Financial Literacy and Payment Behaviour: Evidence from Payment Diary Survey Data

This paper examines the effect of financial literacy on payment behaviour. We use data from a payment diary and an online survey conducted in 2018 in Switzerland. We estimate a two-step Heckman selection model to separately assess payment instrument adoption and usage decisions. We analyse the payment instruments cash, debit card, credit card, prepaid credit card, contactless debit card, contactless credit card and mobile payment. We introduce a novel payment-related literacy index. The results suggest that financial literacy exerts no effect on payment instrument choice. Payment literacy is a stronger predictor of payment behaviour than financial literacy. Traditional and contactless debit and credit card adoption are positively associated with payment literacy. We show that literacy levels impact payment instrument adoption more than subsequent usage decisions.