Introduction

E-commerce and digital technology have transformed the way people spend and save. There is an evident technological growth in the world of finance which is referred to as financial technology or fintech. Financial technology (Fintech) refers to the technological innovations that assist in enabling or improving the access to financial services digitally through the internet, smartphones or computers. The various forms of services enabled by fintech include online payment transactions, cryptocurrency and crowdfunding. Fintech enables a quick and wide reach of financial services to people while combating the obstacles of geographical barriers. It includes internet banking, mobile banking and e-wallets which serve as an advanced substitute to conventional financial services. The surge in access and use of fintech paves way for improving financial inclusion. Financial inclusion attributes to the access to basic financial services for everyone in the society. It is identified as a significant parameter of the Sustainable Development Goals (OECD, 2013; Robert et al., 2005). This makes financial inclusion a relevant concern for the government and policy makers. Financial inclusion has two components: access and use (Khan et al., 2022). The “access” component represents the supply side of financial inclusion that deals with ease of access to banking as well as financial services, financial depth and legal system. While, the demand side i.e., the “use” component deals with customers’ usage of financial services. Both these components play significant role in ensuring financial health of the economy since the users possessing adequate knowledge would be able to make rational financial decisions (Cole et al., 2011).

The topics of financial literacy and financial inclusion have gained increased attention among the authors (Kim et al., 2018; Milian et al., 2019). Given that financial literacy greatly enhances financial inclusion, its lower levels denote an area of concern at the global level for the policymakers and practitioners (Arun & Kamath, 2015; OECD, 2013). These concerns resulted in the “Universal Financial Access 2020” framed by the World Bank to improve financial literacy, access to financial products and digital financial services (Bank, 2017). “Sustainable Development Goals” devised by the United Nations also constitute sub-goals which pertain to the development of financial system and enhancement of financial inclusion (GA, 2015).

Many studies lay emphasis on the “access” component of financial inclusion that include ease of access to ATMs and banks, dense bank branches, (Kumar, 2013; Sahay et al., 2015; Dupas & Robinson, 2013) and other macro-economic factors (Dabla-Norris et al., 2015). The “use” component of financial inclusion, depicting its demand, is studied in terms of the impact of financial literacy on financial inclusion (Morgan & Long, 2020). It is suggested that greater financial literacy among people leads to increased use of financial products and services, thereby enhancing financial inclusion (Scheresberg, 2013; Christelis et al., 2010; Lyons and Kass-Hanna, 2019). This study attempts to combine the literature at the intersection of digital financial literacy, digital financial inclusion and financial behaviour. It attempts to study the relationship in the empirical literature and identify gaps for future research.

Review of Literature

The Digital India Initiative has designated greater relevance to digital finance and digital financial inclusion (Bathula & Gupta, 2021). Digital financial inclusion is the employment of cost effective fintech to provide ease of access and use of financial services digitally (Bathula & Gupta, 2021). There has been an unprecedented surge in fintech, but its potential will be unutilized unless there is a sophisticated investment aimed to increase digital financial literacy among all stakeholders (Sinha et al., 2018). Various empirical studies, including Königsheim et al., (2017), Ouma et al., (2017), Bathula & Gupta (2021) have identified the factors of digital financial inclusion. In this context, Sinha et al (2018) also remarked that the demand side of digital financial inclusion remains largely unaddressed.

Understanding financial literacy and digital financial literacy

The prevailing low levels of financial literacy, both digital and non-digital, calls for extensive efforts and awareness among people about fintech and steps to undertake financial transactions digitally via mobile phones or computers (Sinha et al., 2018). Consequently, digital financial infrastructure needs to be built adequately to provide extensive platforms for convenient digital payments. It is further remarked that the concern is not the provision of these services, rather it is the spread of knowledge among people to use these services (Sinha et al., 2018). Considering the huge numbers of dormant accounts globally, the Indian policymakers in National Strategy for Financial Inclusion, 2019-24, lay emphasis on not only the access but also the use of financial services for better inclusion digitally. This “use” component is a topic of greater interest in the literature (Bathula & Gupta, 2021).

The advancements in financial technology have not been supported by relative augmentation in literacy in digital finance (Rahayu et al., 2022). Financial literacy is defined by OEDC (2016) as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.” 

Thus, digital financial literacy is understood as financial literacy in digital technology. It is the “knowledge of digital financial products and services, awareness of digital financial risks, knowledge of digital financial risk control, and knowledge of consumer rights and redress procedures.” (Morgan et al., 2019, p.4). It relates to user’s awareness and proficiency in online payments, online savings and investments (Prasad et al., 2018). Additionally, it is regarded as a multi-dimensional concept with four dimensions i.e. comprehension of digital financial products and services, awareness of digital financial risks, understanding of digital financial risk control, and knowledge of consumer rights and redress procedures (Morgan et al., 2019). Besides the various advantages of fintech, it exposes users to risks of loss of data or money, frauds and unauthorized use. According to OECD (2018), it is imperative to gauge the potential benefits and risks posed by fintech to users and policymakers.

Impact of socio-economic factors on financial literacy and digital financial literacy

Socio-economic factors refer to an individuals’ social attributes such as income levels, age, gender and education level. Studies suggest that financial literacy is strongly impacted by socio-economic factors consisting of income levels (Scheresberg, 2013; Wangmo, 2015; Garg & Singh, 2018; Nanziri & Olckers, 2019). Similarly, an individual’s age, income and education levels constitute factors determining financial literacy levels (Morgan et al., 2019). Furthermore, Xue et al., (2019) also exhibited that age and income levels affect financial literacy. This relationship may also persist in case of effect of socio-economic factors on digital financial literacy. Setiawan et al., (2020) found that individual’s digital financial literacy levels are positively affected by socio-economic standing in the sense that higher income and education levels would increase levels of literacy in digital financial products.

However, a divergence in opinions exists regarding the effect of socio-economic factors on financial literacy as well as digital financial literacy. It is reported that educational background did not influence financial literacy levels (Mandell & Klein, 2009). In the similar lines, Rahayu et al., (2022) also uncovered that age and education level do not significantly influence digital financial literacy of the millennials pertaining to the fact that digital financial literacy is not a defined part of the educational syllabi at the school or university levels.

Role of Digital Financial Literacy in Financial Behaviour

According to the Global Findex Database (2017), savings in conventional financial institutions have been dipping in contrast to a surge in the levels of savings in digital financial products (Demirguc-Kunt et al., 2018). Previous research studied the role of financial literacy in predicting financial behaviour (in terms of saving, spending and investment) (Ameliawati & Setiyani 2018; Chu et al. 2017; Harli et al., 2015; Henager & Cude, 2016; Hsiao et al., 2016; Sayinzoga et al., 2015; Sivaramakrishnan et al., 2017; Zulaihati et al., 2020). However, the role of digital financial literacy is not much explored in this context (Rahayu et al., 2022). It is suggested that financial literacy affects individual’s saving behaviour (Henager & Cude, 2016), Jamal et al., 2015, Morgan et al., 2019; Wangmo, 2015). Also, it affects spending behaviour in the sense that lower financial literacy levels are linked to overspending (Allgood & Walstad, 2016; Fraczec & Klimontowicz, 2015; Henager & Cude, 2016; Perry, 2011; Setiawan et al., 2020; Varcoe et al., 2005; Wangmo, 2015; Zulaihati et al., 2020).

Additionally, it impacts investment behaviour too in terms of planning funds for retired life (Lusardi, 2019). Prior studies laid greater emphasis on the role of fintech on individual’s financial behaviour, while there is sparse literature on the effect of digital financial literacy levels on individual’s financial behaviour (Rahayu et al., 2022). Nevertheless, it is remarked that the effect of digital financial literacy on financial behaviour replicates the effect of conventional financial literacy since it is reported that digital financial literacy positively affects saving and spending behaviour of the individuals (Setiawan et al., 2020).

Financial Decision Making and Financial Well-being

With the escalation in digital financial services, financial literacy and financial inclusion have become significant parameters of financial well-being of individuals and the financial stability of the economy (Tony & Desai, 2020). Studies depict that financial literacy enables individuals to make rational and well-advised financial decisions thereby enhancing their financial well-being (Gon¸calves et al., 2021). Financial well-being arises out of judicious financial decisions, which are a result of constant examination of expenses (Mokhtar et al., 2020), budgets and cost analysis (Xiao, 2008). Therefore, financial literacy along with rational financial decisions help in enhancing financial well-being (Sharma, 2021). Also, spur in digitisation and fintech augmented the relevance of financial decision making in improving financial well-being (Gerth et al., 2021). Despite the growing need, there is a limited study on factors of financial decision making and financial well-being (Collins & Urban, 2020).

Financial well-being arises out of competent financial behaviour which includes planning for savings, retirement, wealth Management and contingencies (Xiao et al., 2008). Despite the research studies, financial well-being is still a growing concept (Collins & Urban, 2020). Financial well-being refers to an individual’s capability to manage one’s finances and absorb financial shocks in order to attain financial goals, and possess the means to make choices that let people enjoy life (CFPB, 2015). Studies have identified various objective factors explaining financial well-being (Sehrawat et al., 2021). However, there is sparse literature on subjective financial well-being (Gon¸calves et al., 2021). It is also suggested that an individual's psychological traits, including thinking and behaviour patterns, impact their actions. Therefore, examining psychological traits becomes an important factor of financial well-being (Roberts, 2009).

Qualitative Analysis of the Literature

This study uses Qualitative Data Analysis software NVivo 14 for preliminary literature analysis. NVivo is a software package that allows its users to import, sort and analyze PDFs, text documents, audio and video files, databases, spreadsheets, digital photos, web pages, bibliographical data and social media data. Secondary data constituting various journals, articles and websites related to digital financial literacy and financial inclusion have been referred for the review. The qualitative analysis using word frequency search query assisted in comprehending the literature. Sixty Research papers and articles have been referred from various databases such as Science Direct, SAGE, Emerald, Springer and Taylor and Francis. Various related keywords such as financial inclusion, financial literacy, digital financial literacy, financial behaviour, financial well-being, financial decision making and combinations of these have been used to identify the studies relevant for the analysis. The papers have been analysed using work frequency search query of NVivo software, looking for 100 most frequently used words and their synonyms, which are minimum 5 letters long. The results obtained are shown below as a word cloud.

Figure1: word cloud of most frequently used words in the literature

Conclusions and recommendation

Studies imply that government, Fintech providers and academicians are the stakeholders of financial literacy, both digital and conventional. Considering the escalations in fintech, the low levels of digital financial literacy is an area of concern. Although there is an improvement in the access to digital financial services, these services are still not used frequently to reap full potential (Bathula & Gupta, 2021). Thus, extensive unprecedented efforts are required to increase the levels of financial literacy (Sinha et al., 2018). It is further suggested that digital financial literacy is a crucial aspect to be considered by the government and policymakers so as to encourage long-term savings and investments thereby leading to an improvement in the economy’s financial system (Setiawan et al., 2020; Rahayu et al., 2022). Fintech providers encounter concerns related to creation of various kinds of lucrative financial products since it will positively affect individual’s saving behaviour. In academics, it becomes imperative to include digital financial literacy in the curriculum so as to improve reader’s knowledge on fintech and digital financial products. As regards the socio-economic factors, being the factors of digital financial literacy, further research can consider the factors other than income and education that can influence digital financial literacy. Furthermore, there is limited empirical research studying the role of digital financial literacy on financial behaviour. Since prior studies majorly measure the impact of financial literacy on financial behaviour, it is relevant to research the effect of digital financial literacy on financial behaviour (Setiawan et al., 2020). With the approach towards Digital India, future attempts can empirically assess the impact of digital financial literacy on financial behaviour and digital financial inclusion.

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