Assessing the Drivers of Financial Vulnerability and Fraud in Brazil: The Critical Role of Financial Planning over Literacy

This paper introduces and validates a comprehensive instrument designed to measure financial literacy, its underlying determinants, and to assess how factors such as planning affect financial vulnerability and fraud in Brazil. This work represents a crucial step toward achieving several Sustainable Development Goals (SDGs). The study utilizes a two-fold methodology. First, Confirmatory Factor Analysis (CFA) is used to validate a six-component model consisting of Financial Literacy, Vulnerability, Fraud, Cognitive Reflection, Crypto Literacy, and Planning. This analysis is followed by the development and interpretation of a Random Forest model, which was identified as the best-performing predictor in a comparison of seven machine learning algorithms. The CFA results showed that Financial Planning has a stronger negative correlation with Financial Vulnerability (−0.642) and Fraud (−0.375) than Financial Literacy does. This evidence was further supported by the machine learning analysis; analyses using both SHAP and LIME identified Financial Planning as the strongest predictor of financial vulnerability and fraud. The analysis further showed significant social inequalities in the developed models and identified the gender variable (female) as an important predictor of enhanced financial vulnerability. Converging evidence from both CFA and machine learning confirms that sound planning practices are more important than financial knowledge in reducing financial distress. Our findings provide a solid foundation for the development of inclusive public policy that promotes behavioral change, aiming to reduce systemic inequalities (SDG 10) and achieve sustainable economic stability (SDG 8), thereby supporting social goals and the Sustainable Development Goals.