• Peter J. Morgan and Long Q. Trinh

Fintech and Financial Literacy: Evidence from the Lao PDR


Financial literacy is gaining increasing importance as a policy objective in many countries. At the same time, use of financial technology (fintech), i.e., financial products and services provided via internet-based and mobile-based platforms, is growing rapidly, and has great promise to promote financial inclusion. A growing literature has examined the effect of financial literacy on an individual’s income, saving behavior and the use of various financial products. However, as far as we are aware, no one has examined the relationship between financial literacy and the awareness and use of fintech products. In a recent study (Morgan and Trinh 2019) we conducted a survey to examine this relationship in a lower-middle-income developing country, the Lao People’s Democratic Republic (PDR).

We found that a higher level of financial literacy has positive and significant effects on an individual’s awareness of fintech products. This result still holds when we use a set of instrumental variables for the financial literacy variable. However, there is insufficient data to find a significant relationship between financial literacy and the use of fintech products, although there is certainly evidence of a positive correlation. Since greater use of fintech promises to encourage financial inclusion and bring more funds into the formal financial sector, these findings suggest that higher levels of financial literacy brought about by financial education programs could help to promote fintech use and raise savings and financial inclusion.

Measurement of Financial Literacy and Fintech Knowledge and Use

Financial literacy is multi-dimensional, reflecting not only knowledge but also skills, attitudes and actual behavior. The OECD/INFE developed a standard survey instrument for gathering information on financial literacy (OECD 2015). The questionnaire includes not only questions about financial literacy but also questions about individual information (such as gender, age, income, occupation and other socio-demographic information) and questions about financial inclusion. The financial literacy questions are designed to capture financial behavior, attitudes and knowledge of adult people in a wide range of finance including making ends meet, long-term financial planning and financial product selection. We followed the methodology in OECD/INFE (2015) to calculate scores for the various indicators of financial literacy. The overall score for financial literacy takes values between 1 and 21.

In addition, we included a number of questions in the survey related to the respondents’ parents’ education, school performance, distance from the nearest bank, household experience of financial shocks, and awareness and use of fintech products.

Stylized Facts of Financial Literacy and Fintech in the Lao PDR

Although more than 80% of Lao respondents in our survey report using a telephone, only 30% of them have a smartphone (Figure 1). The penetration of smartphones in urban areas is much higher than in the rural areas. Women are more likely to use smartphones than men, but the share of male and female respondents that do not use telephones is about the same. Nearly three-fifths of younger people (aged under 30) use smartphones; a much higher percentage than for the middle-age and elderly groups. The correlations of education and income levels with smartphone penetration are also high.

Figure 1. Telephone Penetration in the Lao PDR

Source: Authors’ calculation.

Figure 2 shows how smartphones are used (aside from phone calls). Most smartphone users, regardless of their location, gender, age, education level and income level, use their smartphones for browsing social media apps. Around 30% uses smartphones for accessing the internet (other than social media apps). The proportion using smartphones for online shopping is very small, only about 1%. Those with incomes of more than 3.5 million kips tend to use smartphones more for online shopping than do other income groups (3%).

Figure 2. Smartphone Usage (except calling)

Source: Authors’ calculation.

Only 30.7% of respondents in our survey have heard about fintech products (Figure 3). Men, urban residents and younger persons were more likely to be aware of fintech products than women, rural residents and older persons. Among those who have heard of fintech products, only 9.1% (or about 4% of the whole sample) have used one or more of these products. Only 2.4% of respondents use online banking, while virtually all respondents (more than 99%) still use cash for payment (including offline and online shopping) and for money transfers.

Figure 3. Awareness of Fintech Products (% of respondents)

Source: Authors’ calculation.

Figure 4 shows a strong relationship between the financial literacy score and internet access, smartphone usage and awareness of fintech products. Those who access the internet and use smartphones have higher financial literacy scores than those who do not access the internet and did not use smartphones. Also, the financial literacy of those who have heard about fintech products is higher than that of those who have not heard about fintech products.

Figure 4. Fintech Use and Financial Literacy Scores

Source: Authors’ calculation.

Effects of Financial Literacy on Fintech Awareness

We also conducted regression analysis of the effect of financial literacy on the awareness of fintech products. In order to deal with possible issues of endogeneity, we used an instrumental variables approach. For instrumental variables we used the mean financial literacy score at the district level, respondents’ numerical skills when they were in school, and whether or not their parents and siblings experienced any financial shocks in the last year. The estimation results show a positive and significant impact of financial literacy on financial inclusion; actually larger than the OLS estimate.


Our data and empirical analysis show that in the Lao PDR:

  • 31% of respondents were aware of fintech products, but only 4% have used them.

  • Financial literacy is positively associated with higher fintech awareness, along with educational attainment, job status and age (negative relationship).

  • Fintech use is negatively correlated with age, and positively correlated with urban residence, education level and income. However, we do not yet have sufficient data to estimate the determinants of fintech use econometrically—more data and analysis are needed.

These results suggest that financial education problems to improve financial literacy could have a positive effect on fintech awareness and use. Higher fintech use and awareness in turn is like to have positive implications for savings and financial inclusion, especially savings in the formal financial sector.

Peter J. Morgan, Asian Development Bank Institute

Long Q. Trinh, Asian Development Bank Institute

89 views0 comments

Recent Posts

See All

Do crowdfunding investors value environmental impact?

Christoph Siemroth - University of Essex; Lars Hornuf - University of Bremen. -- Climate change is increasingly seen as a major societal problem. In our paper, "Do Retail Investors Value Environmental