The Impact of Financial Literacy on Personal Finance Safety Net - Empirical Study in Hanoi

Abstract

This research investigates the impact of financial literacy on the personal financial safety net. Personal financial safety is expressed through the decision to build an emergency fund or participate in insurance. Meanwhile, financial literacy is approached in this research through three aspects: financial knowledge, financial behavior, and financial attitude. Descriptive analysis, Cronbach's alpha reliability test, and logistic model are applied to analyze the data collected from individuals who are working in Hanoi. The results show that those with better financial literacy are more likely to build an emergency fund or participate in insurance compared to those with worse financial literacy. Additionally, for demographic variables, the work sector is found to play an important role in associations with the decision to create an emergency fund and participate in insurance. These findings provide empirical evidence regarding developing countries with lower middle income to support the literature on personal finance and provide policymakers with suggestions on how to improve individuals' financial literacy and ensure a personal financial safety net.