Financial Literacy and Finance Behaviors in Latin America and its Relationship with the COVID-Pandemic Period

Abstract

Governments worldwide conceive financial literacy as a crucial issue to improve the financial well-being of families. However, the relationship between financial literacy and financial behaviors is inconclusive, especially in developing countries where few studies have tried to assess this relationship. We considered a subjective and an objective measure for financial literacy and 16 financial behaviors of participants from Argentina, Colombia, Ecuador, Mexico, and Peru. In general, we found endogeneity issues in most financial behaviors, and most financial behaviors are not correlated with any of the two measures of financial literacy. Despite that, we found a positive statistically significant relationship between financial literacy and having a savings account, having a budget, setting long-term goals, being willing to take risks, and considering the affordability of something before buying it. Additionally, we found a negative statistically significant relationship between financial literacy and the probability of having higher spending than income and having informal loans. The relationships of the objective financial literacy measure (the Big Three questions) with those financial behaviors listed previously are statistically dependent on the COVID pandemic, which was not the case for the subjective financial literacy measure. The results of the endogeneity issue and the fact that financial literacy might not impact all financial behaviors should be considered for the design of future financial education programs or research projects. JEL classification codes: G51, G53