A methodological overview to defining and measuring “digital” financial literacy

Abstract

Researchers and financial practitioners alike recognize the importance of defining and measuring financial literacy (FL) to better understand its relationship to financial behavior and decision-making. Despite many efforts, there is still no widely accepted definition or methodological approach for measuring FL. The rapid expansion of digital financial services (DFS), which promises to enhance financial inclusion and improve personal financial management, has brought to light a new challenge: linking FL to digital literacy (DL) and assessing their dual effect on financial outcomes. Recent research has even proposed a framework to operationalize the emerging concept of digital financial literacy (DFL), as traditional FL definitions and metrics have become insufficient to capture the specificities of financial services within a digital context. This survey article discusses empirical research techniques being used to assess FL, DL, and most recently DFL. It highlights the characteristics and limitations of these approaches and suggests ways to address some of the challenges related to the construction, testing, weighting, and standardization of multidimensional measures, as well as methodological issues related to modeling and estimation. The article is a helpful guide to researchers and practitioners interested in FL in general and in the emerging concept of "digital" financial literacy.

Financial literacy in the digital age—A research agenda

“…Consumers need the necessary knowledge to understand the quality and the risks of new financial products, additional skills, and competences to understand and use digital services and related IT technology as well as critical evaluation skills (Elsinger et al, 2018). Recent literature emphasizes the need to redefine traditional financial literacy to include digital literacy and show the linkages between financial literacy, digital literacy, and digital financial literacy (Lyons & Kass-Hanna, 2021).…”

“…Lyons and Kass‐Hanna (2021) point out that the assessment of digital financial literacy consists of items such as conducting online shopping, using online and mobile banking, opening a digital financial services menu, initiating, and completing a digital financial services transaction, and correcting errors or canceling transactions. OECD has also included questions related to digital financial literacy in their recent questionnaires, the most recent being released in March 2022.…”

“…OECD has also included questions related to digital financial literacy in their recent questionnaires, the most recent being released in March 2022. The OECD (2022) includes an even broader range of questions than Lyons and Kass‐Hanna (2021), including arranging automatic payments, buying cryptocurrencies, having transactions with stock trading platforms etc. The OECD has also some questions related to becoming victim of frauds, for instance in digital environments.…”

Analysing the behavioural, psychological, and demographic determinants of financial decision making of household investors

“…Unfortunately, DFL is now an imperative for individuals to access financial products and services or make financial decisions. It refers to the knowledge, skill, and abilities to access digital financial services [ 39 ]. The former authors also stress on various dimensions of DFL as the awareness of digital financial services, ability to use digital platforms, ability to make digital financial transactions and to make rational decisions without succumbing to online fraudulent practices.…”

Financial inclusion – does digital financial literacy matter for women entrepreneurs?

“…The majority of past studies explain the importance of financial literacy on women's financial inclusion. However, there are differences in the definition between financial literacy and digital financial literacy (Lyons and Kass-Hanna, 2021). Therefore, we ask the question: Does digital financial literacy among women entrepreneurs affect their financial inclusion through the formal banking channel?…”