Financial Literacy and Debt Burden of Russians: Is there a Relationship

This paper examines the relationship between financial literacy and debt burden among Russian households. It begins with reviewing previous researches, which cover definitions of financial literacy and over-indebtedness, and ways to measure it. In order to understand the relationship between financial literacy and over-indebtedness, we employ a probit regression model by using data from 2019, 2020, and 2021. To address a possible reverse causality, we use the number of universities in each region as a financial literacy instrument. The study’s results show a negative relationship between financial literacy and over-indebtedness, as well as the negative impact of financial literacy on the probability of a household to become over-indebted. To conclude, this study contributes to the academic field by focusing solely on the Russian population and an instrumental approach is implemented to identify the causality. In addition, it is also valuable to the regulators since the study highlights the significance of financial literacy in mitigating excessive debt.