FinTech growing faster than users’ financial understanding

Education and income emerge as strong predictors of both actual knowledge and confidence. Individuals with higher educational attainment and better financial standing show stronger financial literacy and more frequent use of FinTech tools. Age, by contrast, has a negative relationship with both digital activity and financial knowledge, reflecting generational differences in technology use and familiarity.

Digital finance is expanding faster than most people’s ability to understand it, and new research suggests that the greatest risk may not be lack of access or technology, but a growing gap between what users actually know and what they think they know. With FinTech platforms integrating in everyday financial decision-making, this mismatch between knowledge and confidence is shaping how people adopt digital tools, manage money, and assess their own financial security.

A new study titled Knowledge or Confidence? Exploring the Interplay of Financial Literacy, Digital Financial Behavior, and Self-Assessment in the FinTech Era, published in the journal FinTech, examines how objective financial knowledge, self-assessed confidence, and digital financial behavior interact in an increasingly digitized financial ecosystem.

Financial knowledge and confidence are not the same thing

A key finding challenges many assumptions behind digital financial inclusion strategies: financial knowledge and financial confidence are only moderately aligned. While people with higher test-based financial literacy tend to rate themselves more confidently, the overlap is far from complete. A substantial share of individuals either underestimate or overestimate their own financial competence.

This mismatch matters because FinTech adoption often depends more on perceived ability than actual knowledge. Users who believe they understand financial products are more likely to engage with mobile banking, digital payments, investment apps, and automated financial services. The study shows that confidence acts as a gateway to digital financial behavior, sometimes independently of true competence.

The research identifies clear demographic patterns in both knowledge and confidence. Men, on average, score higher on objective financial knowledge tests and also rate their own abilities more highly. Women tend to report lower confidence, even when their actual knowledge levels are similar. However, the study finds no significant gender difference in the accuracy of self-assessment. Both men and women are equally likely to overestimate or underestimate their skills.

Education and income emerge as strong predictors of both actual knowledge and confidence. Individuals with higher educational attainment and better financial standing show stronger financial literacy and more frequent use of FinTech tools. Age, by contrast, has a negative relationship with both digital activity and financial knowledge, reflecting generational differences in technology use and familiarity.

Notably, none of these demographic factors explain the gap between confidence and knowledge. The discrepancy itself appears to be driven more by psychological and behavioral traits than by income, education, or age. This finding undermines the idea that financial education alone can resolve risky digital financial behavior.

Digital activity boosts literacy but not financial security

The study draws a clear distinction between general digital activity, digital financial activity, and perceived financial security. People who use digital tools frequently in daily life tend to have higher financial knowledge and greater confidence. Similarly, those who regularly manage finances digitally show better objective literacy scores and stronger self-assessment.

However, the research finds no meaningful link between financial knowledge and perceived financial security. Individuals who are digitally active and financially literate do not necessarily feel more secure about their financial situation. Conversely, some people with limited digital engagement report high levels of financial security, often due to stable income, savings, or life stage rather than digital competence.

This disconnect has important implications. Policymakers often assume that digitalization and financial literacy improvements will naturally translate into better financial well-being. The study shows that this relationship is far from automatic. Digital engagement enhances capability, but not necessarily stability or peace of mind.

The analysis also challenges fears that digital finance distorts self-perception. While more digitally active individuals tend to rate themselves more confidently, digital engagement does not increase the likelihood of overconfidence or misjudgment. In other words, using FinTech tools more often does not make people systematically worse judges of their own abilities.

This finding suggests that digital exposure itself is not the problem. The risk lies in uneven confidence calibration, where some users enter digital finance with misplaced certainty while others hold back despite adequate knowledge.

Distinct user profiles reveal inclusion gaps

To capture these dynamics more precisely, the study uses cluster analysis to identify distinct groups based on financial knowledge, confidence, digital behavior, and perceived security. These profiles reveal a fragmented digital finance landscape with uneven risks and opportunities.

One group consists of highly knowledgeable individuals who underestimate their abilities. These users tend to be well educated and financially stable but lack confidence, which may limit their engagement with advanced digital financial tools. Another group combines low knowledge with low confidence, representing a clear target for education and support.

A larger segment shows moderate knowledge paired with high confidence, indicating a tendency toward overestimation. These users are digitally active and open to FinTech, but may be vulnerable to poor decisions if confidence outpaces competence. The most prepared group combines high knowledge with accurate self-assessment and strong digital engagement, positioning them well for safe and effective use of digital finance.

A second clustering based on digital habits and financial security further highlights inequality. Some individuals avoid digital tools entirely while feeling financially secure, often due to age or wealth. Others are digitally active but financially insecure, using FinTech out of necessity rather than confidence. The most advantaged group combines high digital competence with strong financial security, while several intermediate groups fall between these extremes.

These patterns show that digital financial inclusion is not a single continuum from exclusion to inclusion. It is a layered process shaped by skills, confidence, resources, and perceived risk. Expanding access without addressing these differences risks deepening inequality rather than reducing it.

Implications for FinTech policy and education

Expanding FinTech access without addressing confidence calibration can expose users to new risks. Overconfident users may engage with complex products they do not fully understand, while underconfident users may avoid beneficial services.

Financial education strategies that focus only on knowledge transfer are unlikely to be sufficient. The research shows that improving literacy does not automatically correct misperceptions. Effective interventions must help users align confidence with competence, teaching not only how financial products work but also how to recognize personal limits.

Further, digital inclusion policies must account for psychological and behavioral diversity. Uniform solutions fail to address the needs of distinct user groups identified in the study. Tailored approaches that combine education, interface design, consumer protection, and trust-building are more likely to produce safe outcomes.

The study also highlights the importance of human-centered FinTech design. Platforms that assume high user confidence can inadvertently encourage risky behavior. Conversely, overly cautious designs may discourage capable users. Adaptive systems that provide guidance, feedback, and transparency could help users make better judgments about their own understanding.

The findings reinforce the need for strong consumer protection frameworks. As FinTech platforms increasingly offer automated advice, digital lending, and investment tools, miscalibrated confidence can amplify harm. Regulators must ensure that disclosures, safeguards, and dispute mechanisms are designed for real users, not idealized rational actors.