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The role of financial literacy in reducing financial distress: What if consumers were perfectly financially literate?

Year: 2024

Type: article

Abstract: Using longitudinal data from the Panel Study of Income Dynamics (PSID), this study examines the extent to which financial literacy can mitigate financial distress. Employing a “what if” analysis, we simulate the effect of maximizing financial literacy on the likelihood of experiencing financial distress. We show that raising financial literacy to its highest level could prevent financial distress for a group of households facing moderate financial distress. Our results also imply that financial literacy is not a panacea for consumers' financial problems as those facing high risk of financial distress seem to be not affected by financial literacy. Interventions beyond financial literacy might be needed to effectively address financial distress.

Source: Journal of Consumer Affairs

DOI: 10.1111/joca.12605

Authors: Piotr Białowolski, Andrzej Cwynar, Dorota Weziak‐Bialowolska

Institutions: Kozminski University, Harvard University, University of Economics and Innovation, University of Rzeszów

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: No poverty

Open Access status: bronze

OpenAlex ID: W4403566190

FWCI: 4.043

Cites: 100

Cited by: 4

Related to: 10