Financial Literacy: The Role of the Local Context

• Published date: 01 December 2019
• Author: Doriana Cucinelli,Paolo Trivellato,Mariangela Zenga
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joca.12270

1874 THE JOURNAL OF CONSUMER AFFAIRS

DORIANA CUCINELLI, PAOLO TRIVELLATO,

AND MARIANGELA ZENGA

Financial Literacy: The Role of the Local Context

In this article, we investigate the roleof local factors associated with the

nancial literacy of Italian adults (no. 945). Using a multilevel regres-

sion model, together with the common socioeconomic and sociodemo-

graphic variables already used in previous studies, we also add certain

environmental variables at the local level. We separately analyze the

three indexes that dene the OECD nancial literacy index—Financial

Attitude Index (FAI), Financial KnowledgeIndex (FKI), and Financial

Behavior Index (FBI)—because they show a dynamic of their own in

each region. Our ndings conrm that the FKI and the FAIare associ-

ated to some extent with environmental traits, while the FBI is not. We

conclude that not only the sociodemographic and socioeconomic con-

ditions of individuals but also certain features of the regional context

where they live havean impact on their nancial literacy. Consequences

for nancial education programs are highlighted.

In recent decades, consumers have had easier access to nancial mar-

kets than they have in the past, while the number of nancial products

and their complexity have increased. Moreover, individuals are increas-

ingly expected to take control over their nancial decisions (Vlaev and

Chater 2007). For these reasons, having an adequate level of nancial

literacy is essential. The impact of individual nancial literacy on dif-

ferent kinds of decisions has been thoroughly investigated (Atkinson and

Messy 2012; Chen and Volpe 1998; Lusardi and Mitchell 2007a, 2007b,

2008; Lusardi, Mitchell, and Curto 2010); a lower level of nancial liter-

acy is more likely associated with the choice of high-interest mortgages

(Moore 2003), a lower ability to plan for retirement (Carmel et al. 2015;

Lusardi and Mitchell 2007a, 2007b; VanRooij, Lusardi, and Alessie 2011),

a lower ability to save and asset-building (Letkiewicz and Fox 2014), and

debt problems (Gathergood 2012; Lusardi and Tufano 2015). In light of

these results, nancial literacy appears to be a very important factor in

Doriana Cucinelli (doriana.cucinelli@unimib.it) is assistant professor at University of Milano-

Bicocca, Italy. Paolo Trivellato (paolo.trivellato@unimib.it) is a former professor at University of

Milano-Bicocca, Italy. Mariangela Zenga (mariangela.zenga@unimib.it) is assistant professor at

University of Milano-Bicocca, Italy.The authors would like to thank Paola Bongini and the reviewers

for their helpful insights.

The Journal of Consumer Affairs, Winter 2019: 1874–1919

DOI: 10.1111/joca.12270

Copyright 2019 by The American Council on Consumer Interests

WINTER 2019 VOLUME 53, NUMBER 4 1875

determining consumer nancial decisions; usually, consumers with a high

level of nancial literacy are more willing to choose more appropriate

nancial products consistent with their characteristics than are consumers

who show lower levels of nancial literacy (Lusardi 2008).

Previous studies have generally focused on sociodemographic and

socioeconomic determinants, nding that the level of nancial literacy

depends on many characteristics such as gender, age, race (Al-Bahrani,

Weathers,and Patel 2018; Bucher-Koenen et al. 2017; Gerardi, Goette, and

Meieret 2010; Lusardi and Tufano 2015; Van Rooij, Lusardi, and Alessie

2011), net family income, type of job, educational attainment, marital sta-

tus, and the number of family members (Calamato 2010; Gerardi, Goette,

and Meieret 2010; Monticone 2010; Shim et al. 2010; Van Campenhout

2015).

The role of the environment in which people live has been investigated

by a few researchers. The ndings of such studies have shownthat nancial

literacy is associated with specic features of regions of residence such as

traits of urban settings (Haliassos, Jansson, and Karabulut 2016; Lachance

2014), the presence of economic distress (Bumcrot, Lin, and Lusardi

2013), the distribution of social capital (Guiso, Sapienza, and Zingales

2004, 2007), the degree of trust in nancial institutions, proxying the social

capital index at a regional level (Ricci and Caratelli 2015), human capital

(Jappelli 2010), and the generosity of the social security system (Jappelli

2010).

Our article aims at (a) describing the different distribution of nancial

literacy among Italian administrative regions and (b) nding whether these

differences in nancial literacy are associated with any socioeconomic

factors present to a different degree in each region. The latter is a key issue

when implementing programs of nancial education. Indeed, programs for

improving nancial literacy in Italy are usually designed as interventions

at the local level but without considering the effective characteristics

of people for whom they are intended. In fact, with regard to these

local initiatives, Bank of Italy (2017) documents the piecemeal nature of

nancial education initiatives, many of which involve only a small number

of participants. One of the main problems highlighted by the survey is

the lack of assessments of the ability of initiatives to increase nancial

knowledge and affect behavior. Many programs did not envisage any

form of monitoring; when they did, it was mostly conned to gathering

information on the degree of involvement and satisfaction of participants.

Overall, the objective of this article is to provide evidence of the fact

that nancial literacy is embedded in local contexts (Henchoz 2016) and,

consequently, that nancial education programs haveto consider this point

1876 THE JOURNAL OF CONSUMER AFFAIRS

to be effective, followingthe examples of other countries in which nancial

education initiatives are built on localized, targeted programming (Fox,

Bartholomae, and Lee 2005; Lyons et al. 2006). Moreover, to be local

is not sufcient; in fact, over the past decade there has been a dramatic

rise in the development and delivery of nancial education programs

especially in advanced countries. Financial education efforts vary by the

setting, audience, and subject matter (Braunstein and Carolyn 2002), with

organizations and institutions frequently partnering to deliver nancial

education (Fox, Bartholomae, and Lee 2005). Such initiatives often show

an absence in coordination, assessment, and evaluation of their impact,

leading to duplication of effort and resources (Grifoni and Messy 2012).

In this context, the development of a National Strategy for Financial

Education (NSFE) has become an important priority for many policy

makers, such as OECD (2015). Surely the denition of the NSFE should

take into account the differences of the recipients.

Using a sample of 945 Italian adults, we perform a multilevel regression

model and nd that variables such as human capital, labor market condi-

tions and poverty rate measured at the regional level show a signicant

relationship with nancial literacy at the individual level.

The article is structured as follows. In the following sections, we review

the literature on nancial literacy determinants and we present the hypothe-

ses. Then, we describe the BES indicators (Benessere Equo e Sosteni-

bile—Equitable and Sustainable Well-being). Moreover, we introduce the

sample and methodology. After that, we show and comment on the results.

The last section presents the study’s conclusions.

LITERATURE REVIEW AND HYPOTHESES

In recent decades, nancial literacy has been analyzed from two dif-

ferent perspectives. One perspective considers the factors associated with

nancial literacy (Lusardi and Mitchell 2014; Nicolini, Cude, and Chat-

terjee 2013). The other perspective analyzes the relationship between the

level of nancial literacy among consumers and their nancial decisions

(Jappelli and Padula 2015; Lusardi and Mitchell 2014; Müller and Weber

2010; Wagner and Walstad 2019; Willis 2008). Our study is positioned

within the literature of the rst type.

Research on nancial literacy determinants has focused mainly on the

inuence of individual sociodemographic traits (age, educational attain-

ment, gender, employment, family income, marital status, etc.). However,

recent studies have considered macro-ecological variables characterizing

the context where consumers live as factors inuencing the degree of