Financial literacy and attitudes to cryptocurrencies

A TFI research project by Georgios Panos and Tatja Karkkainen
Posted on February 20, 2020

"Financial literacy and attitudes to cryptocurrencies" is one of the short-term research projects supported by the Think Forward initiative.

Who hasn't heard from bitcoin or other cryptocurrencies? Maybe you even invested in them, or plan to do so in the future. Why exactly do we find these new financial instruments so interesting? Researchers Georgios Panos and Tatja Karkkainen wondered whether our attitudes towards cryptocurrencies are determined by our understanding of key financial concepts (financial literacy) and our ability to anticpate the financial risks of dealing with cryptocurrencies.

So, are the financially literate more likely to own cryptocurrencies? You might be surprised!

Download the report below to find out!


The emergence of cryptocurrencies - such as bitcoin - was a major turning point for the financial world. It heralded the start of a new FinTech era. Our study examines the demand for cryptocurrencies, by uncovering the various determinants of attitudes towards cryptocurrencies. We analyzed data from a global survey to identify the characteristics of current and prospective cryptocurrency users. How extensive is their understanding of some of the most fundamental financial concepts?

We aim to assess whether ordinary cryptocurrency users have adequate financial knowledge and skills to use inherently complex, risky, and volatile financial instruments. Are cryptocurrency users well-equipped to make financial decisions? Do they possess adequate financial literacy and knowledge? Are they able to understand and anticipate the high financial risk involved in a very volatile new instrument? And we also want to find out if technological literacy skills are enough when it comes to dealing with cryptocurrencies, in absence of relevant financial literacy skills. Can young age, preference for informal practices, and/or financial advice moderate any lack of relevant financial knowledge when dealing with cryptocurrencies?

The investigation of the relationship between financial literacy and attitudes to cryptocurrencies is important for several reasons. Firstly, in the novel territories of the field of FinTech, people's individual ability to engage in informed financial decision-making becomes paramount. Secondly, cryptocurrencies have been characterized by extremely high volatility. One would expect the more financially literate to be less likely to engage in a highly volatile new instrument and in transactions driven by unrealistically high promised rewards, or by sentiment and imitation. Thirdly, cryptocurrencies have spurred a great amount of debate in the financial-services industry, the academic community, and among policymakers and regulators.

“About 43% do not own and do not intend to own cryptocurrencies. 35% have never heard of cryptocurrencies before.”

ING International Survey on Mobile Banking, 2018

Respondents from 15 countries

In our study, we use data from the ING 2018 Global International Survey on Mobile Banking. The survey questioned individuals in 15 countries online and over the phone. Countries included the USA, Australia, the United Kingdom, several members of the European Union, along with countries in Eastern Europe and Central Asia. Our empirical approach matches the data from this survey with data from the S&P 2014 Global Financial Literacy Survey. We generate our financial literacy proxy, based on the probability to respond correctly to questions for at least 3 out of the 4 crucial financial literacy concepts: inflation, simple interest/numeracy, compound interest and financial risk. Our measure approximates this probability based on a score calculated as the average percentage of 3-out-of-4 correct concepts for respondents of a given gender, age group (15-34, 35-54, ≥55) and income group (top 60%, bottom 40%) in each country. We also experiment with additional financial-literacy proxies that absolve any country-level differences in financial literacy.

The ING International Survey shows that almost 9% of all respondents own some cryptocurrency. Over 13% do not own but intend to own in the future. About 43% do not own and do not intend to own cryptocurrencies. The remaining 35% have never heard of cryptocurrencies before. The figures for ownership and intention to own are notably higher among the European and Central Asian countries in the sample, such as Turkey, Romania, the Czech Republic and Poland. A striking 17% of all Turkish respondents own some cryptocurrency, with an additional 24% not owning but intending to own in the future. Spain also exhibits high figures of current and prospective ownership (10% and 18%, respectively). The survey also shows that if you are male, younger and more educated, you are more likely to engage in the cryptocurrency market.

We estimate the influence of financial literacy on attitudes to cryptocurrencies, in terms of four categories: current ownership, the intention to own in the future, no intention to own in the future, and having heard of cryptocurrencies. Next to financial literacy, we also include a rich set of control variables for demographic characteristics, monthly income per capita and proxies for technological literacy, preference for informal practices, and generic risk tolerance.

“The more financially literate, the more likely someone has heard of cryptocurrencies”

Results and implications

Our estimates reveal that the more financially literate are less likely to own cryptocurrencies. They are more likely not to intend to own them in the future. Expectedly, they are more likely to have heard of cryptocurrencies before. These results are economically and statistically significant. A one standard-deviation increase in the financial-literacy score of 0.1458 from the average of 0.5177 decreases the predicted probability of cryptocurrency ownership by 33.9%, i.e. by 2.08 percentage points − from 8.63% to 5.7%. The same increase in financial literacy increases the intention not to own cryptocurrencies in the future by 23.11% and it decreases the probability not to have heard of cryptocurrencies by 20.13% respectively. The results are robust in models with interaction terms between financial literacy and country, as well as financial literacy, education, and income and in a battery of alternative specifications, models and methods.

We investigate the multiple candidate variables that could moderate the negative relationship between financial literacy and cryptocurrency ownership. We show that technological literacy, preference for cash and informal practices, young age, and financial advice affect the demand for cryptocurrencies. However, they are not the main moderators of the effect of financial literacy on attitudes to cryptocurrencies.

The perception of risk that cryptocurrencies entail relative to alternative assets is our main moderator influencing the established relationship between financial literacy and attitudes to cryptocurrencies. We estimate models in which we test the role of such risk perceptions, and indeed find that it affects the relationship between financial literacy and attitudes to cryptocurrencies. The effect of financial literacy diminishes in models with interaction terms between financial literacy and the perception of risk of cryptocurrencies against alternative assets.

“Being better informed about the financial risk of cryptocurrencies may lead to more prudent decision making”

The robustness of this effect is confirmed by the greater negative impact on cryptocurrency ownership and the intention to own in the future by the financial-risk constituent of financial literacy at the country level. In addition, the interaction terms between financial literacy and generic risk tolerance exerts a significant negative effect on cryptocurrency ownership. We interpret our results as signaling that greater financial literacy skills, namely a more informed perception of financial risk, might be conducive to more prudent financial decision-making by the more risk tolerant.

Towards healthier financial markets

Our study is in line with the view that more financially literate consumers in financial markets may also help to contribute to better financial markets. Any future cryptocurrency proposal could benefit from parallel programmes that can increase both financial literacy as well as transparency in the cryptocurrency market. Our results are in line with evidence that high investor attention predicts high future returns over short horizons for the Bitcoin and Ripple and medium-term horizons for Ethereum.

The findings entail implications regarding the efficiency of the cryptocurrency market. If the cryptocurrency market is dominated by unsophisticated users (and users interested in illegal transactions, as in recent literature) then the regulators are right to be concerned about potential threats to global financial stability from the cryptocurrency markets. They should also be concerned about the financial well-being of the users of cryptocurrencies.

In addition, our results entail implications regarding the likely financing mode of cryptocurrency ownership. If cryptocurrency investments are debt-financed, a significant fall in value could lead to margin calls and then also affect other assets. Any radical proposal, e.g. stablecoins tied to a major currency, in a universe of unsophisticated traders and debt-financed usage might indeed entail severe implications for macroeconomic and international financial stability.