How Fintech and Government Effectiveness Shape Financial Literacy: The Mediating Role of Urbanization

Abstract

This study investigates the impact of financial technology (fintech) and government effectiveness on financial literacy, with urbanization as a mediator and institutional quality as a moderator. Using panel data from 217 countries (2001–2022) sourced from the World Development Indicators, the study employs fixed-effects, random-effects, and system GMM models to address endogeneity and autocorrelation. The results indicate that government effectiveness and regulatory quality significantly enhance financial literacy, while commercial bank branches per capita show a negative association, suggesting that digital infrastructure may outweigh traditional banking in promoting financial knowledge. Urbanization mediates fintech's positive influence, underscoring the role of urban access in financial education. However, institutional quality’s moderating effect remains weak, implying that governance alone may not amplify fintech's benefits without targeted policies. The study contributes to the literature by integrating macro-level determinants of financial literacy and offers insights for policymakers to leverage fintech and governance in reducing financial inclusion gaps. Key limitations include reliance on proxy measures and unobserved heterogeneity. Future research should explore micro-level dynamics and emerging technologies like AI-driven financial tools.