This study, with a focus on the specific characteristics of Iran’s capital market, examines through which channels and mechanisms financial education leads to improved decision‑making quality among retail investors, and whether the strength or nature of this effect changes during periods of market stress and crisis.
The theoretical framework is grounded in decision‑making under complexity, based on the premise that financial education—when conceived as a structured learning exposure—enhances outcomes only insofar as it is first transformed into functional financial literacy. This literacy reflects investors’ operational capability to apply concepts such as risk, return, diversification, and the interpretation of corporate disclosures. It then becomes embedded in investment behavior through mediating mechanisms, including systematic information processing, behavioral self‑regulation, and sensitivity to risk governance.
The research data were collected from retail investors residing in Tehran and Karaj. After applying quality‑control filters and excluding invalid responses based on attention‑check items, the final analytical sample consisted of 296 respondents. The research instrument was a Likert‑scale questionnaire, whose validity and reliability were confirmed using ordinal confirmatory factor analysis with the WLSMV estimator.
Findings from structural equation modeling and mediation analysis using a 5,000‑resample bootstrap procedure indicate that the effect of financial education on decision‑making quality does not operate through a simple direct relationship. Instead, it is transmitted predominantly indirectly, through functional financial literacy and associated behavioral mechanisms.
In the final stage, results from moderation analysis and the Johnson–Neyman technique provided new insights into investor behavior. The findings show that the effect of functional financial literacy on decision‑making quality intensifies under higher levels of market pressure and loss experience. This phenomenon underscores the protective and resilience‑enhancing role of functional financial literacy in the volatile and low‑liquidity environment of Iran’s capital market. In other words, during crisis conditions, the distinction between high‑quality decisions and emotionally driven behaviors depends more than anything else on investors’ level of executional competence and behavioral discipline.