Financial literacy: The evolution, current proposition, and its way forward — A systematic literature review

As financial systems grow increasingly complex, the demand for sound financial literacy becomes more critical. This paper traces the evolution of financial literacy by reviewing foundational definitions, conceptual frameworks, and significant global initiatives. It examines how financial literacy has transitioned from a peripheral topic in economic discourse to a central policy agenda for governments, financial institutions, and educators. The study synthesizes findings from 45 peer-reviewed studies, with a focus on key influencing factors such as demographic disparities, technological advancements & globalization and highlights the multidimensional nature of financial literacy, encompassing financial knowledge, attitudes, behaviors, and skills. It explores contemporary shifts, particularly the integration of digital financial services such as fintech, blockchain, and AI, which demands an even higher level of financial competency. It also explores theoretical frameworks, such as human capital theory and the capability approach, to understand the drivers of financial literacy. The current proposition situates financial literacy within the behavioral finance paradigm, emphasizing how psychological and cognitive biases influence financial choices. Additionally, the role of financial education in enhancing financial resilience and inclusion is critically analyzed, especially among vulnerable groups such as women, youth, and rural populations. By synthesizing empirical findings and theoretical models, this paper provides a comprehensive understanding of where financial literacy stands today and where it is headed. The study identifies persistent gaps in financial literacy levels across demographics and countries and argues for targeted, context-specific interventions. It underscores the need for a holistic approach that not only imparts knowledge but also nurtures confidence, decision-making skills, and long-term financial planning behaviors. The paper concludes by recommending integrated policy measures, cross-sectoral collaboration, and continuous innovation in financial education delivery to strengthen financial capability in a rapidly evolving global financial landscape.