The Interplay of Financial Education, Financial Literacy, Financial Inclusion and Financial Stability: Any Lessons for the Current Big Tech Era?

The effort to make financial services accessible and affordable for everyone is known as financial inclusion. Large technology firms, such as Apple, Alibaba, Amazon, Facebook, eBay, Google and Tencent, have recently started to offer financial services that include payment, insurance and loans. The entry of these so-called big techs could pose opportunities as well as challenges related to financial inclusion. On one hand, big techs have the potential to draw large numbers of people who do not use banks or financial institutions—known as unbanked people—into the financial system. On the other hand, improved financial inclusion may lead to elevated fraud risks if people lack the required knowledge and skills to use the services safely. It may even lead to undesirable financial outcomes, such as over-indebtedness, which could eventually introduce financial stability risks to the larger financial system.

The objective of this paper is twofold. First, we assess whether financial education might be a suitable tool to promote the financial inclusion opportunities that big techs provide. Second, we study how this potential financial inclusion could impact financial stability. We do so by reviewing and summarizing the existing literature on financial education, financial literacy and financial inclusion.

Our literature review shows that financial education can improve people’s financial knowledge and skills and help improve financial inclusion, but only if the financial education initiatives are well designed. The effectiveness of financial education strongly depends on the timing of the program, its format as well as the type of financial behaviour it aims for. The impact of financial education also varies, depending on who is targeted. Whether these conclusions can be extended to the financial services offered by big techs remains unclear. Therefore, we argue that new empirical research is needed. We also find that increased access to credit could potentially introduce financial stability risks if adequate risk management and monitoring programs are lacking. Because of this, we underline the importance of an appropriate regulatory framework. We conclude with various questions for further research.