The cash vs. digital Paradox: Why financial literacy matters in uncertain times

Although digital payment methods are designed to lessen dependence on cash, its usage has paradoxically surged in many countries during times of economic uncertainty. This study examines whether financial literacy—both basic and advanced—reduces the likelihood of reverting to cash among youth during stressful times, such as the COVID-19 pandemic. Using data from the 2022 PISA Financial Literacy module (covering over 98,000 adolescents across 79 education systems) and employing a Logit model, we construct two novel indices of financial literacy. Our analysis shows that higher financial literacy significantly increases the likelihood of choosing mobile payments over cash, even during periods of systemic uncertainty. Additionally, students living in urban areas, particularly large cities, are more inclined to use digital payments, while attendance at public schools is associated with lower adoption rates of these methods. The findings also reveal important gender and parental education effects, underscoring the need for inclusive financial education. This study highlights financial literacy as a key factor in promoting the adoption of resilient digital payments among young people.