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The impact of financial literacy on over-indebted Portuguese families
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Over-indebtedness, which is commonly defined as the incapability of repaying
debts on a structural basis, has increasingly become an issue for the
Portuguese population during the years following the crisis of 2009. In 2010,
one out of four households, felt at risk of over-indebtedness and, in 2015,
personal insolvency represented more than two thirds of the overall number
of insolvencies. Although Portugal has implemented significant reforms in
order to comply with austerity measures, the accumulation of debts keeps
being a fundamental need for individuals in order to smooth consumption
over the cycle of life. Therefore, in order to face the rapid spread of financial
products and services, there is a growing need of enabling consumers
to build a more sophisticated financial knowledge. This work was carried
out in collaboration with the Portuguese consumer association DECO that
provides support and knowledge for over-indebted families. The main goal
of the study is to examine the relationship between the level of financial
literacy and the probability of being over-indebted, and the level of overindebtedness
of families that seek DECO’s assistance. We designed a survey
to measure the financial and economic literacy of the households. This paper
is the first one to our knowledge finding that financial literacy has a
significant impact on the probability of being-over-indebted. We also find
that it might be relevant to implement diversified types of training based
on the level of education.
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Palavras-chave
Over-indebtedness Portugal Financial literacy DECO