therefore, H0 is rejected means that overconfidence has an effect on an individual's mental accounting in regard to investing in cryptocurrency.

Discussion and Conclusion
This study aims to examine whether there is an effect of financial literacy, investment decision, and overconfidence on people's mental accounting in terms of cryptocurrency investing.Since the COVID-19 virus outbreak in 2019, internet use has been increasing, and many people, mostly Generation Z, millennials, and even Generation X are doing investment activity, which has been proven from the demographic result.Investing experience is known to have a high correlation with making a rational investment decision because it is more influential in doing investment activities, furthermore cryptocurrency [22].But that does not show if it affects people's mental accounting.This study finds that behavioural bias has a high correlation with mental accounting.It is also known that psychological factors do affect investors in making a rational decisions [11].
Based on the findings, a conclusion can be stated that financial literacy is not associated with mental accounting.It also agrees with previous research by Takeda, Takemura & Gozu [21] that stated that financial literacy contradicts it.This finding also contradicts Baker, Kumar, Goyal & Gaur's [20] finding that stated financial literacy positively correlates with mental accounting.Mental accounting being part of behavioral finance theory, which is highly correlated with psychology, is highly affected by other psychological factors such as behavioural biases.With the high psychological factors from the data result, it can be stated that the higher the psychological factors, the lower the financial literacy will affect mental accounting.This suggests that financial literacy will show a minimum impact on investors' mental accounting in making decisions for cryptocurrency investment investments.But regardless of the result that financial literacy did not affect mental accounting, financial literacy still has a key point in making a significant effect on making a judgment on financial activity.From the data, we can say that 66% of the respondents know the risk of investing in cryptocurrency.Still, financial literacy does not affect mental accounting because it is influenced by psychological factors such as herding bias.
This finding will help individuals to have a better understanding of mental accounting that does not have or has a low influence on financial literacy.Individuals can attend or participate in seminars, discussions, and simulations to improve their understanding of financial literacy.
The next finding regarding investment decisions stated that it affects mental accounting.A study by Nareswari, Balqista & Negoro [31] explained that investment decisions are influenced by behavioural biases that make investors unable to make rational decisions.They also said this behavioural bias limits investors from doing classic financial theory, which is a technical and fundamental analysis.Metawa, Hassan, Metawa & Safa [40] also stated that herd behaviour is a behavioural factor that affects investment decisions.From the theory of mental accounting itself, it is known that mental accounting is highly affected by cognitive or psychological factors and other factors such as age, gender, and education.From the sample gathered, 54% of the respondent's investment decision is affected by family and friends.The result also said that age has a significant effect on investment decisions.Most of the respondents are Generation Z that are influenced by their close individuals.While Generation X is the second largest number of respondents.Which can show that herding biases have a role in it.The investor's decision will affect how they categorize or evaluate their money on a crypto investment, which usually results in irrational decisions.To overcome herding biases, investors could increase their investment decisions and mental accounting to make rational decisions by having more positive external factors and education.
Lastly, according to the data results, we can say that the overconfidence effect is highly significant to mental accounting.From the theory of mental accounting, it is known that mental accounting is highly affected by cognitive or psychological factors such as emotion and overconfidence.It is also affected by age, gender, and education factors.The results of this study were also supported based on the data of the correspondent, which is age, gender, and education level.It is also strengthened by Charles & Kasilingam [41] that concluded age has a significant effect on determining investment awareness.Our result is similar to their study in which Generation Z holds the highest sample amount, followed by Generation X.Generation Z is the youngest generation born close to technology.This may explain why they are more familiar with investing, especially in cryptocurrency concepts, while Generation Z is a more educated worker.For gender, Barber & Odean [27] stated that males invest more than women and have more knowledge in financial matters.This led to males having more confidence than females.Our result is similar to their study because we have 73.5% male samples, and overconfidence is highly significant.Furthermore, with the respondent's education level, mostly undergraduate or graduate individuals, higher-level education investors tend to have more confidence because they are more likely to have a higher understanding.It can be said that overconfidence increased because of knowledge and financial activity such as investment.
Overall, the evidence from this study shows that many individuals with different demographics are doing investing activities.While doing their activity, their mental accounting is affected by overconfidence, which is highly associated with mental accounting and their decision-making according to the behavioural finance theory.It is also concluded that financial literacy is not in accordance with mental accounting.It is also recommended that individuals understand their financial knowledge well because it will improve their financial literacy, which will help investors in their financial judgment and get the experience needed to do investment activities.
The limitations we faced in conducting this study are that our samples cannot cover a larger scope of the study, and the questionnaire cannot be equally distributed, leading to most respondents originating from the Southeast Asia region.We think that the collected samples still counted slightly.For future research, especially global scope, it should be considered to obtain more variates for demographic samples evenly from across the regions.More variables can also be added, such as financial education, gender and age, cognitive biases, and herding biases.In the end, this paper is still far from perfect, but we hope this study helps other researchers collect the data and the references they need.

Fig 1 .Figure 2 .
Fig 1.Estimated Measurement ModelFigure 2. Shows the valid estimated model after the recalculation of the PLS algorithm.In the image it can be seen that the two indicators (FL 4 & ID 4) had been removed resulting in every indicator that is now over 0.7 which has the meaning of the indicator are now valid to be used.An indicator can be stated to meet the convergent

Table 1 .
Summary of Variables and Total Number of Items

Table 3 .
Construct Validity.According to the table, we can see that all variables have both methods of the Reliability Test are high (>0.7).Therefore, the results of the reliability test have met the criteria and all variables are reliable.
[38]Composite Reliability is measuring the real value of reliability while Cronbach's Alpha measures the lower limit value of reliability.The value of reliability that is considered valid or reliable is >0.7.If the reliability value <0.7 is considered not reliable[38].