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

Dieter Korczak ()
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Dieter Korczak: GP-Forschungsgruppe

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2025, vol. 11, issue 2, No 13, 815-829

Abstract: 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.

Keywords: Financial literacy; Financial education; Financial fragility; Financial resilience; Over-indebtedness; Debt advice (search for similar items in EconPapers)
JEL-codes: D1 D63 D82 D91 G51 I31 I32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40797-025-00334-5

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