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The Role of Financial Education for the Prevention of Financial Fragility and Over-Indebtedness

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  • Dieter Korczak

    (GP-Forschungsgruppe)

Abstract

This paper deals with the influence of financial literacy on the prevention of financial fragility and over-indebtedness. Financial literacy is differentiated from financial education, financial fragility, financial resilience and financial capabilities. Over-indebtedness is regarded as a multifaceted phenomenon. It is mainly caused by ongoing low income, financial shocks and irresponsible lending practices by the financial industry. Financial illiteracy plays only a minor role for getting into over-indebtedness. Financial literacy is regarded as a prerequisite for financial inclusion and achieving financial well-being. It functions as a kind of primary/ universal prevention. 50 per cent of the EU population is in financial fragility. There is a great need to change the disadvantageous circumstances of their life and to have a deeper look what causes financial fragility. The analysis of conversion factors is important for financial capabilities and could be helpful. There is no scientific proof yet that an effective behavior change for the prevention of over-indebtedness can be reached by financial education. On the other hand, there is evidence that over-indebted people develop a high level of everyday competence to get by with little money. Therefore literacy initiatives (as primary prevention) should go hand in hand withimproving people's income levels, good consumer protection, better regulation and financial supervision.

Suggested Citation

  • Dieter Korczak, 2025. "The Role of Financial Education for the Prevention of Financial Fragility and Over-Indebtedness," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 11(2), pages 815-829, July.
    • Handle: RePEc:spr:italej:v:11:y:2025:i:2:d:10.1007_s40797-025-00334-5
    DOI: 10.1007/s40797-025-00334-5
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    Keywords

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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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