An Untapped Instrument in the Fight Against Poverty: The Impacts of Financial Literacy on Poverty Worldwide

Abstract

The World Bank assessed that meeting the goal of eradicating extreme poverty by 2030 appears to be challenging (or even impossible) for the world. This observation requires an urgent need for policymakers to explore potent instruments to combat poverty globally. Numerous studies have examined various determinants of poverty. However, financial literacy—a relatively new concept—remains underexplored, especially on a global scale. As such, this study is conducted to assess whether financial literacy can reduce the likelihood of falling into poverty using a unique dataset of 113 countries. We find that financial literacy has a significant and negative association with the likelihood of falling into poverty. Beyond association, the causal analysis shows that financial literacy exerts a negative effect on poverty. Our findings remain largely unchanged across different sub-samples based on socio-demographic factors, regions and country income levels, and robustness analyses.