Effect of debt literacy on debt behaviour: A narrative review

Abstract

Although there is a growing body of research on financial literacy, we have a limited understanding about the connections between its essential elements. It is commonly known that consumer financial market behavior and financial attitudes are related. However, little is known about how debt literacy—the core tenets of the financial literacy construct—affects attitudes towards debt. Debt literacy is a component of overall financial awareness that assesses both one's own financial literacy and one's knowledge of debt. Instead of a lack of highly precise financial knowledge, the debt-related financial misery that an individual experiences are mostly the result of their failure to comprehend and apply basic economic ideas to debt decisions. This idea provides a possible justification for why current financial literacy initiatives, which often concentrate on the latter part, are viewed as largely ineffective. The current study is also coming up with information about various ways debt literacy affects debt behavior. The findings suggest that consumer views are closely correlated with either debt understanding, debt management expertise, or both. Consumer debt attitudes were found to be particularly well predicted by debt skills. Women are more likely to be financially illiterate, and this illiteracy tends to worsen as people become older.