IDEAS home Printed from https://ideas.repec.org/p/gla/glaewp/2020_26.html
   My bibliography  Save this paper

Financial Literacy and Attitudes to Cryptocurrencies

Author

Listed:
  • Georgios A. Panos
  • Tatja Karkkainen
  • Adele Atkinson

Abstract

We examine the relationship between financial literacy and attitudes to cryptocurrencies, using microdata from 15 countries. Our financial literacy proxy exerts a large negative effect on the probability of currently owning cryptocurrencies. The financially literate are also more likely to be aware of cryptocurrencies, and more likely to report that they do not intend to own them. We confirm the external validity of our financial literacy proxy and findings using data from a second novel survey of retail investors in 3 Asian countries. More financially literate retail investors are more likely not to have held any cryptocurrencies. We show that the relationship between financial literacy and attitudes to cryptocurrencies is moderated by a different perception of the financial risk involved in cryptocurrencies versus alternative instruments by the more financially literate. Our findings shed light on the demand for cryptocurrencies among the general population and suggest that it is largely driven by unsophisticated users.

Suggested Citation

  • Georgios A. Panos & Tatja Karkkainen & Adele Atkinson, 2020. "Financial Literacy and Attitudes to Cryptocurrencies," Working Papers 2020_26, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2020_26
    as

    Download full text from publisher

    File URL: https://www.gla.ac.uk/media/Media_766720_smxx.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Garcia & Claudio Juan Tessone & Pavlin Mavrodiev & Nicolas Perony, 2014. "The digital traces of bubbles: feedback cycles between socio-economic signals in the Bitcoin economy," Papers 1408.1494, arXiv.org.
    2. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
    3. Pavel Ciaian & Miroslava Rajcaniova & d’Artis Kancs, 2016. "The economics of BitCoin price formation," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1799-1815, April.
    4. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of multivariate normal probabilities by simulation, with applications to maximum simulated likelihood estimation," Stata Journal, StataCorp LP, vol. 6(2), pages 156-189, June.
    5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    6. Milo Bianchi, 2018. "Financial Literacy and Portfolio Dynamics," Journal of Finance, American Finance Association, vol. 73(2), pages 831-859, April.
    7. Yukun Liu & Aleh Tsyvinski, 2018. "Risks and Returns of Cryptocurrency," NBER Working Papers 24877, National Bureau of Economic Research, Inc.
    8. Adhami, Saman & Giudici, Giancarlo & Martinazzi, Stefano, 2018. "Why do businesses go crypto? An empirical analysis of initial coin offerings," Journal of Economics and Business, Elsevier, vol. 100(C), pages 64-75.
    9. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy and retirement planning in the United States," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 509-525, October.
    10. Michael Hurd & Maarten Van Rooij & Joachim Winter, 2011. "Stock market expectations of Dutch households," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 416-436, April.
    11. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    12. Guillermo Llorente & Roni Michaely & Gideon Saar & Jiang Wang, 2002. "Dynamic Volume-Return Relation of Individual Stocks," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1005-1047.
    13. Jere R. Behrman & Olivia S. Mitchell & Cindy K. Soo & David Bravo, 2012. "How Financial Literacy Affects Household Wealth Accumulation," American Economic Review, American Economic Association, vol. 102(3), pages 300-304, May.
    14. Roger Newson, 2008. "parmest and extensions," United Kingdom Stata Users' Group Meetings 2008 07, Stata Users Group.
    15. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(4), pages 332-368, October.
    16. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 497-508, October.
    17. Dimitris Georgarakos & Giacomo Pasini, 2011. "Trust, Sociability, and Stock Market Participation," Review of Finance, European Finance Association, vol. 15(4), pages 693-725.
    18. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    19. Greenwood, Robin & Nagel, Stefan, 2009. "Inexperienced investors and bubbles," Journal of Financial Economics, Elsevier, vol. 93(2), pages 239-258, August.
    20. Kenneth S. Rogoff, 2016. "The Curse of Cash," Economics Books, Princeton University Press, edition 1, number 10798.
    21. Shawn Cole & Thomas Sampson & Bilal Zia, 2011. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?," Journal of Finance, American Finance Association, vol. 66(6), pages 1933-1967, December.
    22. Hans-Martin Von Gaudecker, 2015. "How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice?," Journal of Finance, American Finance Association, vol. 70(2), pages 489-507, April.
    23. Annamaria Lusardi & Pierre-Carl Michaud & Olivia S. Mitchell, 2017. "Optimal Financial Knowledge and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 431-477.
    24. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2010. "Cognitive abilities and portfolio choice," European Economic Review, Elsevier, vol. 54(1), pages 18-38, January.
    25. Fujiki, Hiroshi, 2020. "Who adopts crypto assets in Japan? Evidence from the 2019 financial literacy survey," Journal of the Japanese and International Economies, Elsevier, vol. 58(C).
    26. Richard Gates, 2006. "A Mata Geweke–Hajivassiliou–Keane multivariate normal simulator," Stata Journal, StataCorp LP, vol. 6(2), pages 190-213, June.
    27. John R. Graham & Campbell R. Harvey & Hai Huang, 2009. "Investor Competence, Trading Frequency, and Home Bias," Management Science, INFORMS, vol. 55(7), pages 1094-1106, July.
    28. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
    29. Leonardo Bursztyn & Florian Ederer & Bruno Ferman & Noam Yuchtman, 2014. "Understanding Mechanisms Underlying Peer Effects: Evidence From a Field Experiment on Financial Decisions," Econometrica, Econometric Society, vol. 82(4), pages 1273-1301, July.
    30. Almenberg, Johan & Dreber, Anna, 2015. "Gender, stock market participation and financial literacy," Economics Letters, Elsevier, vol. 137(C), pages 140-142.
    31. Stolper, Oscar, 2018. "It takes two to Tango: Households’ response to financial advice and the role of financial literacy," Journal of Banking & Finance, Elsevier, vol. 92(C), pages 295-310.
    32. Riccardo Calcagno & Chiara Monticone, 2015. "Financial Literacy and the Demand for Financial Advice," Post-Print hal-02313173, HAL.
    33. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
    34. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    35. Klapper, Leora & Panos, Georgios A., 2011. "Financial literacy and retirement planning: the Russian case," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 599-618, October.
    36. Christian Conrad & Anessa Custovic & Eric Ghysels, 2018. "Long- and Short-Term Cryptocurrency Volatility Components: A GARCH-MIDAS Analysis," JRFM, MDPI, vol. 11(2), pages 1-12, May.
    37. Fabian Duarte & Justine S. Hastings, 2012. "Fettered Consumers and Sophisticated Firms: Evidence from Mexico's Privatized Social Security Market," NBER Working Papers 18582, National Bureau of Economic Research, Inc.
    38. Hasso, Tim & Pelster, Matthias & Breitmayer, Bastian, 2019. "Who trades cryptocurrencies, how do they trade it, and how do they perform? Evidence from brokerage accounts," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 64-74.
    39. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-b.
    40. Michel Rauchs & Apolline Blandin & Kristina Klein & Gina Pieters & Martino Recanatini & Bryan Zhang, 2018. "2nd Global Cryptoasset Benchmarking Study," Cambridge Centre for Alternative Finance Reports, Cambridge Centre for Alternative Finance, Cambridge Judge Business School, University of Cambridge, number 201812-sgcbs.
    41. Justine S. Hastings & Lydia Tejeda-Ashton, 2008. "Financial Literacy, Information, and Demand Elasticity: Survey and Experimental Evidence from Mexico," NBER Working Papers 14538, National Bureau of Economic Research, Inc.
    42. Anderson, Anders & Baker, Forest & Robinson, David T., 2017. "Precautionary savings, retirement planning and misperceptions of financial literacy," Journal of Financial Economics, Elsevier, vol. 126(2), pages 383-398.
    43. Leora Klapper & Georgios A. Panos, 2011. "Financial Literacy and Retirement Planning in View of a Growing Youth Demographic: The Russian Case," CeRP Working Papers 114, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    44. Sondra G. Beverly & Marianne A. Hilgert & Jeanne M. Hogarth, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
    45. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-a.
    46. Charlotte Christiansen & Juanna Schröter Joensen & Jesper Rangvid, 2008. "Are Economists More Likely to Hold Stocks?," Review of Finance, European Finance Association, vol. 12(3), pages 465-496.
    47. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    48. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    49. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    50. Rainer Böhme & Nicolas Christin & Benjamin Edelman & Tyler Moore, 2015. "Bitcoin: Economics, Technology, and Governance," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 213-238, Spring.
    51. Gábor Kézdi & Robert J. Willis, 2011. "Household Stock Market Beliefs and Learning," NBER Working Papers 17614, National Bureau of Economic Research, Inc.
    52. repec:stz:wpaper:eth-rc-14-001 is not listed on IDEAS
    53. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    54. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    55. William C. Brainard & Matthew D. Shapiro & John B. Shoven, 1990. "Fundamental Value and Market Value," NBER Working Papers 3452, National Bureau of Economic Research, Inc.
    56. Sean Foley & Jonathan R Karlsen & Tālis J Putniņš, 2019. "Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?," Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1798-1853.
    57. M. Keith Chen, 2013. "The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets," American Economic Review, American Economic Association, vol. 103(2), pages 690-731, April.
    58. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, vol. 64(6), pages 2807-2849, December.
    59. Brandvold, Morten & Molnár, Peter & Vagstad, Kristian & Andreas Valstad, Ole Christian, 2015. "Price discovery on Bitcoin exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 18-35.
    60. Lorenzo Cappellari & Stephen P. Jenkins, 2003. "Multivariate probit regression using simulated maximum likelihood," Stata Journal, StataCorp LP, vol. 3(3), pages 278-294, September.
    61. Klapper, Leora & Lusardi, Annamaria & Panos, Georgios A., 2013. "Financial literacy and its consequences: Evidence from Russia during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3904-3923.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ebers, Axel & Thomsen, Stephan L., 2021. "How do warnings affect retail demand for Bitcoin? Evidence from an international survey experiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    2. Robert Jeyakumar Nathan & Budi Setiawan & Mac Nhu Quynh, 2022. "Fintech and Financial Health in Vietnam during the COVID-19 Pandemic: In-Depth Descriptive Analysis," JRFM, MDPI, vol. 15(3), pages 1-19, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    2. Li, Xiao, 2020. "When financial literacy meets textual analysis: A conceptual review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    3. Shen, Chung-Hua & Lin, Shih-Jie & Tang, De-Piao & Hsiao, Yu-Jen, 2016. "The relationship between financial disputes and financial literacy," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 46-65.
    4. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    5. Klapper, Leora & Lusardi, Annamaria & Panos, Georgios A., 2013. "Financial literacy and its consequences: Evidence from Russia during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3904-3923.
    6. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Education and the local equity bias around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 65-88.
    7. Delis, Manthos & Galariotis, Emilios & Monne, Jerome, 2021. "Economic condition and financial cognition," Journal of Banking & Finance, Elsevier, vol. 123(C).
    8. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    9. Grohmann, Antonia & Kouwenberg, Roy & Menkhoff, Lukas, 2014. "Financial literacy and its consequences in the emerging middleclass," Kiel Working Papers 1943, Kiel Institute for the World Economy (IfW Kiel).
    10. Grohmann, Antonia, 2018. "Financial literacy and financial behavior: Evidence from the emerging Asian middle class," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 129-143.
    11. Milo Bianchi, 2018. "Financial Literacy and Portfolio Dynamics," Journal of Finance, American Finance Association, vol. 73(2), pages 831-859, April.
    12. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Education and the local equity bias around the world," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-76, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Lin, Chaonan & Hsiao, Yu-Jen & Yeh, Cheng-Yung, 2017. "Financial literacy, financial advisors, and information sources on demand for life insurance," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 218-237.
    14. Susanna Levantesi & Giulia Zacchia, 2021. "Machine Learning and Financial Literacy: An Exploration of Factors Influencing Financial Knowledge in Italy," JRFM, MDPI, vol. 14(3), pages 1-21, March.
    15. Luigi Guiso & Eliana Viviano, 2015. "How Much Can Financial Literacy Help?," Review of Finance, European Finance Association, vol. 19(4), pages 1347-1382.
    16. Leora F. Klapper & Annamaria Lusardi & Georgios A. Panos, 2012. "Financial Literacy and the Financial Crisis," NBER Working Papers 17930, National Bureau of Economic Research, Inc.
    17. Noemi Oggero & Maria Cristina Rossi & Elisa Ughetto, 2020. "Entrepreneurial spirits in women and men. The role of financial literacy and digital skills," Small Business Economics, Springer, vol. 55(2), pages 313-327, August.
    18. Litterscheidt, Rouven & Streich, David J., 2020. "Financial education and digital asset management: What's in the black box?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    19. Beckmann, Elisabeth & Stix, Helmut, 2015. "Foreign currency borrowing and knowledge about exchange rate risk," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 1-16.
    20. Annamaria Lusardi & Pierre-Carl Michaud & Olivia S. Mitchell, 2017. "Optimal Financial Knowledge and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 431-477.

    More about this item

    Keywords

    Financial Literacy; Cryptocurrencies; Attitudes; Bitcoin; Financial Risk;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gla:glaewp:2020_26. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/dpglauk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Business School Research Team (email available below). General contact details of provider: https://edirc.repec.org/data/dpglauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.