Dr. Sofia Anyfantaki Research Economist | Bank of Greece

1. Financial literacy and its inuence on consumers'
internet banking behaviour
Panayiotis C. Andreou
Cyprus University of Technology
Soa Anyfantaki
Bank of Greece
The 3rd Forum for Economic and Social Policy on:
The problem of nancial Illiteracy in Cyprus: Time to design and implement a
National Strategy
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2. Disclaimer: The views expressed in this article are those of the authors and not
necessarily reect those of the Bank of Greece or the Eurosystem.
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3. Aim of the paper
Long list of studies on nancial literacy.
However, there is a notable gap concerning an in-depth analysis of the
relationship between nancial literacy and consumers'usage of digital nancial
services, such as i-banking.
The contribution of this paper is twofold:
1. it investigates the level of nancial literacy and the magnitude of dierences
among various socio-demographic variables in Cyprus
2. it oers novel evidence by investigating to what extent consumers' i-banking
behaviour is inuenced by variations in nancial literacy levels
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4. Why Cyprus?
Cyprus is one of the smallest countries in the EU with a population of
864,234 but with high education levels
tertiary education attainment reached a record high of 57.1% in 2018 (EU28:
40.7%)
In 2013, Cyprus experienced one major banking crisis that lead to an
unexpected bail-in.
Since then large consolidation process in the banking sector; the number of
branches has fallen drastically during the past few years
as at the end of 2018, there were 352 branches in Cyprus, compared to 502 in
2016, a drastic drop of about 30%
Cypriots are highly indebted; household debt in Q1 2020 amounted to¿20.2
billion (92% of GDP); Cyprus has also one of the highest non performing
loan ratios inthe EU (27,8% in April 2020).
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5. The digital nancial literacy challenge
Modern digital era where technological disruption is changing the nancial
services industry at a rapid pace
consumers are becoming progressively more responsible for making
well-informed nancial decisions
Today's complex nancial markets oer consumers a vast array of digital
nancial instruments
consumers should be equipped with the required knowledge and skill set to
evaluate the options, and make the best choices to maximize their long-term
nancial wellbeing.
Nowadays, consumers need to have an ever-increasing nancial sophistication
to eectively use products oered through electronic channels.
The digital age demands for digitally smart people equipped with nancial
literacy for their eective participation in the new economy.
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6. Digital nancial literacy
Digital nancial literacy (DFL) is a multidimensional concept.
Morgan et al. (2019) discuss four dimensions of DFL
knowledge of digital nancial products and services; experience in using digital
nancial products and services; awareness of digital nancial risk; and skill in
control and managing nancial digital activities
OECD (2018) highlights digital nancial literacy as an important component
of global policy-making agenda.
We focus on the importance of nancial literacy to enable the usage of digital
nancial products and services.
Although digital nancial lliteracy overlaps with nancial literacy and digital
literacy, it has separate aspects given the unique characteristics and risks of
digital nancial services.
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7. Evidence from Cyprus
Penetration of i-banking is steadily increasing the last years although still
lagging the EU average; indeed, it is one of the lowest shares.
In 2018, 38% of individuals between 25 and 64 years old used i-banking (EU
average 59%) compared to 18% in 2009 (EU average 36%).
In 2019, Cyprus ranks overall 22nd among EU-28 for the DESI.
Although Cypriots increasingly go online, their basic and advanced digital
skills levels remain below the EU-28 average and the same holds for internet
services usage.
Previous evidence also suggests that Cyprus' overall nancial literacy level is
low.
Andreou and Philip (2018) university students' survey: only 36.9% of
students had a good nancial knowledge prociency level.
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8. Research design
Survey responses from 600 adults aged between 25 and 65 years old.
Six survey questions to capture the nancial knowledge of the respondents.
First set of questions, so-called the Big Three (OECD, 2016); aim to assess
basic nancial literacy.
Second set of questions are authors' own questions; aim to assess more
banking related knowledge.
All participants are asked the channel -branch visit or i-banking - they use in
order to receive basic nancial services and how often do they tend to use
each of these channels.
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9. 0204060
%
Rarely (or never) Few times Often Very often Almost every day
visit to the branch
010203040
%
Rarely (or never) Few times Often Very often Almost every day
i-banking usage
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10. Financial literacy measure
Financial knowledge, measured as the average score of correct answers to six
nancial literacy related questions, is rather low among Cypriots
only 37.33% of the respondents answered correctly at least four questions
This brings Cyprus below the OECD countries' average that stands around
62% (OECD, 2016, p. 26) and far away from leading countries in the nancial
literacy domain like Estonia (73%), Finland (70%) and Latvia (68%).
Overall, the combined evidence shows that Cyprus ranks rather low in the
global arena of nancial literacy.
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11. Determinants of nancial literacy
Females show much lower levels of nancial knowledge (a gender gap of
around 10%).
This signicant nancial literacy-gender bias remains strong even after
controlling for a larger set of variables.
Millennials, individuals aged 39 years old or below, have a higher probability
of showing low levels of nancial knowledge
only 30.03% of this group is classied as being nancially literate individuals
Low literacy among the young might be problematic since this group faces
nancial decisions that inuence their nancial wellbeing for decades to come.
Millennials are increasingly swapping out traditional banks for new banking
options and retail banking needs to adjust its business models, products and
services to keep pace with the evolving views of this younger but maturing
generation.
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12. Usage of i-banking services
Financial knowledge is an important channel of inuence on consumers'
i-banking behaviour:
a one standard deviation increase in the respondents' average nancial
knowledge score leads to an increase in the probability of using i-banking
While a percentage of 33.83% of the respondents replied that they rarely (or
never) use i-banking, a higher nancial knowledge score is positively
associated with i-banking use and negatively associated with visiting a branch.
Millennials are prone to use i-banking and some skills are more important in
explaining the usage of i-banking, namely IT skills.
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13. Co-existence of nancial illiteracy with digital illiteracy, i.e.
digital nancial illiteracy
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14. Summary of most important results
Notwithstanding, nancial literacy is yet too low in Cyprus
Only 37.33% of survey respondents have a good nancial knowledge
prociency level.
Financially literate consumers are more inclined to use i-banking.
Most importantly, nancially illiterate consumers appear to report more often
than their nancially literate peers, the lack of trust to i-banking and the lack
of self-condence in nancial and digital skills as main reasons for not using
this service.
Interplay between nancial and digital knowledge, and the linkage with
consumers' usage of digital banking services.
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15. National strategies should enhance nancial literarcy
in today's complex world, the development of an appropriate regulatory
framework is essential, but not necessarily enough to guarantee the soundness of
the nancial system and the nancial protection and wellbeing of individuals. . . .
[hence] nancial education should be developed hand-in-hand with an ecient
regulatory framework. OECD (2009, pp. 9):
Greater nancial literacy, and condence of consumers may nurture more
balanced behaviours in regards of the management of their wealth and
budget in the long term (see, for example, OECD, 2015, 2016, 2018).
Policy intervention towards improving individuals' nancial knowledge could
play an important role in ensuring nancial and economic stability and in
mitigating the risks and impacts of future nancial crises.
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16. But should also increase digital nancial literacy
Increased digital and nancial literacy could enable individuals to make
well-informed and sound decisions, to prevent irresponsible behaviour and to
better judge the risks and benets associated with products and services
oered through nancial technologies.
DFL programmes should not only educate and train consumers to eectively
utilize digitalized nancial products and services, but also should empower
them to better manage digital nancial risks, avoid digital malicious activity
(e.g. phishing, hacking attacks and unauthorized use of data), etc.
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17. Policy suggestions to implement a national strategy in
Cyprus
Andreou and Philips (2018) show that students enter university without
possessing essential nancial knowledge and skillsets.
Hence, the overall ndings of this study are in conjunction with the above
results.
In the specic Cypriot context, overall results indicate some policy
suggestions:
a Personal Finance course in the curricula of schools and universities
follow up in training and life-long programmes for everyone
active involvement of the nancial industry in programmes focusing on all
aspects of nancial education eg. free online training courses for teachers,
interactive activities and competitions for students to test their nancial
knowledge, newsletters to schools, etc.
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18. To regularly monitor nancial behaviour, evaluate the eectiveness of
nancial education initiatives and shape appropriate policy suggestions, the
development of a wave of survey (e.g. every three years) in collaboration with
a team of experts is needed.
Evaluate the impact and suitability of the various programmes launched over
the years across countries so that best practices can be replicated in Cyprus
(for an overview, see EBA, 2020).
For example these include: development of interactive applications, dedicated
website at gathering currently dispersed information etc.
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