Financial constraints and cryptocurrency investment: the moderating role of financial education

Purpose This study investigates whether individuals facing financial constraints, as indicated by the use of alternative financial services (AFS), are more likely to invest in cryptocurrencies, potentially using the new financial instrument as an alternative means to alleviate their financial stress. Additionally, we examine whether financial education moderates this relationship. Design/methodology/approach Using data from the 2021 National Financial Capability Study (NFCS), we employ an ordinary least squares (OLS) regression to examine the relationship between cryptocurrency investment and AFS use. Furthermore, we implement the propensity score matching (PSM) analysis and an instrumental variable (IV) approach to reduce potential endogeneity concerns. Finally, we incorporate interaction terms between financial education and AFS use in the OLS model to assess the moderating effect of financial education. Findings We find that AFS use relates to a significantly higher likelihood of participating in cryptocurrency investment, suggesting that people under financial constraints are more inclined to invest in cryptocurrencies. This could be attributed to the potential of cryptocurrencies to generate substantial returns, where people under financial stress see them as an opportunity to improve their financial condition. This is further supported by an increased propensity of participating in cryptocurrency investment associated with job loss due to the pandemic. Finally, we also find that financial education negatively moderates the linkage between financial constraints and cryptocurrency investment. Originality/value This study provides novel insights into the behavioral drivers of cryptocurrency investment, particularly under financial constraints and demonstrates the heterogeneous effect of financial education. By bridging gaps in the literature on personal finance and cryptocurrency markets, the study offers valuable implications for financial education and policies that could help maintain individual financial stability in times of economic downturns.