The Role of Financial Literacy and Behaviour in Personal Financial Management: A Literature Review

Abstract

Amidst high levels of financial inclusion that have not yet been matched by widespread financial literacy, consumerist behaviour and the risk of mismanaging personal finances present crucial challenges. This study aims to analyse the importance of financial literacy and financial behaviour in optimising personal financial management and achieving financial well-being. The research method employed was a literature review, synthesising various relevant and up-to-date sources. The study’s findings indicate that financial literacy acts as a key input that processes and shapes rational financial actions, encompassing self-control, prioritising expenditure, investment planning, and the management of long-term savings. The synergy between financial literacy and the adoption of financial technology has been shown to reduce the risk of financial failure and improve the efficiency of cash flow management. Theoretically, these findings reinforce the Family Resource Management Theory, whilst from a practical and policy perspective, this research emphasises the importance of interactive, practice-based financial education to transform theoretical knowledge into the habitual adoption of prudent financial behaviour.