LOWER FINANCIAL LITERACY INDUCES USE OF INFORMAL LOANS

SANTOS, DANILO BRAUN; MENDES-DA-SILVA, WESLEY; GONZALEZ, LAURO

doi:10.1590/S0034-759020180105

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ARTICLES • Rev. adm. empres. 58 (1) • Jan-Feb 2018 • https://doi.org/10.1590/S0034-759020180105 copy

LOWER FINANCIAL LITERACY INDUCES USE OF INFORMAL LOANS

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

Finance literature documents associations between a family's financial literacy and its propensity to borrow. However, most studies focus exclusively on formal loan markets. Based on 2,023 observations about financial behavior of Brazilian families, we examined the impacts of financial literacy on informal borrowing, such as loans from friends or moneylenders. Using multinomial logit models, we compared financial literacy's effects on the propensity to take informal loans between families that did not borrow at all and those who took bank loans. Financial literacy is measured by the investment in capitalization bonds, a financial instrument in the Brazilian market. The results suggest that financial literacy's relevance to informal loans may exceed that for formal credit channels.

KEYWORDS
Loan; informal loan; financial literacy; capitalization bond; behavioral finance

Year	Revenues (R$ thousand)	Share of GDP (%)
2001	4,789,563	0.37
2002	5,217,204	0.35
2003	6,022,577	0.35
2004	6,601,776	0.34
2005	6,910,339	0.32
2006	7,111,434	0.30
2007	7,828,951	0.29
2008	9,015,379	0.30
2009	10,104,143	0.31
2010	11,780,949	0.31
2011	14,081,268	0.34
2012	16,585,517	0.38
2013	20,979,849	0.43

	Whole sample		Capitalization bonds consumers
Credit	Amount	Share	Amount	Share
Did not use	1,142	56.5%	138	12%
Bank	614	30.4%	173	28%
Informal	267	13.2%	101	38%
Acquaintances - WITHOUT	183	9.0%	66	36%
Acquaintances - WITH	64	3.2%	26	41%
Moneylenders	20	1.0%	9	45%
Total	2,023	100%	412	20%

Variable	Description	Mean	Std. Dev.
Capitalization bond (D)	Do you have or did you have a capitalization bond?	0.197	0.398
Budget decision maker (D)	Do you make most family budget decisions?	0.921	0.270
Bank account (D)	Do you have any personal bank account (simple, current, or savings account)?	0.622	0.485
Late payment (D)	Have you ever made a late payment?	0.418	0.493
Poor credit history (D)	Do you have a poor credit history right now?	0.092	0.288
Age	Age of the respondent (in years)	48.33	15.77
Man (D)	Masculine gender?	0.525	0.499
Retiree (D)	Are you a retiree?	0.272	0.445
Income	Monthly income of the respondent (in reais) (a)	911.75	1,424.98
Expenses	Monthly expenses (in reais). (b)	332.89	1,275.77
Household members	Number of residents in the household.	3.41	1.70
Under 16	Number of residents under 16 in the household.	0.878	1.181
National region(D):
NO	North	0.197	0.398
NE	Northeast	0.250	0.433
CO	Center-West	0.083	0.277
SE	Southeast	0.325	0.468
SU	South	0.144	0.352
Education (D): What was the highest school level you completed?
Educ 0	Never went to school or never completed primary school.	0.241	0.428
Educ 1	Primary school	0.498	0.500
Educ 2	Middle (high) school	0.198	0.398
Educ 3	Higher education	0.059	0.236

Base category:	No credit (0)	No credit (0)	Bank credit (1)
Dependent variable:	Bank credit (1)	Informal credit (2)	Informal credit (2)
Capitalization bond	0.614^* ***** <0.01.	1.578^* ***** <0.01.	0.963^* ***** <0.01.
Budget decision maker	0.371	-0.509^* * <0.10,	-0.879^ <0.05,
Bank account	1.432^* ***** <0.01.	0.619^* ***** <0.01.	-0.813^* ***** <0.01.
Late payment	0.380^* ***** <0.01.	0.859^* ***** <0.01.	0.479^ <0.05,
Poor credit history	-0.048	0.439	0.487^* * <0.10,
Age	0.105^* ***** <0.01.	0.047	-0.057
Age²	-0.00115^* ***** <0.01.	-0.00073^* * <0.10,	0.00042
Man	-0.0336	-0.147	-0.113
Retiree	0.755^* ***** <0.01.	-0.076	-0.831^* ***** <0.01.
Household members	0.150^ <0.05,	-0.213^ <0.05,	-0.362^* ***** <0.01.
Under 16	-0.130	0.347^ <0.05,	0.477^* ***** <0.01.
NO	-0.822^* ***** <0.01.	-0.233	1.054^* ***** <0.01.
NE	-0.479^ <0.05,	0.866^ <0.05,	1.345^* ***** <0.01.
CO	-0.610^ <0.05,	0.045	0.655
SE	-0.433^ <0.05,	0.799^ <0.05,	1 232^* ***** <0.01.
Ln(Income)	0.185^* * <0.10,	0.010	-0.175
Ln(Expenses)	0.245^* ***** <0.01.	0.195^ <0.05,	-0.050
Educ 0	-0.00371	0.560	0.564
Educ 1	-0.248	0.191	0.439
Educ 2	-0.303	0.075	0.378
Constant	-6.658^* ***** <0.01.	-3.983^* ***** <0.01.	2.675^* * <0.10,
N:	1,463
Wald chi2(40):	369.90^* ***** <0.01.
Pseudo R2:	0.1740

Base category:	Non credit (0)	Non credit (0)	Bank credit (1)
Dependent variable:	Bank credit (1)	Informal credit (2)	Informal credit (2)
Capitalization bond	0.666^* ***** <0.01.	1.302^* ***** <0.01.	0.637^* ***** <0.01.
Budget decision maker	0.347	-0.401	-0.748^ <0.05,
Bank account	1 833^* ***** <0.01.	0.668^* ***** <0.01.	-1.165^* ***** <0.01.
Late payment	0.493^* ***** <0.01.	1.007^* ***** <0.01.	0.514^* ***** <0.01.
Poor credit history	-0.013	0.534^ <0.05,	0.547^ <0.05,
Age	0.083^* ***** <0.01.	0.020	-0.063^* * <0.10,
Age²	-0.00098^* ***** <0.01.	-0.00040	0.00058
Man	-0.056	-0.127	-0.183
Retiree	0.846^* ***** <0.01.	-0.075	-0.921^* ***** <0.01.
Household members	0.143^* ***** <0.01.	-0.017	-0.160^ <0.05,
Under 16	-0,161^ <0.05,	0.105	0,266^ <0.05,
NO	-1.118^* ***** <0.01.	0.015	1.133^* ***** <0.01.
NE	-0.797^* ***** <0.01.	0.683^* * <0.10,	1.480^* ***** <0.01.
CO	-0.554^ <0.05,	0.274	0.829^ <0.05,
SE	-0.644^* ***** <0.01.	0.625^* * <0.10,	1.269^* ***** <0.01.
Constant	-4.065^* ***** <0.01.	-2.790^* ***** <0.01.	1.275
N: Wald chi2(40): Pseudo R2:	2,021 444.81^* ***** <0.01. 0.1664

Dependent variable:	No credit (0)	Bank credit (1)	Informal credit (2)
Capitalization bond	-0.193^* ***** <0.01.º	0.029	0.163^* ***** <0.01.º
Budget decision maker	-0.012	0.089^* * <0.10,	-0.077^ <0.05,
Bank account	-0.245^* ***** <0.01.º	0.235^* ***** <0.01.º	0.010
Late payment	-0.105^* ***** <0.01.º	0.034	0.071^* ***** <0.01.º
Poor credit history	-0.021	-0.029	0.051^* * <0.10,
Age	0.0029^ <0.05,	-0.0012	-0.0017^* * <0.10,
Man	0.013	0.0002	-0.013
Retiree	-0.104^ <0.05,	0.145^* ***** <0.01.º	-0.041^* * <0.10,
Household members	-0.009	0.037^* ***** <0.01.º	-0.028^* ***** <0.01.º
Under 16	0.0014	-0.039^ <0.05,	0.041^* ***** <0.01.º
NO	0.090^* * <0.10,	-0.151^* ***** <0.01.º	0.061
NE	0.002	-0.125^* ***** <0.01.º	0.123^* ***** <0.01.º
CO	0.077	-0.107^ <0.05,	0.030
SE	0.007	-0.112^* ***** <0.01.º	0.105^* ***** <0.01.º
Ln(Income)	-0.026	0.034^* * <0.10,	-0.007
Ln(Expenses)	-0.045^* ***** <0.01.º	0.037^* ***** <0.01.º	0.009
Educ 0	-0.034	-0.027	0.062
Educ 1	0.024	-0.054	0.030
Educ 2	0.037	-0.058	0.020
N:	1,463

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