Financial literacy is a construct: an ordered logit approximation in Mexico

This research aims to identify the factors explaining the level of financial literacy, divided into three levels, low, medium and high, of the Mexican population over the age of 18. This study fills a gap in microeconomic studies, which essentially lack an analysis of financial literacy and the study of financial literacy as a construct defined by the ENIF 2021 and by the Organization for Economic Cooperation and Development, in which financial literacy is measured by three components, financial knowledge, behaviour and attitudes; a relevant empirical assumption for this methodology is that the variable does not fit a standard normal distribution. Due to the nature of the dependent variable, an Ordered Logistic Model is used, taking into account independent variables with economic, socio-behavioural and institutional characteristics. The number of observations used was 13,570, in which the sample has a probabilistic, three-stage, stratified, clustered design; the sample represents 90.3 million people over the age of 18. The results show that the main explanatory factors for financial literacy are income level, mobile phone tenure, gender, age and town size. Young people (aged 18-35) are more likely to be financially literate than people over 65, who are less financially literate. Females are also more likely to be financially literate than males. In terms of institutional focus, urban dwellers are more likely to be financially literate than those in rural areas. This paper provides policymakers with a valuable opportunity to understand Mexican society better and improve financial decision-making, money management and positive future behaviours.This study employs the ENIF 2021 to analyse financial literacy as a construct comprising financial knowledge, behaviour and attitude. Furthermore, it identifies the variables that determine this construct, including income level, mobile phone ownership, gender, age and city size. Given the characteristics of this construct, the analysis is conducted using an ordinal logit model.