Is Income Inequality Influenced by Financial Knowledge? A Macroeconomic and Longitudinal Analysis

Abstract

Our objective is to analyze whether financial knowledge influences income inequality. For this purpose, we resort to a new index of financial knowledge that differs from the existing ones in that it is both longitudinal and macroeconomic. We use this index as one of the explanatory variables of the Net Gini Index in our panel data estimations. Based on a sample of 63 countries over the period 2008–2014, our results allow us to conclude that financial knowledge is related to income inequality and that, moreover, this relationship is non-linear. Thus, increases in financial knowledge could reduce income inequality when starting from relatively low levels of such knowledge. However, at a certain threshold, the income redistributive effect of financial knowledge could disappear or even reverse. Even so, national strategies for financial education could be useful to achieve economic equity in those countries where financial knowledge levels are low. In addition, we shed light on the effect that other variables (such as institutional quality or under-education) have on income inequality.

The Role Of Financial Factor On The Financial Behaviour Of Small And Medium Enterprises (SMEs)

“…Pong, (2022) identified that financial attitudes are the outcome of the particular behavior of a decision-maker, and the attitude can be through their economic and non-economic beliefs. Polisetty et al, (2021) and Oliver-Márquez et al, (2022) concluded that education could improve personal financial attitude. Financial attitudes, along with financial behavior, can also affect financial well-being.…”

“…Meanwhile, the external locus of control tends to assume that life is determined by environmental forces (Oliver-Márquez et al, 2022). According to Mutamimah et al, (2021) in his research, locus of control positively affects financial behavior.…”

Youth in individualistic countries have higher financial literacy: Evidence from PISA

“…The GINI coefficient is measured as a scale from 0 to 1 (rescaled here to percentages), with zero indicating complete inequality and 100 indicating complete equality. Including the GINI coefficient is inspired by other work on the correlation between inequality and economic (Lo Prete, 2018) or financial literacy (Lusardi et al, 2017; Oliver‐Márquez et al, 2022). Other recent literature has shown that the GINI coefficient is negatively correlated with financial literacy, arguing that increased social comparison due to financial inequality can negatively affect financial literacy (Peng et al, 2018).…”

Financial Knowledge Matters Entrepreneurial Decisions: A Survey in the COVID-19 Pandemic

“…There is a large and growing body of literature on the effect of financial knowledge on financial decisions, for example, savings, investing, borrowing (Bönte & Filipiak, 2012;Lusardi & Mitchell, 2007Van Rooij et al, 2011), income inequality (Oliver-Márquez et al, 2021), and access to FinTech services (Hasan et al, 2022), but very little is known about the effect of financial knowledge on entrepreneurial intentions. The associations between financial knowledge, the three motivational factors, and entrepreneurial intentions are unclear in the literature (Ćumurović & Hyll, 2019;Dohse & Walter, 2012;Oseifuah, 2010).…”