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Ability and Opportunity to Act: What Predicts Financial Health in Developed and Emerging Economies?


Fu, Jonathan (2018). Ability and Opportunity to Act: What Predicts Financial Health in Developed and Emerging Economies? CSP Working Paper Series (formerly CMFWorking Paper Series) 06, University of Zurich.

Abstract

Consumer financial health has become a prominent topic in developed economy contexts, but its relevancy and microdeterminants in emerging markets are not yet well understood. This paper operationalizes newly formulated conceptual frameworks of global consumer financial health and financial capability using nationally-representative and comparable survey data from three developed and five emerging economies. It applies regression analyses to these data to test whether a joint interaction effect exists between individuals' levels of financial literacy and financial inclusion on their financial health, and how this effect differs across contextual settings. The paper's main findings confirm a multiplicative interaction effect, but demonstrate that this joint relationship is primarily observed in lower-income populations, whether across or within countries, whereas higher-income populations exhibit positive but largely independent relationships between increased financial inclusion, financial literacy, and financial health. The key implication is that, of all populations, the financial health of marginalized populations is most affected by increased integration into formal financial systems, but that the direction of this relationship is also most dependent on their
personal levels of financial literacy. As a practical application, the paper focuses on the sample's self-employed and employed lower-income respondents and estimates both their respective optimal minimum financial literacy thresholds, and the subpopulations at risk of negative outcomes.

Abstract

Consumer financial health has become a prominent topic in developed economy contexts, but its relevancy and microdeterminants in emerging markets are not yet well understood. This paper operationalizes newly formulated conceptual frameworks of global consumer financial health and financial capability using nationally-representative and comparable survey data from three developed and five emerging economies. It applies regression analyses to these data to test whether a joint interaction effect exists between individuals' levels of financial literacy and financial inclusion on their financial health, and how this effect differs across contextual settings. The paper's main findings confirm a multiplicative interaction effect, but demonstrate that this joint relationship is primarily observed in lower-income populations, whether across or within countries, whereas higher-income populations exhibit positive but largely independent relationships between increased financial inclusion, financial literacy, and financial health. The key implication is that, of all populations, the financial health of marginalized populations is most affected by increased integration into formal financial systems, but that the direction of this relationship is also most dependent on their
personal levels of financial literacy. As a practical application, the paper focuses on the sample's self-employed and employed lower-income respondents and estimates both their respective optimal minimum financial literacy thresholds, and the subpopulations at risk of negative outcomes.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:1 March 2018
Deposited On:08 Mar 2019 08:05
Last Modified:27 Nov 2020 07:31
Series Name:CSP Working Paper Series (formerly CMFWorking Paper Series)
OA Status:Closed
Free access at:Related URL. An embargo period may apply.
Related URLs:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3155064 (Publisher)

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