Financial literacy, debt burden, and impulsivity: a mediation analysis

After the 2008 crisis, EU regulatory authorities and policy makers started to devote resources to improve households financial literacy, considered as a key element of debt decisions. However, the role of another crucial determinant of debt burden has been neglected in such financial education programs. The present study examines the role of impulsivity and financial literacy as predictors of debt burden in a sample of 445 financially-literate participants. An ad-hoc built indicator of financial literacy and scores on the Barrat Impulsiveness Scale were used as regressors. The debt service to income ratio, a proxy of debt burden, served as the dependent variable. Both predictors resulted associated with debt burden; however, a mediation analysis showed a full drop in the relationship between financial literacy and debt when impulsivity, the intermediary variable, was included. Findings suggest that financial education programs do not represent a conclusive solution to the problem and are discussed in terms of policy implications and means to formulate more effective intervention programs.