Financial Literacy and Determinants of Personal Insolvency in Portugal

Abstract

The objective of this study is to examine the relationship between sociodemographic variables, financial literacy levels and the sum of causes of insolvency (count of causes reported per respondent). The research adopted a quantitative approach, using a purpose-designed questionnaire based on the 3rd Financial Literacy Survey of the Portuguese Population, conducted by Banco de Portugal in 2020. The sample comprises 84 individuals declared insolvent, of whom 52.4% are women, 40.5% divorced or widowed, and nearly half (47.6%) aged between 40 and 54 years. Data were analysed using SPSS software. The results reveal that insolvency declarations are more likely among specific sociodemographic groups, such as women, divorced individuals, those with low educational attainment, and those on low incomes. The leading causes of insolvency were unemployment or loss of income (57.1%) and unexpected events (59.5%), followed by  divorce (32.1%) and financial mismanagement (36.9%). The data indicate that respondents possess a relatively high level of financial knowledge and practice sound financial management, with over 80% reporting systematic control of expenses and timely bill payments, although only about half set long-term savings goals. Additionally, they are heavily influenced by bank counter staff (54.8%) and family members (63.1%) when selecting financial products. These findings underscore the need for measures to enhance financial literacy, particularly among young people and low-income individuals.