Financial literacy key to balancing mobile finance benefits and risks

The authors propose several strategies to balance these goals. First, financial institutions and fintech firms should introduce “smart frictions”, small, deliberate barriers that give users a moment to reconsider spending decisions, such as customizable spending alerts or cooling-off prompts for large mobile payments. These micro-delays can restore a sense of control without blocking access to digital tools.

While mobile financial services (MFS) make it easier for people to save, invest, and plan for the long term, they can also erode everyday money discipline. The findings, published in Sustainability under the title “Digital Financial Services and Sustainable Development: Temporal Trade-Offs and the Moderating Role of Financial Literacy”, reveal that convenience may come at a short-term cost.

Analyzing the financial behavior of 21,757 adults in the United States using data from the 2021 National Financial Capability Study, the researchers examined how mobile banking, money transfers, and payment apps influence users’ short-term and long-term financial habits. They also studied how financial literacy, both real knowledge and self-confidence, changes those effects. Their results point to a crucial trade-off in the digital economy: mobile finance promotes sustainable, forward-looking behavior, but can undermine daily budgeting if users lack knowledge or overestimate their skills.

Convenience vs. control: The hidden trade-off in mobile money

The study defines short-term financial discipline as managing daily expenses, such as paying bills on time, spending less than one earns, and avoiding overdrafts, while long-term planning includes retirement savings, investment participation, and goal-oriented saving.

The authors found that mobile finance weakens short-term control but improves long-term planning. People who use digital platforms for quick transfers and payments were less likely to show strong day-to-day discipline, yet they were more likely to engage in future-focused behaviors such as retirement planning and investment saving.

This dual effect, the authors argue, reflects how technology reshapes self-control. Instant access to money reduces friction in everyday spending, increasing impulsive transactions, while digital tools for savings and investment make long-term financial planning easier and more attractive. The same platform, in other words, can make people both more financially capable and more vulnerable, depending on how they use it.

The study identifies four main categories of mobile financial service use: access, transfer, payment, and management. Transfer and payment functions were most strongly associated with weakened short-term discipline, while management functions, such as budgeting apps and savings dashboards, correlated with improved long-term planning. These results indicate that not all digital finance tools carry the same behavioral risks.

Financial literacy: The shield and the risk factor

To understand why digital convenience affects people differently, The authors measured three dimensions of financial literacy:

• Objective knowledge, or the ability to answer factual financial questions correctly.
• Subjective knowledge, or how much individuals think they know.
• Perceived ability, or their self-rated confidence in managing money.

All three types of literacy were positively linked with better financial habits overall. People with higher knowledge and confidence were generally better at both short-term control and long-term planning. But when combined with mobile finance, literacy produced a complex pattern.

The study found that objective knowledge mitigates the short-term harm of mobile finance, informed users are less likely to overspend or miss payments when using mobile tools. By contrast, high perceived ability can amplify risk. Overconfident users, who believe they are financially skilled without a solid factual base, are more likely to slip into poor day-to-day management while using mobile banking apps.

This finding echoes broader behavioral research on “financial overconfidence.” The authors warn that when self-perceived ability rises faster than real knowledge, digital tools can magnify impulsive decision-making. People who feel in control may underestimate the risks of instant transactions or underestimate how digital ease affects spending behavior.

Long-term outcomes tell a different story. The researchers note that mobile financial services support future planning almost across the board, though the benefits slightly taper off among users with very high objective knowledge. The authors suggest that knowledgeable individuals already manage finances efficiently, so additional mobile tools offer diminishing returns.

Designing sustainable digital finance: Policy lessons

Financial stability and inclusion are key to achieving several United Nations Sustainable Development Goals (SDGs), particularly those related to economic growth and inequality reduction. However, as the authors highlight, financial inclusion through technology is not automatically sustainable, it requires mechanisms that protect users from short-term harm while fostering long-term resilience.

The authors propose several strategies to balance these goals. First, financial institutions and fintech firms should introduce “smart frictions”, small, deliberate barriers that give users a moment to reconsider spending decisions, such as customizable spending alerts or cooling-off prompts for large mobile payments. These micro-delays can restore a sense of control without blocking access to digital tools.

Second, digital platforms should ensure that long-term features like automated savings, investment trackers, and retirement planners remain easy to use. Simplified design can help low-literacy users benefit from sustainable financial planning without relying on extensive knowledge.

Third, financial education programs need recalibration. Traditional initiatives often emphasize confidence building, but this study shows that overconfidence can be counterproductive. Education should instead focus on improving factual knowledge and aligning confidence with actual skill. The authors suggest tailoring educational content by user type: for instance, targeting high-confidence, low-knowledge users with behavioral training, while offering advanced financial management tools to those with demonstrated literacy.

Finally, the authors encourage regulators to treat digital finance as both a financial and behavioral system. Data protection, algorithm transparency, and user-centric design must be integrated with behavioral safeguards that account for human biases. As the study notes, the digital divide is no longer just about access, it is about how people use technology once they have it.

A new lens on digital inclusion

By combining financial literacy research with behavioral analysis, the authors provide one of the clearest empirical pictures yet of how digital finance affects personal sustainability. Their concept of temporal trade-offs reframes financial inclusion as a dynamic process: users may gain long-term benefits but suffer short-term strain unless systems are designed with both horizons in mind.

This duality has major policy relevance as mobile finance spreads rapidly in both developed and developing economies. If unaddressed, short-term instability could undermine the very sustainability that digital inclusion is meant to achieve.

The authors call for future studies to track users over time and across countries, as the behavioral effects of digital finance may differ depending on cultural norms, regulatory environments, and financial infrastructure.