The effect of the family reference person’s financial literacy on family credit behaviour and dealing with financial emergencies

This study examines how the financial literacy of the family’s reference person shapes household credit behaviour and responses to financial emergencies in the United States. The findings indicate that higher financial literacy significantly enhances households’ credit sophistication and access to formal credit markets, while simultaneously reducing exposure to credit risk and the likelihood of being credit-constrained. Furthermore, financially literate reference persons are associated with a markedly lower propensity for households to rely on borrowing, delay payments, or reduce essential expenditures during periods of financial distress. Instead, such households are more likely to adopt savings as their primary coping mechanism. Importantly, after addressing potential endogeneity concerns, the estimated effects of financial literacy remain robust and, in fact, become even more pronounced, reinforcing the central role of financial literacy in shaping prudent household financial behaviour.