ADBI Working Paper Series

FINTECH AND FINANCIAL LITERACY

IN VIET NAM

Peter J. Morgan and Long Q. Trinh

No. 1154
June 2020

Asian Development Bank Institute

 Peter J. Morgan is senior consulting economist and vice chair of the Research Department
of the Asian Development Bank Institute (ADBI) in Tokyo. Long Q. Trinh is a project
consultant at ADBI.
The views expressed in this paper are the views of the author and do not necessarily reflect
the views or policies of ADBI, ADB, its Board of Directors, or the governments they
represent. ADBI does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.
Working papers are subject to formal revision and correction before they are finalized and
considered published.

The Working Paper series is a continuation of the formerly named Discussion Paper series;
the numbering of the papers continued without interruption or change. ADBI’s working papers
reflect initial ideas on a topic and are posted online for discussion. Some working papers may
develop into other forms of publication.

Suggested citation:

Morgan, P. J. and L. Q. Trinh. 2020. Fintech and Financial Literacy in Viet Nam. ADBI
Working Paper 1154. Tokyo: Asian Development Bank Institute. Available:
https://www.adb.org/publications/fintech-and-financial-literacy-viet-nam

Please contact the authors for information about this paper.

Email: [email protected], [email protected]

Asian Development Bank Institute

Kasumigaseki Building, 8th Floor
3-2-5 Kasumigaseki, Chiyoda-ku
Tokyo 100-6008, Japan

Tel: +81-3-3593-5500
Fax: +81-3-3593-5571
URL: www.adbi.org
E-mail: [email protected]

© 2020 Asian Development Bank Institute

ADBI Working Paper 1154 Morgan and Trinh

Abstract

Financial literacy is gaining increasing importance as a policy objective in many countries. A

growing literature has examined the role of financial literacy in an individual’s income, saving
behavior, and the use of various financial products. However, so far, we are not aware of any
studies of the relationship between financial literacy and the awareness and adoption
of financial technology (fintech) products, i.e., financial products provided via internet-based
and mobile-based platforms especially in developing countries. This paper examines this
relationship in a developing country, Viet Nam. To do so, we conducted a survey on financial
literacy and fintech awareness and adoption, using financial literacy questions to calculate a
financial literacy score. We find that a higher level of financial literacy has strong and positive
effects on an individual’s awareness and use of fintech products.

Keywords: financial literacy, financial behavior, fintech, awareness of fintech, household

saving, Viet Nam

JEL Classification: D14, G11, J26

ADBI Working Paper 1154 Morgan and Trinh

Contents

1. INTRODUCTION............................................................................................................1

2. FINTECH AND FINTECH DEVELOPMENT IN THE ASSOCIATION

OF SOUTHEAST ASIAN NATIONS..............................................................................2

2.1 An Overview of Fintech......................................................................................2

2.2 Fintech Development in Viet Nam ..................................................................... 3

3. LITERATURE SURVEY .................................................................................................3

4. FINANCIAL LITERACY AND FINTECH IN VIET NAM ................................................. 4

4.1 Measurement of Financial Knowledge .............................................................. 4

4.2 Data Collection...................................................................................................4
4.3 Stylized Facts of Financial Knowledge .............................................................. 5
4.4 ICT Adoption and Financial Literacy ................................................................. 5

5. EFFECTS OF FINANCIAL LITERACY ON FINTECH AWARENESS

AND ADOPTION..........................................................................................................10

5.1 Empirical Approach ..........................................................................................10

5.2 Empirical Results .............................................................................................12

6. CONCLUSIONS AND RECOMMENDATIONS ........................................................... 15

REFERENCES ........................................................................................................................17

APPENDIX 1: FINANCIAL KNOWLEDGE AND FINTECH ADOPTION:

OLS ESTIMATION .......................................................................................................19
ADBI Working Paper 1154 Morgan and Trinh

1. INTRODUCTION
Financial literacy has gained an important position in the policy agenda of many
countries, and the importance of collecting informative, reliable data on the levels of
financial literacy across the adult population has been widely recognized (OECD/INFE
2015b). This parallels the emphasis placed on increasing financial inclusion, i.e., the
access of individuals and firms to financial products and services. If individuals do not
understand financial principles, they will not be able to profit from such increased access.
Also, the trend of switching to defined-contribution plans from defined-benefit pension
plans implies that individuals will increasingly need to manage their own retirement
savings and pensions. At their summit in Los Cabos, Mexico in 2012, Group of Twenty
(G20) leaders endorsed the High-Level Principles on National Strategies
for Financial Education developed by the OECD/INFE, thereby acknowledging the
importance of coordinated policy approaches to financial education (G20 2012). At the
same time, surveys consistently show that the level of financial literacy is relatively low,
even in advanced economies (OECD/INFE 2016, 2017, 2018). This indicates that the
need for higher levels of financial literacy is increasing.
Rapid developments in financial technology (fintech) also highlight the need to improve
financial literacy in order to use innovative financial products and services. With the
development of information–communication technology (ICT), there is a growing
breed of fintech companies that provide services through internet- and mobile-based
platforms such as Ant Financial (People’s Republic of China), Grab (Singapore), Paytm
(India), Compass (US), and Opendoor (UK). Recent literature has shown that fintech
(especially mobile money) has helped to increase financial inclusion in developing
economies where the traditional bank-based financial system is underdeveloped
(Demirguc-Kunt et al. 2018). Other studies have identified factors that affect the adoption
of mobile- and internet-based financial services (Jack, Ray, and Suri 2013; Suri 2017).
However, we are not aware of any papers that investigate the role of financial literacy on
the awareness and/or use of fintech products.
This paper attempts to fill this gap by using newly collected data in a developing country,
Viet Nam. Our research question is whether those with a higher level of financial literacy
are more likely to be aware of and use fintech products. To answer this question, we
construct a financial literacy 1 score based on the approach of the OECD/INFE (2015a,
2015c) and use both ordinary least squares (OLS) and Heckman two-step procedure
estimation. We find that higher financial literacy is significantly related to both awareness
and adoption of fintech products. Therefore, improvements in financial literacy could
speed the adoption of fintech products and services, and thereby promote financial
inclusion.
The paper is organized as follows. Section 2 provides some background on fintech
development in general, and in Viet Nam in particular. Section 3 reviews the literature on
the effects of financial literacy. Data collection, the definition of the financial literacy score
used in this study, and some descriptive analyses are presented in Section 4.
Econometric methodologies and results are reported in Section 5, followed by some
concluding remarks in Section 6.

1 While financial literacy, as explained above, is multi-dimensional, including financial knowledge, financial
behavior, and financial attitude, most of the literature has defined financial knowledge to be equivalent to
financial literacy, ignoring the other dimensions. In this version of this paper, we adopt this more limited
definition and use financial knowledge and financial literacy interchangeably.

1
ADBI Working Paper 1154 Morgan and Trinh

2. FINTECH AND FINTECH DEVELOPMENT IN THE

ASSOCIATION OF SOUTHEAST ASIAN NATIONS
2.1 An Overview of Fintech
“Fintech” refers to “any technological innovation in—and automation of—the financial
sector, including advances in financial literacy, advice and education, as well as
streamlining of wealth management, lending and borrowing, retail banking, fundraising,
money transfers/payments, investment management and more” (Investopedia 2018).
Earlier generations of finance-related technology typically focused on providing services
to already-established financial firms, but today’s fintech companies are increasingly
providing services directly to consumers. Fintech is changing finance in fundamental
ways, from investment management to capital–raising, to the very form
of currency itself. In each of these areas, fintech innovation has lowered the barriers
to entry, expanded access to financial services, and challenged the traditional
understanding of how finance works.
Major categories of financial services offered by fintech firms include:
• Payments and transfers (e-commerce payments; mobile banking; mobile wallets;
person-to-person (P2P) payments and transfers; digital currency;
and cross-border transactions including remittances and business-to-business
(B2B) payments)
• Personal finance (robo-advisors; mobile trading; and personal financial
management)
• Alternative financing (crowdfunding; alternative lending; and invoice and supply-
chain finance); and
• Others (insurance products, etc.)
Table 1 provides an overview of the size, composition, and regulatory status of fintech
markets in some Association of Southeast Asian Nations (ASEAN) economies.

Table 1: Fintech in ASEAN: A Snapshot

No. of Fintech Investment in 2017 Regulatory
Companies (USD million) Key Sectors Sandbox
Indonesia 262 26 Mobile payments, alternative Yes
(370% yoy growth) lending
Malaysia 196 75 Payments, consumer finance Yes
(1,500% yoy growth)
Philippines 115 78 Payments (incl. remittances) Yes
(1,300% yoy growth)
Singapore 490 141 Wealth management, Yes
(68% yoy growth) alternative lending, payments
Thailand 128 12 Payments Yes
(–40% yoy growth)
Viet Nam 153 3 Payments No
Note: yoy = year-on-year.
Source: EY (2018).

2
ADBI Working Paper 1154 Morgan and Trinh

2.2 Fintech Development in Viet Nam

Digital financial services are at a very nascent stage in Viet Nam. Mobile “top ups” and
bill payments for some services such as electricity and water through a formal bank
account, the internet, or cell phones are the most widely used services.

Internet Infrastructure in Viet Nam

Mobile connectivity has grown rapidly in Viet Nam since 2005. About 60–70% of the
population have access to the internet either though computer or mobile phone. The
mobile network has upgraded to 4G and 5G will be implemented from 2020 onward.
In recent years, the environment in Viet Nam for internet startups, including fintech
startups, has eased. Together with internet startups, the number of fintech firms
increased significantly from about 70 in 2016 to about 150 firms in 2019 2. However, the
services they provide are rather limited, mostly e-wallets and payment facilitators. Some
fintech firms provide robo-advisor services for stock and forex trading.

3. LITERATURE SURVEY
In the literature, there are several widely used definitions of financial literacy. In their
review article, Lusardi and Mitchell (2014) define financial literacy as “peoples’ ability to
process economic information and make informed decisions about financial planning,
wealth accumulation, debt, and pensions.” The Organization for Economic Cooperation
and Development and the International Network on Financial Education (OECD/INFE
2016) define financial literacy as “[a] combination of awareness, knowledge, skill, attitude
and behavior necessary to make sound financial decisions and ultimately achieve
individual financial wellbeing.” Thus, this concept of financial literacy is
multi-dimensional, reflecting not only knowledge but also skills, attitudes, and actual
behavior.
The literature on financial literacy focuses on two main areas: (i) the determinants of
financial literacy, including age, gender, level of education, and occupation; and (ii) the
effects of financial knowledge on various aspects of financial behavior, including saving,
use of credit, preparation for retirement, and awareness and adoption of various financial
services. Here we focus on the latter area.
There is a well-developed literature trying to link measures of financial literacy with other
economic and financial behaviors, going back to Bernheim (1995, 1998) in the United
States, in response to the increasing shift toward defined-contribution pension plans.
This area of research received a further boost after the global financial crisis of 2008–
2009, which drew attention to numerous scams inflicted on individual borrowers and
investors in the United States and other countries. Hilgert, Hogarth, and Beverly (2003)
found a strong correlation between financial literacy and daily financial management
skills, while other studies found that people who were more numerate and financially
literate are more likely to participate in financial markets and invest
in stocks and make precautionary savings (Christelis, Jappelli, and Padula 2010; van
Rooij, Lusardi, and Alessie 2011; de Bassa Scheresberg 2013). People who are more
financially savvy are also more likely to undertake retirement planning, and those who
plan also accumulate more wealth (Lusardi and Mitchell 2011). These results have been

2 Vietnam News “Fintech firms need clear policy to develop,” available at https://vietnamnews.vn/
economy/524301/fintech-firms-need-clear-policy-to-develop.html

3
ADBI Working Paper 1154 Morgan and Trinh

corroborated in a number of countries. The work of Mahdzan and Tabiani (2013) is an

example of this kind of research in Malaysia.
On the liability side of the household balance sheet, Moore (2003) found that the least
financially literate are more likely to have more expensive mortgages. Campbell (2006)
showed that those with lower income and less education were less likely to refinance
their mortgages during periods of falling interest rates. Stango and Zinman (2009) found
that those unable to correctly calculate interest rates generally borrowed more and
accumulated less wealth.
The likelihood of participation in a risky financial behavior is crucially affected by the costs
and benefits of acquiring information (Hsiao and Tsai 2018). Vissing-Jorgensen (2003)
and Guiso and Jappelli (2005) suggest that awareness and understanding of financial
products will influence one’s decision on whether or not to use those products. Van Rooij
et al. (2011) show that financial literacy has a positive correlation with stock market
participation. Individuals with higher financial literacy may have lower fixed costs
associated with acquiring and processing financial information than those
with lower financial literacy, which would make it easier for the former to participate in
risky financial activities. Similar to stock market participation, adoption of fintech products
also bears risks. According to Morgan, Huang, and Trinh (2019), in addition to traditional
financial risks, use of digital financial services entails a variety of new risks. Such risks
are more diverse and harder to spot than those associated with traditional financial
products and services. These risks include phishing, pharming, spyware, and swaps.
Furthermore, digital footprints may also be a source of risks. This suggests that higher
financial literacy could also facilitate the use of fintech products and services.
As far as we are aware, no one has examined the relation between financial literacy and
the awareness and adoption of financial technology. We conjecture that there is
a positive correlation between financial literacy and the awareness and adoption of
financial technology.

4. FINANCIAL LITERACY AND FINTECH IN VIET NAM

4.1 Measurement of Financial Knowledge
We adopt the questionnaire developed by OECD/INFE (2015a) to calculate scores for
financial knowledge. The score for financial knowledge is calculated from seven survey
questions reflecting the subject’s understanding of basic financial knowledge, such
as calculating interest rates, compound interest rates, risk and return evaluation, and
understanding of inflation and risk diversification. The score ranges between 0 and 7.
For ease of interpretation, we calculate a z-score for financial knowledge.
We also collect information on a large number of control variables that could also
influence financial knowledge, including age, gender, education level, urban or rural,
occupation, income, and debt.

4.2 Data Collection

The survey was conducted by Mekong Development Research Institute under the
direction of the Asian Development Bank Institute. Data collection was conducted from
June to August 2019. We use the sample from Viet Nam Housing Living Standard
Surveys (VHLSS) 2018 as our base sample. Two big cities, Ha Noi and Ho Chi Minh,
were selected purposely, while three other provinces located in the North (Bac Ninh),

4
ADBI Working Paper 1154 Morgan and Trinh

Central (Quang Nam), and South (Dong Thap) were randomly selected. Samples in Ha
Noi and Ho Chi Minh City are taken to represent urban areas, and samples from the
other provinces are taken as representative of rural areas.
In these cities/provinces, we randomly selected VHLSS enumeration areas (EAs). In
each EA, we attempted to interview 30 households as in VHLSS 2018. If a household
that was in VHLSS 2018 was not available, we selected the household next to it to
replace the missing one. About 50% of households could not be traced and were
replaced by new households.
We interviewed the household head or those who had the fullest information on
the household finances to answer general demographic and household economic
information (including total household income, household debt, and assets). We
randomly selected one household member who was at least 18 years old to answer our
main sections on fintech and financial literacy (using dice and household member lists).
In the case that the individual was not available at the interview time, we continued to
randomly select an individual until we found someone available.
Our final sample includes 1,058 households, of which 45% are located in rural areas and
55% located in Ha Noi and Ho Chi Minh City.

4.3 Stylized Facts of Financial Knowledge

Figure 1 compares the average values of the scores for financial knowledge. On average
the financial knowledge score in our sample is 4.4, 0.4 percentage points higher than the
results in our earlier study (Morgan and Trinh 2019). This is partly due to the fact that
half of our sample is in Ha Noi and Ho Chi Minh City, where the income and education
levels are on average higher than for individuals in other provinces (previous literature
has shown that income and education level are major determinants of financial literacy).
In comparison with other countries, the financial knowledge of the Vietnamese is much
lower than in some other Asian economies including the People’s Republic of China and
the Republic of Korea, but is not low when considered relative to per capita GDP. The
figure shows that male respondents have higher financial knowledge than female
respondents, although the difference is not large. People with higher income also have
higher financial knowledge than people with lower income. It is interesting to note that
while many other studies find that younger people tend
to have lower financial knowledge scores, in our sample we find that the financial
knowledge score is higher among younger persons than older individuals, especially
those over age 60.

4.4 ICT Adoption and Financial Literacy

Almost all respondents report using a telephone. Moreover, about 63.3% of them
used a smartphone (Figure 2). Men tend to use smartphones more than women (67.5%
vs. 60.6%). While almost all young people (i.e., those aged less than 30) used
a smartphone, only 62.9% of those aged from 30 to 60 and 40.3% of those aged
more than 60 years used smartphones. The smartphone penetration rate also differs by
household income group. While nearly 82% of people with income more than
VND190 million use smartphones, the figure for those with income less than
VND85 million is only 40.32%.

5
ADBI Working Paper 1154 Morgan and Trinh

Figure 1: Financial Literacy Score of Different Groups

Note: yo = years old, VND = Viet Nam dong.

Source: Authors’ calculation.

Figure 2: Telephone Penetration Rate in Viet Nam (%)

Note: yo = years old, VND = Viet Nam dong.

Source: Authors’ calculation.

Figure 3 shows how holders of smartphones use them. Unsurprisingly, most smartphone
users (more than 90%) use their smartphones to make phone calls or messages (through
mobile apps), take pictures, and read news, while about 80% use smartphones for
accessing social media. About half of smartphone users use them for online shopping
and social shopping (mostly through Facebook). Only 9.5% use smartphones to manage
their finances.

6
ADBI Working Paper 1154 Morgan and Trinh

Figure 3: Smartphone Usage (% of Total Smartphone Users)

Source: Authors’ calculation.

Figure 4: Awareness of Fintech Products (% of Total Respondents)

Source: Authors’ calculation.

Figure 4 presents how respondents are aware of five major types of fintech services. The
proportion of those who are aware of digital borrowing is much higher than the proportion
of those who are aware of other products. About 45.7% of respondents
are aware of digital borrowing while the figures for digital lending and digital money
(e-wallets) are 36.3% and 39.8%, respectively. Only 18.9% and 15.7% of respondents
are aware of digital insurance and digital financial advisors, respectively. The data also
indicates that for each type of digital finance men are more likely to be aware than
women.

7
ADBI Working Paper 1154 Morgan and Trinh

Figure 5: Awareness of Fintech Products, by Age Group

(% of Total Respondents)

Note: yo = years old.

Source: Authors’ calculation.

Figure 6: Awareness of Fintech Products, by Income Group

(% of Total Respondents)

Note: VND = Viet Nam dong.

Source: Authors’ calculation.

Since most of the fintech services adopted are related to payments and transfers, Figure
7 shows how respondents use methods of payment and fintech services to make their
payments and transfers. Nearly all respondents (99.4%) still use cash for payment. Cash
is also the major means of money transfer with 95.57% using cash for transfers. This
suggests that cash is still the dominant means of transactions. Around 13% and 10% of
respondents use credit/debit cards for payments and transfers, respectively. Only about
10% of respondents use mobile phones for transfers and payments and only 5% use
computers for transfers and payments.

8
ADBI Working Paper 1154 Morgan and Trinh

Figure 7: Payment Method (% of Total Respondents)

Source: Authors’ calculation.

Figure 8: Adoption of Fintech Services, by Gender, Age, and Income

(% of Total Respondents)

Note: yo = years old, VND = Viet Nam dong.

Source: Authors’ calculation.

Figure 8 reports the adoption of fintech services by different groups of respondents. On

average, men tend to adopt fintech services more than women, but the difference is quite
small. For example, 18% of male respondents use an e-banking service, while the figure
for female respondents is about 15%. The proportion of younger people
(i.e., those aged less than 30 years old) using fintech services is much higher than that
among older people, and the differences are rather large, especially between those aged
less than 30 years old and those more than 60 years old. Less than 5% of those whose
annual household income is less than VND85 million adopt at least one fintech service,
while the figures for those with annual household income more than VND190 million are
from 23% to nearly 36%, depending on the type of fintech service. The differences in
fintech adoption rates between the top income group and the middle-income group are

9
ADBI Working Paper 1154 Morgan and Trinh

also large. Only around 10% of those in the middle-income groups use at least one
fintech service.
Figure 9 shows the financial literacy scores of those who adopted fintech services and
those who did not. As expected, there is a positive relation between fintech adoption and
financial literacy score. For example, individuals using e-banking services have an
average financial score of 5.1 while that of non e-banking users is only 4.3.

Figure 9: Fintech Adoption and Financial Literacy Scores

Source: Authors’ calculation.

5. EFFECTS OF FINANCIAL LITERACY ON FINTECH

AWARENESS AND ADOPTION
5.1 Empirical Approach
To quantify the effect of financial literacy on the awareness of fintech products, the
following equation is estimated:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑖𝑖 = 𝛼𝛼0 + 𝛼𝛼1 𝐹𝐹𝐿𝐿𝑖𝑖 + 𝑋𝑋𝑖𝑖 𝛼𝛼2 + 𝜖𝜖𝑖𝑖 (1)

of which
• We use several indicators for the outcome variable, 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑖𝑖 . First, we create
separate dummy variables for individual 𝑖𝑖′𝑠𝑠 awareness of each digital service,
i.e., digital borrowing, digital lending, digital money (i.e., e-wallet), digital
insurance, and digital financial advisors. For each type of fintech service,
the dependent variable takes the value of one if individual 𝑖𝑖 is aware of its
existence, and zero otherwise. Second, we construct an index of awareness from
the information relating to the individual’s awareness of each fintech service. The
index ranges from zero to five, i.e., one for each fintech service that individual 𝑖𝑖
is aware of. For ease of interpretation, we convert this to a
z-score.
• 𝐹𝐹𝐿𝐿𝑖𝑖 is the financial literacy score. 𝛼𝛼1 measures the effects of financial literacy
on fintech awareness. For ease of interpretation, we also convert this indicator to
a z-score.

10
ADBI Working Paper 1154 Morgan and Trinh

• The control variables ( 𝑋𝑋𝑖𝑖 ) include income level, individual’s age, education
level, gender, and provincial dummies. With regard to age, we divided the sample
into three age groups: those under 30 years old (young people); those over 30
years old but under 40 years old; those over 40 and under 50 years old; those
over 50 but under 60 years old; and those over 60 years old (old people). We
used the group of young people as the base group. For educational level, we
combined the categories into five groups: (i) those with some, completed, primary
education (called the “Primary education” group); (ii) those with some, or
completed, secondary education (called the “Up to secondary education” group);
(iii) those with some or complete high school (called the “Up to high school
education” group); (iv) those with some technical school or 3-year college
graduation (called “Higher education” group); and (v) those with at least university
degree (4-year college graduation) (called “University graduate
and higher” group). We use the first group (“Primary education” group) as the
reference group. We separate household income into four groups: those living in
households with income less than VND85 million per year (i.e., equal
to about 75% of total median income); those living in households with income
from VND85 million to VND190 million; those with income of more than
VND190 million (i.e., about 150% of total median income); and those who did not
report their income. We use the group of people living in households with annual
income less than VND85 million as the reference group.3
To estimate the correlation between financial literacy and fintech adoption, we use the
following equations:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑡𝑡𝑖𝑖 = 𝛽𝛽0 + 𝛽𝛽1 𝐹𝐹𝐿𝐿𝑖𝑖 + 𝑋𝑋𝑖𝑖 𝛽𝛽2 + 𝜂𝜂𝑖𝑖 (2)

The independent variables are similar to those in equation (1). Dependent variables are
three dummy variables, which take the value of one if individual 𝑖𝑖 uses one service
(of three fintech services) and zero otherwise. The three fintech services that are
available are (i) e-banking services; (ii) e-payment services; and (iii) e-transfer services.
It should be noted that these three services are not exclusively excluded. One can use
e-banking apps for e-payment or e-transfer. However, there are other fintech service
providers that are not banks, so those who use e-payment or e-transfer may not use e-
banking services.
Because the adoption of fintech services is only observed among those who are using
the internet (either via mobile phone or computer), sample selection will lead to biased
OLS estimates. To remedy the sample selection bias, we estimate equation (2) using the
Heckman procedure.

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑡𝑡𝑖𝑖∗ = 𝛾𝛾0 + 𝛾𝛾1 𝐹𝐹𝐿𝐿𝑖𝑖 + 𝑋𝑋𝑖𝑖 𝛾𝛾2 + 𝜂𝜂𝑖𝑖∗ (3)

Of which 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑡𝑡𝑖𝑖∗ is a latent variable, indicating whether individual 𝑖𝑖 adopts the fintech
or not. 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑡𝑡𝑖𝑖∗ is only observed if individual 𝑖𝑖 uses the internet.

𝑃𝑃(𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 = 1|𝐹𝐹𝐿𝐿𝑖𝑖 , 𝑋𝑋𝑖𝑖 ) = Φ(𝜃𝜃0 + 𝜃𝜃1 𝐹𝐹𝐿𝐿𝑖𝑖 + 𝑋𝑋𝑖𝑖 𝜃𝜃2 + 𝜇𝜇𝑖𝑖 ) (4)

3 Although we prefer to use the specific amount of income per person, about 20% of households did not
reveal their specific annual income. They reported their household’s income within a certain range.

11
ADBI Working Paper 1154 Morgan and Trinh

The Heckman two-step procedure will estimate equation (4) as the first state, then
calculating the inversed Mills’ ratio (IMR) and estimation equation (2) with IMR being
controlled for.
It should be noted that our estimates could suffer from endogeneity biases. While
possible reverse causality running from fintech adoption to financial literacy may not pose
a big threat to our estimation since fintech has only recently been developed in Viet Nam,
various unobservable factors may be correlated with both fintech adoption and financial
literacy. To deal with this issue, the instrumental variable approach is appropriate.
However, it is rather difficult to find suitable variables that are related to financial literacy
but exogenous to fintech adoption. Therefore, our estimates should be interpreted
cautiously.

5.2 Empirical Results

Table 2 reports our estimation results on the relationship between financial literacy and
the awareness of five fintech products (digital borrowing, digital lending, digital money,
digital insurance, and digital financial advisor) and our fintech awareness index. The
result in Table 1 shows that financial literacy is positively associated with the likelihood
of awareness of most fintech products. A one-standard deviation increase in the financial
literacy score is associated with an increase in the probability of awareness of digital
borrowing by 5.2 percentage points; of digital lending by 3 percentage points; digital
payment by 3.6 percentage points; and by digital insurance by 1.6 percentage points. A
one-standard deviation increase in financial literacy also increases our awareness index
by 9 percentage points. However, financial literacy does not have a correlation with
awareness of digital financial advisors. This result is consistent with previous results.
Morgan and Trinh (2020) found that one-standard deviation increase in financial literacy
raises the awareness of at least one fintech product by 8 percentage points in the Lao
PDR.
The result also suggests that those living in households with annual income higher
than 190 million Vietnamese dong (VND) have a higher likelihood of being aware of
fintech products (except for digital insurance) than those with income lower than VND85
million (the reference group), while there is no statistically significant difference in
awareness of any fintech products between the reference group and those with incomes
from VND85 million to VND190 million. This result suggests that only a proportion of
high-income people are more likely to know about fintech products. Even when financial
literacy and income are controlled for, individuals with higher education levels have a
significantly higher likelihood of awareness of fintech products. For example, an
individual with at least university degree education tends to have a higher probability of
awareness of digital borrowing than those with only primary education by about 18
percentage points. The likelihood of awareness of some fintech services such as digital
lending and digital financial advisors among those with secondary school education are
no different from those with primary education. Especially for digital financial advisor,
only those with at least college education have higher likelihood
of awareness than those in the reference group, while there is no difference in the
awareness between those with secondary education and high school education and
those with primary education.
Our estimation results also show that, after controlling for education level and income
level, the likelihood of awareness of some fintech products such as digital lending and
digital insurance is not statistically significantly related to age groups and gender.
Meanwhile, for digital borrowing, people aged more than 60 are less likely to be aware
than those who are under 30, while there is no difference among those who are over 30

12
ADBI Working Paper 1154 Morgan and Trinh

and those who are under 30 years old. The results also show that individuals who are
over 40 (over 30) are less likely to be aware of digital payments (digital financial advisor)
than people who are less than 30 years old. This may partly be due to higher exposure
to new information for those who are under 30 than people in other age groups. Female
and male individuals show no difference in awareness of fintech products, except for two
products, digital payment and digital financial advisor.

Table 2: Effect of Financial Literacy on Awareness of Fintech Products

(1) (2) (3) (4) (5) (6)
Digital Digital
Borrowin Digital Digital Insuranc Digital Awareness
g Lending Payment e Advisor Index
Financial knowledge 0.052*** 0.030*** 0.036*** 0.016* 0.006 0.090***
[0.011] [0.011] [0.009] [0.008] [0.007] [0.020]
Age: 30–39 yo 0.088 0.057 –0.054 –0.007 –0.106** –0.014
[0.054] [0.055] [0.046] [0.045] [0.043] [0.095]
Age: 40–49 yo –0.015 0.033 –0.097** 0.038 –0.132*** –0.111
[0.053] [0.053] [0.042] [0.044] [0.040] [0.092]
Age: 50–59 yo –0.065 –0.049 –0.147*** –0.018 –0.140*** –0.270***
[0.053] [0.052] [0.042] [0.041] [0.039] [0.090]
Age: Over 60 yo –0.100* –0.048 –0.124*** –0.003 –0.116*** –0.252***
[0.052] [0.051] [0.042] [0.043] [0.042] [0.095]
Male 0.040 0.042 0.081*** 0.041 0.115*** 0.205***
[0.030] [0.030] [0.025] [0.025] [0.023] [0.056]
Income: VND85m–190m 0.057 –0.024 –0.009 0.015 0.018 0.037
[0.037] [0.036] [0.031] [0.028] [0.024] [0.067]
Income: >VND190m 0.093** 0.075* 0.091** 0.038 0.080** 0.243***
[0.043] [0.043] [0.036] [0.035] [0.031] [0.079]
Income: Not reported –0.063 –0.097 –0.054 –0.043 –0.032 –0.186
[0.080] [0.079] [0.072] [0.063] [0.048] [0.161]
Education: Up to secondary 0.081* 0.065 0.071** 0.055** –0.008 0.170**
[0.043] [0.044] [0.031] [0.027] [0.019] [0.072]
Education: Up to high school 0.149*** 0.100** 0.163*** 0.067* 0.027 0.325***
[0.049] [0.049] [0.038] [0.034] [0.025] [0.083]
Education: Higher education 0.226*** 0.180*** 0.370*** 0.183*** 0.196*** 0.744***
[0.061] [0.062] [0.052] [0.051] [0.045] [0.116]
Education: College and higher 0.176*** 0.139** 0.493*** 0.148*** 0.229*** 0.763***
[0.059] [0.060] [0.047] [0.048] [0.043] [0.107]
Provincial dummies Yes Yes Yes Yes Yes Yes
Intercept 0.160** 0.199** 0.237*** 0.056 0.130** –0.500***
[0.079] [0.079] [0.064] [0.064] [0.054] [0.141]
R-sq 0.137 0.071 0.370 0.089 0.183 0.284
N 1,058 1,058 1,058 1,058 1,058 1,058

Note: Figures in bracket are standard errors. ***, **, and * denote coefficient is statistically significant at the 1%, 5%, and
10% levels, respectively.
Source: Authors’ estimates.

13
ADBI Working Paper 1154 Morgan and Trinh

We also explore whether financial literacy is correlated with adoption of fintech services
or not. Adoption of fintech products could be observed for those who had access
to the internet. Using the OLS estimation method may give a biased estimation due
to the sample selection issue. Therefore, we estimate this relationship using the
Heckman two-step procedure.4 Table 3 presents our estimation results. Columns 1–3
are three dummy variables which indicate the adoption of three services: e-banking
services, e-payment, and e-transfer. Column 4 is the first stage estimation results from
estimating the probability of access to the internet.5 From the first stage, the inversed
Mill’s ratio is calculated and is added as an additional control variable in the second
stage. Our estimation results show the estimates of inversed Mills’ ratio variables are
statistically significant in all three 2nd stage equations, implying that control for sample
bias is important to have better estimates of the relationship between financial literacy
and fintech adoption.
Our estimation results show that financial literacy is positively correlated with adoption
of some fintech products. For example, a one-standard deviation increase in the financial
literacy raises the likelihood of using e-banking services by 4.1 percentage points and
the likelihood of using e-payment services by 3.9 percentage points. However, financial
literacy is not correlated with using e-transfer services.
With regards to other control variables, our results suggest that those with higher income
tend to use fintech services more than those with lower income. However, the
relationship is only statistically significant for those living in households with annual
income higher than VND190 million, i.e., their likelihood of using fintech services is
statistically significantly higher than that of those from households with annual income
less than VND85 million. People with higher education are also more likely to use fintech
services than those having lower education. For example, individuals with at least
university degree education have higher likelihood of using e-banking than those with
primary education by 80%. The figures for those with higher education, high school
education, and secondary education are 64.1, 39.7, and 22 percentage points. We also
observed the same pattern for other fintech products.
While age does not affect the awareness of fintech products, it is correlated with the use
of fintech services. Generally, the likelihood of using fintech products among younger
people is higher than that among older people. For example, people over
60 years old have lower likelihood of using e-banking than those under 30 years old
by 65.5 percentage points. The figures for people from 50 to 59 years old and from
40 to 49 years old are 51.6 and 22.4 percentage points. There are some differences
among those from 30 years old to 40 years old and those under 30 years old, but these
differences are small and only statistically significant at the 10% level. Our results also
suggest that men are more likely to use fintech services (e-banking and e-payment) than
women.

4 Please refer to Appendix 1 for the OLS estimation results.

5 It would be ideal to have exogenous variables which are correlated with access to the internet but
not related to the decision to adopt fintech products. There are several for this including internet
development, and telecom development at the provincial level.

14
ADBI Working Paper 1154 Morgan and Trinh

Table 3: Effects of Financial Knowledge on Fintech Adoption:

Heckman Two-step Procedure
(1) (2) (3) (4)
e-Banking e-Payment e-Transfer First Stage
Financial knowledge 0.041** 0.039** 0.000 0.151***
[0.016] [0.015] [0.013] [0.041]
Age: 30–39 yo –0.108* –0.101* 0.034 –0.182
[0.056] [0.054] [0.043] [0.222]
Age: 40–49 yo –0.224*** –0.208*** 0.021 –0.794***
[0.059] [0.057] [0.046] [0.206]
Age: 50–59 yo –0.516*** –0.459*** –0.140** –1.528***
[0.082] [0.079] [0.067] [0.205]
Age: Over 60 yo –0.655*** –0.606*** –0.228*** –1.811***
[0.087] [0.084] [0.071] [0.211]
Male 0.089** 0.069* –0.006 0.518***
[0.038] [0.036] [0.030] [0.172]
Income: VND85m–190m 0.077 0.077 0.051 0.379***
[0.054] [0.053] [0.045] [0.123]
Income: > VND190m 0.289*** 0.225*** 0.165*** 0.598***
[0.060] [0.058] [0.050] [0.148]
Income: Not reported –0.163 0.027 –0.059 –0.193
[0.116] [0.112] [0.096] [0.286]
Education: Up to secondary education 0.220** 0.182** 0.124 1.152***
[0.088] [0.085] [0.079] [0.183]
Education: Up to high school 0.397*** 0.376*** 0.247*** 1.810***
[0.107] [0.103] [0.092] [0.239]
Education: Higher education 0.641*** 0.570*** 0.385*** 2.075***
[0.122] [0.118] [0.104] [0.252]
Education: College & higher 0.807*** 0.666*** 0.458*** 0.314***
[0.126] [0.122] [0.107] [0.107]
Province dummies Yes Yes Yes Yes
Intercept –0.476*** –0.445*** –0.186 –0.536*
[0.173] [0.167] [0.145] [0.313]
Mills
\lambda 0.480*** 0.463*** 0.180*
[0.108] [0.105] [0.095]
N 631 631 631 1,058

6. CONCLUSIONS AND RECOMMENDATIONS

This study is one of the first to examine the relationship between financial literacy and
awareness and adoption of fintech products and services in the context of developing
countries. We use our newly collected data on financial literacy and fintech adoption in
Viet Nam. We examine whether higher financial literacy could improve the awareness of
five fintech products (digital borrowing, digital lending, digital payment, digital insurance,
and digital financial advisor) and raise the level of our own awareness index. We also
examine the correlation between financial literacy and the adoption of fintech services
(e-banking, e-payment, and e-transfer).

15
ADBI Working Paper 1154 Morgan and Trinh

Our empirical results show that financial literacy is correlated with the awareness of
almost all fintech products (except for digital financial advisors) and of our awareness
index. It also correlates with the adoption of two fintech services (e-banking and
e-payment). Our results also show a positive relationship among income, education
level, and fintech awareness and fintech adoption. While age does not affect awareness
of some fintech products, it has a negative correlation with fintech adoption. Older people
have lower likelihood of using fintech products. We also find that people living in Ha Noi
and Ho Chi Minh City are more likely to be aware and adopt fintech services than people
living in other provinces.
Not only does the low level of financial literacy explain the low level of awareness and
adoption of fintech products; it is also related to the underdeveloped state of ICT
infrastructure in the country. Therefore, in addition to general and financial education
programs, the country needs to put more effort into the development of ICT infrastructure
as a necessary condition for fintech development.

16
ADBI Working Paper 1154 Morgan and Trinh

REFERENCES
de Bassa Scheresberg, C. 2013. “Financial Literacy and Financial Behavior among
Young Adults: Evidence and Implications.” Numeracy 6 (2).
Bernheim, B. 1995. “Do Households Appreciate Their Financial Vulnerabilities?
An Analysis of Actions, Perceptions, and Public Policy.” In Tax Policy and
Economic Growth, 1–30. Washington, DC: American Council for Capital
Formation.
———. 1998. “Financial Literacy, Education, and Retirement Saving.” In Living with
Defined Contribution Pensions: Remaking Responsibility for Retirement, edited
by Olivia S. Mitchell and Sylvester J. Schieber, 38–68. Philadelphia: University
of Pennsylvania Press.
Campbell, J. 2006. “Household Finance.” Journal of Finance 61 (4): 1553–604.
Christelis, D., T. Jappelli, and M. Padula. 2010. “Cognitive Abilities and Portfolio
Choice.” European Economic Review 54 (1): 18–38.
Demirguc-Kunt, A., L. Klapper, D. Singer, S. Ansar, and J. Hess. 2018. Global Findex
Database 2017. World Bank Publications. Washington, DC: World Bank.
EY. 2018. ASEAN FinTech Census 2018. Available at https://www.ey.com/
Publication/vwLUAssets/EY-asean-fintech-census-2018/$FILE/EY-asean-
fintech-census-2018.pdf.
Group of Twenty (G20). 2012. G20 Leaders Declaration. Los Cabos, Mexico, June 19.
Available at: http://www.g20.utoronto.ca/2012/2012-0619-loscabos.html.
Guiso, L. and Jappelli, T., 2005. Awareness and Stock Market Participation. Review of
Finance, 9(4), pp. 537–567.
Hilgert, M., J. Hogarth, and S. Beverly, 2003. Household Financial Management: The
Connection between Knowledge and Behavior. Federal Reserve Bulletin 89 (7):
309–22.
Hsiao, Y.J. and Tsai, W.C., 2018. Financial Literacy and Participation in the Derivatives
Markets. Journal of Banking and Finance, 88, pp. 15–29.
Investopedia. 2018. “Fintech.” Available at: https://www.investopedia.com/terms/
f/fintech.asp.
Jack, W., A. Ray, and T. Suri. 2013. “Transaction Networks: Evidence from Mobile
Money in Kenya.” American Economic Review 103 (3): 356–61.
———. 2011. “Financial Literacy and Planning: Implications for Retirement Well-
Being.” In Financial Literacy: Implications for Retirement Security and the
Financial Marketplace, edited by Olivia S. Mitchell and Annamaria Lusardi, 17–
39. Oxford and New York: Oxford University Press.
———. 2014. “The Economic Importance of Financial Literacy: Theory and Evidence.”
Journal of Economic Literature 52 (1): 5–44. Available at: http://dx.doi.org/
10.1257/jel.52.1.5.
Mahdzan, N.S., and S. Tabiani. 2013. “The Impact of Financial Literacy on Individual
Saving, An Exploratory Study in the Malaysian Context.” Transformations in
Business and Economics Vol 12 (1(28)): 41–55.

17
ADBI Working Paper 1154 Morgan and Trinh

Moore, D. 2003. “Survey of Financial Literacy in Washington State: Knowledge,

Behavior, Attitudes, and Experiences.” Washington State University Social and
Economic Sciences Research Center Technical Report 03-39.
Morgan, P.J., B. Huang and Q.L. Trinh. 2019. The Need to Promote Digital Financial
Literacy for Digital Age, in ADBI & JICA “Realizing Education for All in the
Digital Age”, Tokyo: Asian Development Bank Institute. pp. 40–47.
Morgan, P.J. and Trinh, L.Q., 2019. Determinants and impacts of financial literacy
in Cambodia and Viet Nam. Journal of Risk and Financial Management,
12(1), p. 19.
Morgan, P.J. and Trinh, L.Q., 2020. Financial Literacy, Financial Inclusion, and Savings
Behavior in Laos. Journal of Asian Economics, Vol. 68, p. 101197.
Murendo, C., and K. Mutsonziwa. 2017. “Financial Literacy and Savings Decisions by
Adult Financial Consumers in Zimbabwe.” International Journal of Consumer
Studies 41 (1): 95–103.
OECD/INFE. 2015a. Guide to Creating Financial Literacy Scores and Financial
Inclusion Indicators Using Data from the OECD/INFE 2015 Financial Literacy
Survey. Paris: OECD.
———. 2015b. Policy Handbook on National Strategies for Financial Education. Paris:
OECD. Available at: http://www.oecd.org/g20/topics/employment-and-social-
policy/National-Strategies-Financial-Education-Policy-Handbook.pdf.
———. 2015c. 2015 OECD/INFE Toolkit for Measuring Financial Literacy and
Financial Inclusion. Paris: OECD.
———. 2016. OECD/INFE International Survey of Adult Financial Literacy
Competencies. Paris: OECD.
———. 2017. G20/OECD INFE Report on Adult Financial Literacy in G20 Countries.
Paris: OECD. Available at: http://www.oecd.org/daf/fin/financial-education/G20-
OECD-INFE-report-adult-financial-literacy-in-G20-countries.pdf.
———. 2018a. Financial Inclusion and Consumer Empowerment in Southeast Asia.
Paris: OECD. Available at: http://www.oecd.org/finance/Financial-inclusion-and-
consumer-empowerment-in-Southeast-Asia.pdf.
Stango, V., and J. Zinman. 2009. “Exponential Growth Bias and Household Finance.”
Journal of Finance 64 (6): 2807–49.
Suri, T. 2017. “Mobile money.” Annual Review of Economics 9: 497–520.
van Rooij, M., A. Lusardi, and R. Alessie. 2011. “Financial Literacy and Stock Market
Participation.” Journal of Financial Economics 101 (2): 449–72.
Vissing-Jorgensen, A., 2003. Perspectives on Behavioral Finance: Does" Irrationality"
Disappear with Wealth? Evidence from Expectations and Actions. NBER
Macroeconomics Annual, 18, pp. 139–194.

18
ADBI Working Paper 1154 Morgan and Trinh

APPENDIX 1: FINANCIAL KNOWLEDGE AND FINTECH

ADOPTION: OLS ESTIMATION
(1) (2) (3)
e-Banking e-Payment e-Transfer
Financial knowledge 0.009 0.008 –0.002
[0.007] [0.007] [0.006]
Age: 30–39 yo –0.106** –0.088** 0.025
[0.043] [0.042] [0.039]
Age: 40–49 yo –0.141*** –0.123*** 0.029
[0.040] [0.038] [0.035]
Age: 50–59 yo –0.234*** –0.193*** –0.032
[0.037] [0.035] [0.032]
Age: Over 60 yo –0.292*** –0.258*** –0.088***
[0.037] [0.035] [0.031]
Male 0.026 0.018 –0.011
[0.020] [0.019] [0.019]
Income: VND85m–190m –0.022 –0.015 0.010
[0.020] [0.017] [0.016]
Income: > VND190m 0.133*** 0.094*** 0.101***
[0.028] [0.025] [0.025]
Income: Not reported –0.073** 0.017 –0.006
[0.037] [0.043] [0.042]
Education: Up to secondary education –0.025 –0.033** –0.010
[0.016] [0.013] [0.013]
Education: Up to high school –0.002 –0.001 0.047**
[0.022] [0.020] [0.021]
Education: Higher education 0.154*** 0.123*** 0.146***
[0.041] [0.038] [0.037]
Education: College & higher 0.309*** 0.203*** 0.230***
[0.041] [0.038] [0.039]
Provincial dummies Yes Yes Yes
Intercept 0.221*** 0.194*** 0.064
[0.051] [0.048] [0.046]
R-sq 0.349 0.256 0.171
N 631 631 631

19