With the rapid evolution of financial technology and the complexity of financial institutions, financial literacy is a topic of interest worldwide. The level of financial literacy has a significant impact on how people invest. One area where financial literacy is crucial, is in investing. Risk perception and portfolio diversification are other key factors in investment decision-making. This upbringing of Gen Z, in a rapidly evolving world, could have an impact on the general level in terms of level of financial literacy and financial decisionmaking for investors. The main purpose of this study is to analyze how different levels of financial literacy influence investors’ risk perception as well as their decisions regarding their portfolio diversification among Gen Z investors in Sweden. This, with the help of a qualitative method composed of semi-structured interviews, the implementation of the prospect theory and by adopting a behavioral finance approach.  This study’s result shows that while enhancing financial literacy is important, it alone is not enough to predict or guide investment behavior among Gen Z investors. It demonstrates that a combination of financial literacy, emotional and psychological biases influence risk perception and portfolio diversification and therefore Gen Z’s investment behavior.