The Relationship between Financial Literacy and Financial Behavior: A Systematic Literature Review

Abstract

Financial literacy (FL) has become an essential determinant of financial behavior, influencing how individuals manage money, make investments, and prepare for long-term financial security. As financial systems grow increasingly complex, the need for a comprehensive understanding of FL's impact on personal and small business financial behavior has become more pressing. This systematic review seeks to consolidate and synthesize the findings from 45 empirical studies published between 2014 and 2024, examining the relationship between financial literacy and financial behavior across various demographic groups and contexts. The review focuses on how financial literacy affects key financial behaviors, such as saving, investing, debt management, and budgeting, and explores the significant demographic factors such as age, gender, income, and education that influence these relationships. The review highlights disparities in financial literacy across populations, with particular emphasis on gender, socio-economic status, and geographical location. It also addresses the role of financial education programs in improving financial literacy and their subsequent impact on behavior. The findings underscore the moderating role of behavioral traits like financial self-efficacy and risk tolerance, which influence the strength of the relationship between literacy and behavior. This review identifies several research gaps.