Italian household debt: leveraging financial knowledge and digital skills to increase financial inclusion

Purpose – This study examines the relationship between financial knowledge (FK), digital skills and indebtedness of Italian households. It also considers different types of debt and the potential impact on overindebtedness. Design/methodology/approach – We carry out an analysis based on the Bank of Italy SHIW dataset for the years 2016 and 2020, including 13,659 observations. We also look at the differences in gender, age and education of the householder to see whether a high level of FK and digital skills affect household debt. Findings – Our results show that FK and digital skills affect household debt and this effect changes depending on the type of debt. FK is positively associated with household debt levels, especially through mortgage uptake, but reduces the likelihood of using costlier forms of credit. Digital skills affect household debt holding and significantly amplify the impact of FK when combined. Greater FK may mitigate household over-indebtedness and thus financial vulnerability. Conversely, digital familiarity without adequate FK may expose households to excessive or impulsive borrowing. Practical implications – These findings have important implications for policymakers and the financial sector: public policies should promote digital skills particularly among economically vulnerable households, not only as a means of fostering digital inclusion but also as a tool for mitigating financial risks and over-indebtedness. Moreover, promoting education initiatives that combine economic-financial knowledge with digital skills training, particularly targeted at specific and more vulnerable segments of the population, is crucial to encouraging responsible credit use, while also increasing financial inclusion and supporting economic growth. Originality/value – This study addresses a call for research on the link between financial and digital inclusion, exploring the potential interactions between indebtedness and borrower skills, with a focus on the role of knowledge management in this context. It shows that the level of debt is linked to both financial and digital skills of a household, and these may also contribute to more debt-aware management.